Corporate Governance

And Then There Were Two: Lehman, the Board, and the Need for Access

By J. Robert Brown

Here is a summary by the WSJ Deal Blog of the board of directors of Lehman Brothers. 

• Nine of them are retired. Four of them are over 75 years old. One is a theater producer, another a former Navy admiral. Only two have direct experience in the financial-services industry.

• Meet the Lehman Brothers Holdings Inc. external board directors, a group of 10 people who, perhaps unknowingly, carried the health of the world?s financial system on their shoulders the past 18 months.

• As the world nervously awaits the effects of the unprecedented Lehman Brothers liquidation, one can?t help but wonder how and why this board let its long-time chairman and patron, Richard Fuld Jr., cling to both hope and power.

• Perhaps it was because Mr. Fuld wanted it that way. Over the years, Mr. Fuld had become the living embodiment of the securities firm, creating a top-down culture that sometimes had a military feel to it. Most mornings, Mr. Fuld rode alone in an elevator up to his executive suite. His colleagues simply call him ?The Chairman.? And it is telling that press accounts of Lehman?s capital-raising efforts focused entirely on the efforts of Mr. Fuld, and make nary a mention of the 10 other members of Lehman?s board.

• Who was on this board? Until the 2008 arrival of former US Bancorp chief Jerry Grundhofer, the group was lacking in current financial-knowledge firepower. A number of the members did have past financial-markets expertise, but most of their working lives were tied to a different era: The one before massive securitization, credit-default swaps, derivatives trading, and all the risks those products created.

• The board?s members include John Macomber, 80 years old, a former McKinsey & Co. consultant and chief executive of chemical-maker Celanese Corp; John Akers, 74, former IBM chief; Thomas A. Cruikshank, 77, chief executive of Halliburton Co. prior to Vice President Dick Cheney; and Henry Kaufman, 81. In the 1970s and ?80s, Kaufman, the chief economist at Salomon Brothers, was known as ?Dr. Doom? for his bearish views on the U.S. economy. Ironically, in April, Mr. Kaufman termed the credit crisis a ?global calamity? and criticized the Federal Reserve for ?providing only tepid oversight of commercial banking.?

• Other current members include: Sir Christopher Gent, 60, the one-time chief of mobile-phone company Vodafone PLC; theater producer Roger S. Berlind, 75; former Telemundo Chief Executive Roland Hernandez, 50; Michael Ainslie, 64, former chief executive of Sotheby?s Holdings; Marsha Johnson Evans, 61, one-time head of the Red Cross and a former Navy rear admiral.

• Until 2006, Lehman?s board included Dina Merrill, the 83-year-old actress once featured in the old Katharine Hepburn movie ?Desk Set,? as well as ?Caddyshack II.?

• How much was Lehman?s board monitoring the company?s on-going risk as it began accumulating its portfolio of real-estate assets and securities? In both 2006 and 2007, the risk committee of Lehman?s board met twice each year, according to Lehman?s SEC filings.
  

The post left out that the directors were also well paid, receiving total compensation in 2007 of around $350,000.  This is the board nominated by the directors.  Not entirely a flattering picture for a board responsible for overseeing an investment banking firm during a period of extraordinary crisis.

Had access been available and shareholders had a greater say in board membership, would the board have been the same?  Given examples to date, the evidence suggests that insurgents usually run high quality individuals.  Moreover, there is reason to believe that if access existed, management would have been under greater pressure to have higher quality boards in place. 

Full post as published by The Race to the Bottom on September 16, 2008 (boomark / email).