Evaluating the 'Doofus Factor' In Corporate Governance

PolygamousRanchKid writes with this quote from an article in the Economist: "The directors of Yahoo! were 'so spooked by being cast as the worst board in the country' that they fired Carol Bartz as chief executive 'to show that they're not the doofuses that they are.' That was Ms Bartz's typically blunt verdict, offered to Fortune after she was dismissed with a phone call by the internet firm's chairman, Roy Bostock, on September 6th. She would say that. Yet Ms Bartz's criticisms of the board have been sympathetically received. Firing a chief executive by phone smacks of hasty, panicky decision-making. And Yahoo!'s board already had a poor reputation, having turned down an offer from Microsoft that valued the firm at several times what it is worth today. It is not just Yahoo!'s board that is feeling the heat. The directors of HP, another stumbling Silicon Valley giant, have been accused of serial ineptitude spanning the appointment and dismissal of Carly Fiorina as chief executive, the firing of her successor, Mark Hurd, and the selection of his replacement, Léo Apotheker. ... There is growing demand for boards to undergo a formal evaluation process, to assess both the performance of each individual board member and how they work together as a group. The European Union is considering new regulations that would require an independent evaluation of the board every three years."

Comments

Money

[sonicmerlin]

A significant amount of research has been conducted that demonstrates monetary incentives that are too high actually severely decreases the effectiveness and productivity of a person to levels even lower than when monetary incentives are too low. I have no doubt this happening to corporate CEO boards across the western world. Any of these corporations could hire perfectly competent CEOs from business schools for 1/10 their current pay. But like frat boys they all sit on each others' boards and give each other multimillion dollar raises, bonuses, and parachutes, all at the investors' expense.

Re:Money

[ObsessiveMathsFreak]

But like frat boys they all sit on each others' boards and give each other multimillion dollar raises, bonuses, and parachutes, all at the investors' expense.

In Ireland, there were only around 40 or so company directors amongst all the major bank, company and state boards. Most of these were also businessmen, CEOs, or managers. As you can imagine, nest padding was a primary activity. When the state property agency NAMA was created, one of the first acts of the board was to increase the chairman's salary by 70%. I imagine similar outrages occur in the US.

The proper here isn't "doofus factors" or anything to do with individual boards. The problem is that the entire business and governance culture of the western world is no longer functioning properly. It has become mired in corruption, greed, fraud, and mismanagement. Yet still we tolerate crooks and doofuses because seemingly everyone agrees that this is the best way to run things. Our prevalent financial worldviews are unable to explain or understand why things aren't working anymore.

Personally, I feel that a "financial reformation" is needed in our society. Something literally of the magnitude of the Protestant reformation in the 1500s. We need to turn away from the corrupt established church of business and economics and find new business philosophies. We need to find a system which prevents doofuses, grubbers, and psychopaths from running our companies. We need a system in which shareholders are investors instead of gamblers.

We need a new way of doing business, and even of thinking about and understanding business. Otherwise we'll end up with companies like Yahoo, Microsoft, NASA, and Bank of America being run into the ground by directors, managers,and shareholders who at best have no idea what they're doing, and who at worst will actively destroy the company for personal gain.

Re:Money

[AK Marc]

Oddly, the party that professes "personal responsibility" is the one that pushes for corporations as people that have no responsibilities most. As long as the US puts quarterly profits above all personable responsibility of those running it and "personal responsibility" is something to be pushed on the poor through laws that fine poor for not paying corporations for private health insurance (to corporations who have no responsibility to anyone, save the legal minimum to stay in business).

Re:Money

[sjames]

Supporting the small business and individual entrepreneurship that actually employs over half of the workforce would be a good start. Small businesses don't just pull up stakes and go to China and tend not to do as much offshoring (it simply doesn't make as much sense, even in the short term for small business). They don't (and can't) throw a tantrum and threaten the regional economy unless they get special treatment. They're not too big to fail and they're not too big to punish when they commit crimes.

boards don't really make any sense

[Trepidity]

They don't run companies effectively because they aren't really in charge of the company. Most board members do completely different things as day jobs. Some are on five or six boards. You cannot effectively run six multinational companies and also have a day job at a seventh, though you can surely succeed at pulling in seven salaries.

For example, when there were some shady stores about Cisco coming out earlier this year, I looked up their board to see who I could contact. Oh, one of them is the President of Stanford University. How much time do you think the President of Stanford spends keeping tabs on Cisco's corporate affairs, making sure that the company is run properly? Another one is, uh, Carol Bartz, until recently the CEO of Yahoo being discussed here. How much time do you think Carol Bartz took out of her Yahoo day job to make sure Cisco was being responsibly governed? Yet another Cisco board member; Michele Burns, CEO of Mercer, the world's largest H.R. consulting firm. Do you think she spent lots of her free time, when not running Mercer, to make sure Cisco is doing things right?

No, in practice, the boards don't have any idea what's going on, the CEOs all sit on each others' boards anyway, and the boards therefore leave things to the CEO, ignorance-is-bliss style, until someone forces them to care, either because the stock price is tanking, there is bad media attention, or unwelcome attention from prosecutors.

Firing always works

[Billly Gates]

James Carville, who was Clinton's right hand man just wrote advice to Obama, on how to look more compentent. His advise was to do lots of firings to appear in charge and for them to be scapegoats.

It works for past presidents like Reagan, Clinton, and Bush Jr. Surely, the board did this for the same reason to appear like they are doing their jobs etc. Many in upper management reading this can relate to newer guys coming and firing people in order to appear all scary and powerful to their new employer.

Most of the smart people who pay attention can see right through this.

Re:I'm confused...

[sjames]

People who have the ear of the press have seen one their own callously fired by voicemail. That is, they have seen one of their own treated exactly the same way they have treated millions of peons year after year and that frightens them and bursts their psychotic delusion that they are somehow intrinsically better than the people they treat like garbage.