Category Archives: Culture

Duty of Directos

One of my common themes is the duty of directors.  They get paid a lot of money to act as fiduciaries for the company’s shareholders.

“Warren Keeps Pressure on Wells,” The Wall Street Journal, June 20, 2017 B10.  Senator Elizabeth Warren (D. Mass.) is leaning on the Federal Reserve (arguably an independent body) to remove 12 directors who served on Wells Fargo’s Board when the account- cramming scandal was going on.  Other problems have emerged at Wells Fargo since then.

The shareholders didn’t/couldn’t vote them out in April, and so far (as I know) the directors haven’t been held personally liable for negligent oversight.  So it’s nice that someone is still pursuing the people in charge at the time that (some of the) bad things were happening.

Some executives got fired or their bonuses were docked.  The shareholders lost a bundle in fines and penalties paid by the company.  It would be nice if the directors were held responsible and accountable — not just to penalize them, but to put other directors on notice of what they are getting paid to do, and for whom.

Would be nice to have a poster child for the director’s duty.

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Surgical precision

How do you deal with claims of sexual harassment?  Have two law firms conduct investigations and fire 20 people.  But will that be the end or the middle?

“Uber Fires Over 20 In Wake Of Probe,” The Wall Street Journal, June 7, 2017 B1.  Over two hundred claims investigated and no action taken in 100 of them.

Were there supervisors who participated or condoned or who failed to notice or respond?  Were there reporting practices and policies in place?  If harassment was “accepted” in the Uber culture, who’s to blame?  HR?  The Board?  Management?  How long had this been going on?  How much will the shareholders have to pay?

A summary of one of the law firm reports is due out soon.

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What questions should a director ask?

Directors are a fundamental part of corporate governance, standing between ownership (the shareholders) and management. and owing fiduciary duties of care and loyalty to the shareholders.  It’s not an honorary role.

But what if they are willfully or negligently blind when major problems arise, and don’t even know enough to ask management about them?

“Theranos Directors Missed Red Flags,” The Wall Street Journal, May 31, 2017 B1. Retired Admiral Gary Roughead and former Secretary of State George Shultz apparently failed to ask key questions, or any questions at all.  Hard to claim protection of the business judgment rule when you don’t make a judgment.

I thought all I had to do was show up and cash the checks.  You mean I needed to understand what the business did?  I have no background in this business.  What do you mean the insurance may not cover me?

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Backlog

Travel-related backlog.

Executives do go to jail.  “Ex-VW Official to Stay in Jail,” The Wall Street Journal, May 26, 2017 B3.  The official was head of the environmental and engineering office.  VW had already pleaded guilty to criminal charges in connection with the diesel emissions scandal.  So the company AND some executives are criminally charged!  Guess Sally Yates meant it.  At least for foreign companies.  But no directors have been sued.  Yet.

“FBI Holds Memos for Now,” The Wall Street Journal, May 26, 2017 A4.  Congress wants the memos that ex-Director Comey wrote, but the existence of the special counsel (also the ex-Director) and Congressional “inquiries” have muddied the waters.  Whose information is it, anyway?  And can’t we all look at them together?  Right after Mr. Comey testifies?  Interesting that the FBI can withhold non-privileged memos, whatever their weight may be.

Chairman doesn’t go to jail.  “Leader of Brazil’s JBS Steps Down,” The Wall Street Journal, May 27, 2017 B1.  The bribing scandal in Brazil’s meat-packing industry removes the chairman and his brother from the Board (although the brother remains as CEO).  The chairman signed a plea bargain in exchange for criminal immunity.  Curious about the culture at the company after the plea deal.

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Culture

The CEO tries not once but twice to get the company security people to investigate who raised a stink over one of the CEO’s buddies getting hired.  The CEO gets a formal reprimand and gets his bonus docked.  Now the Chairman of the Board supports the CEO.

“Barclays Chairman Backs CEO Amid Shareholder Calls for Firing,” The Wall Street Journal, May 11, 2017 B3.  Barclays also got hit for $97 million to settle an over-billing claim.  The CEO also tried to intervene with one of the bank’s major clients that was in a dispute with the CEO’s brother-in-law.  Nearly all the shareholders voting at the annual meeting also supported the CEO (some abstained).

The WSJ article ends with

On Wednesday, the SEC said Barclays improperly recommended more expensive share classes, charged fees to clients for due diligence and monitoring services that weren’t performed and collected extra mutual-fund sales charges and fees.

What does this say about the culture (a) on the Board, (b) for the Barclays shareholders, and (c) the employees see?  How does the SEC (and other regulators) view them?

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Torn

I was torn between four different pieces in the WSJ today:

“Big Pay Day for Mylan Chairman,” The Wall Street Journal, May 3, 2017 B3.  What does it say when the company that charges $600 for a two-pack of a delivery mechanism for $1.25 worth of epinephrine pay its chairman $100 million?  Guess what that culture’s like.

“Molina Healthcare Replaces Top 2 Executives,” The Wall Street Journal, May 3, 2017 B3.  Company removes two family members after poor financial returns (but they’ll stay on the Board).  Guess charity doesn’t begin at home.  Removing someone for poor performance is one thing; next they’ll remove people for violating the law, or company policy.  But Thanksgiving’s going to be a bear.

“Beijing Places Curbs On Online New Portals,” The Wall Street Journal, May 3, 2017 B4.  Managing information includes denying access to it.  So much for net neutrality.

But I decided to go with “Berkshire Faces Pressure Over Political Disclosure,” The Wall Street Journal, May 3, 2017 B5. Vote on whether the company should disclose the amount of political contributions it makes, and to whom.  Were I a shareholder, I might ask whether those expenditures were for the benefit of the company or for the benefit of incumbent management.  But shouldn’t shareholders be able to ask the question and get the answer?  Citizens United is fine, but disclosure to the shareholders makes sense, so they can decide whether to stay invested.

 

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Tuesday Twins

“Fund Firm Fires Boss in Purge,” The Wall Street Journal, May 2, 2017 B1. AllianceBernstein fires CEO and drops 9 of 11 directors over concerns about financial performance and future.

Would the company do the same over a violation of law or policy?

“Another Fox News Executive Departs,” The Wall Street Journal, May 2, 2017 B1. Network’s co-president resigns following sexual harassment claims against two others.

Well, go figure; a boss falls on his/her sword after violations of law and/or policy.

This is a man-bites-dog story.  Seldom do the big wigs lose their heads.  And directors?  Hardly ever.

 

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