Boards of Directors – 60 Ways to Screw Your Shareholders

Money For Nothing – Reviewed

I’ve often suspected that many public companies and corporate boards were not looking out for their shareholders. Once, I was amused to discover that a Fidelity Fund I owned nominated a psychiatrist to the board. What the hell did he know about business, I wondered?

In the new book, Money for Nothing: How the Failure of Corporate Boards Is Ruining American Business and Costing Us Trillions by John Gillespie and David Zweig, my suspicions were more than confirmed.

John Gillespie is a former investment banker, and David Zweig is a veteran writer and co-founder of Salon.com. You couldn’t find a pair of writers who are greater blue chip capitalists than this pair. Yet they swing a heavy ax to decry the corporate board shenanigans that have plagued shareholders in recent years.

The book gives us an inside look at the most egregarious examples of incompetent corporate boards. Exhibit A was Bear Stearns and it’s imperious CEO, James Cayne, who reportedly was unavailable while playing bridge at one point during tense negotiations for the survival of the company.

Egotistical CEO’s like Cayne, deliberately choose weak corporate directors so they can manipulate and consolidate their control. They often place their buddies on the important compensation and audit committees.

Directors are more often chosen by old school connections who they play golf with rather than for any particular skill or area of expertise they have.

Most directors have little or no skin in the game. They hold little or no shares in the companyies they command.

Authors Zweig and Gillespie take us inside the Tyco board with convicted felon and former CEO, Dennis Kozlowski. They interviewed him in prison where he earns a few dollars a day working in the prison laundry. They give us inside looks at some of the other greatest hits of boardroom fiascos.

One of the inspiring tales told is the successful attempt by Prez Blake, a retired CEO, and founder of Friendly’s Restaurants, to rid the company of it’s corrupt and lazy chairman. This campaign was organized by Blake who was in his late 80’s at the time.

The authors offer up some concrete suggestions about how to populate boards with competent and shareholder friendly directors. One suggestion is to have new rules that would mandate more truly independent directors. Another is to require boards to purchase stock in their companies. The authors are in favor of not permitting CEOs to hold the additional position of chairman of the board.

They offer up some examples of successful corporate boards. One example is Target, (NYSE: TGT), the large retailer. Another is the new Tyco board. (NYSE: TYC)

Lousy corporate governance is an epidemic today in the U.S. The financial collapse of our largest banks didn’t happen in a vacuum. The situation threatens the competitive position of the U.S. I’m not optimistic that the rules for selecting corporate boards will change anytime soon. Not as long as corporate lobbyists and their docile, lapdog, politicians prevail in Washington.

I highly recommend Money For Nothing. It’s available in an audio book too.