Independent corporate directors?
Today's online Barron's has a worthwhile commentary A Costly Illusion: Independent" corporate directors often are beholden to the CEO" (subscription required) by hedge fund manager David Rocker.
CONVICTIONS AND SENTENCING NEWS relating to corporate misdeeds in the last cycle fill the business press these days. Senators and House members are rushing to take credit. Sadly, however, they deserve more blame than credit. Many corporate scandals are rooted in the legislative misdeeds of 1994, when some lawmakers bullied the Financial Accounting Standards Board into reversing its determination that stock options constituted compensation and required expensing.
Once the FASB's independence was subverted by politics, corporate executives and boards concluded that if options were costless, they should issue lots of them -- especially to themselves. Corporate chieftains have always been a privileged and well-paid group, but the huge option packages created after 1994 dramatically changed the stakes of the game. There was a new potential for attaining truly legendary wealth in a short period. Once the large option grants were in place, all that was necessary was the creation and maintenance of a high share price. The seduction of Wall Street then began in earnest, with investment-banking fees being awarded to firms with supportive analysts.
...Sarbanes-Oxley can't stop such directors from favoring their benefactors. Boards generally turn against CEOs only when there is great negative publicity, a scandal or fraud. Few executives are fired because of sub-par performance; it takes years of incompetence to raise an "independent" director's hackles.
I encourage you to read the complete article because he warns us that unless we have signficant change we are likely to see more of the same.
