Man Without Qualities

Monday, March 24, 2003

No Weill II

The Wall Street Journal reports:

The Big Board's process for selecting its own directors "is bad and it's got to be changed," maintains Patrick McGurn, senior vice president of Institutional Shareholder Services in Rockville, Md., which advises institutional investors on corporate-governance matters. "In order to preach good government practices, they have to fix their own." .... In addition to the Weill dust-up, several recent Big Board directors were either ousted from their jobs or have come under government scrutiny, including Michael Carpenter, the ousted chief of Salomon Smith Barney; Linda Wachner and Jean Marie Messier, ousted from their chief executive posts amid financial woes at Warnaco Inc. and Vivendi Universal SA, respectively; and Martha Stewart, CEO of Martha Stewart Living Omnimedia Inc., the focus of criminal and civil probes into whether she engaged in insider trading. Ms. Stewart has denied wrongdoing. "I can't remember a three-month period going by when there wasn't a board member leaving under a cloud, or when there were just questions raised because of the curious choices they had made for nominees," Mr. McGurn said. "This is almost like a soap opera at this point. But for shareholders there's not a happy ending in sight."

Big Board officials say such criticism is unfair. NYSE officials note that the selection process for directors is headed by an independent committee, which consults with the NYSE staff and Mr. Grasso, but makes the final call on selecting board members. And, the officials add, the problems faced by some of the directors in recent months only arose after the executives were named to the NYSE board. ....

On Feb. 6, Mr. Grasso briefed the NYSE's directors... on plans to select Mr. Weill as a director to represent the "public." It was an unusual choice since executives who represent securities firms are supposed to be barred from such posts; "public directors" are supposed to represent the interests of investors, not those of the brokerage industry. But Mr. Weill passed muster because as CEO of Citigroup, he controls a vast financial conglomerate, one that derives only part of its revenue from a traditional brokerage business... The whole issue of what is a public director has been controversial even before the Weill nomination. In 2001, William Harrison, the CEO of J.P. Morgan Chase & Co., was named to the board as a public director, even though he oversees a large financial institution that has handled securities transactions.

It is remarkable that the Journal does not name the members of this remarkable independent committee that perpetrated this nomination. Moreover, while it is perfectly reasonable that Mr. Weill should have a seat on the NYSE board in some other capacity, that Mr. Weill could even potentially be considered as a "public representative" on the basis of the silly argument proffered above also shows how inconsistent and hypocritical the NYSE has been in it's "independence" evaluations. Mr. Weill was to become a member of the NYSE own board. But compare the make-weight arguments used to support Mr. Weill's nomination with the complaint of Warren Buffett over the new tripwire NYSE rules defining "independent directors" of listed companies such as Berkshire-Hathaway:

That gets to an often-overlooked point about directors’ compensation, which at public companies averages perhaps $50,000 annually. It baffles me how the many directors who look to these dollars for perhaps 20% or more of their annual income can be considered independent when Ron Olson, for example, who is on our board, may be deemed not independent because he receives a tiny percentage of his very large income from Berkshire legal fees.

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