Commerce Matters: Review of Money for Nothing

23-December-2010Published in: Ladue News Section: Commerce Matters 

What's the cost of not doing your job? A letter of reprimand? An unpaid leave? Dismissal? What, if by failing to do what's expected of you, you cost shareholders $60, $90 or more than $200 billion? That's just what happened to Merrill Lynch, Fannie Mae and Citigroup when their corporate boards dropped the ball. Unfortunately, according to the authors of Money for Nothing: How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions, unless we change our game plan, that ball is still loose.

Money for Nothing examines how company directors and their negligence played such a big part in the globe's recent economic meltdown. The book also argues that unless things change, the same is destined to happen again, costing consumers even more.

As authors John Gillespie and David Zweig explain, it starts at the core. Many who are entrusted to act for the benefit of the company are simply warming board meeting seats. And instead of monitoring risks, providing judgment and supervising managers, company directors (who can receive more than $500,000 for their time) serve only as 'yes' men and women for the CEO.

"Some CEOs want sports and entertainment celebrities with little or no relevant experience in the boardroom," Gillespie recently told Fortune magazine. "They add a kind of prestige, ask few questions and are especially prone to agreeing with management." And this, the authors say, is one of the biggest problems with the system. The lack of checks and balances of the board, and not necessarily from legal regulations, is what's causing carelessness.

In the end, the authors offer 24 ways they think boardroom culture could be changed for the better. They include imposing term limits for directors, limiting directors to serving on three or fewer boards, allowing the removal of directors through the call of an 'extraordinary general meeting' and vote, and banning CEOs from also serving as board chairs.

Right now, the authors say shame is the biggest thing controlling boards, and the release of embarrassing information is the only consistent way of getting something done. What if we started enforcing the rules of good business when it comes to our investments and demand more from the boards who influence the companies we put our money into? Fifty-seven million U.S. households own stock. The money lost by companies going bankrupt and going to CEOs in the form of outrageous pay packages should infuriate us all. The authors say we need to direct our anger at insisting on reform and making sure boards hired to protect our money do just that.

"Ignorance by many enables abuse by a few," they say. Yes, boards play the single most important role in making sure companies and the country's financial future remain bright. But they will only succeed if we make them.