Should CEOs Who Have Resigned in Infamy Leave Their Board Positions?

The Wall Street Journal’s Joann S. Lublin’s June 6th article on boards that keep CEOs on board, as it were, after their “humble exits” from their own companies missed two critical points.

The first point centers on the term “humble exit.” Humble exit was a euphemism for everything from “run out of town on a rail” to “falsified his résumé” to “paid the SEC a fine for wrongfully passing along information to analysts about his publicly traded company” to “generally lacking business acumen.” Depends on the meaning of the term “humble exit.” The article indulges the clouded reasoning that allows these CEOs to remain on their boards.

There is no question that humbly exiting CEOs have business experience and insight to offer, but they need a break – time between their exits and offering expertise, particularly when there has been misconduct or utter failure of their companies. It staggers the imagination to try and figure out why former Freddie Mac CEO Richard Syron remains on the board of Genzyme. He left Freddie as the company collapsed and the government pumped in $45 billion as a bail-out. That level of capital infusion gives new meaning to “utter failure.” Genzyme board members insisted that he stay. If Genzyme is thinking political connections, they are in la-la land. No elected or appointed official is going to want contact with the former Freddie Mac CEO. Mr. Syron’s reputation is so damaged by Freddie’s failure and resulting cost to taxpayers that the board sacrifices its own credibility in allowing him to remain.

The second point missing was the message sent to employees of the company. If one of the company’s employees had to settle up with the SEC for passing along information to analysts (the article referred to former Office Depot CEO, David Odland, who resigned as CEO after paying a $50,000 fine to the SEC), that employee would be gone, history, toast. Instead, General Mills’ board members refused to accept Mr. Odland’s resignation. The inconsistency in tolerance for behaviors is pure poison for an organization. Employees become cynical when being led by people who have gotten away with something. The line between right and wrong is much brighter for the rank-and-file than it is in boardrooms and the “tone at the top” that directors and management preach is compromised through these inconsistencies. The directors claimed that Odland’s strong board performance outweighed his negatives. Pardon me? Are they dismissing the risk of having someone on their board who was fined for passing along inside information to third parties about a company’s performance?

Ah, but the piece quoted Charles Elson, a governance expert, “Just because you failed as a CEO doesn’t make you a bad director.” Actually, that’s exactly what it means. Board members are supposed to bring insight and experience. What does Chuck Prince, the former CEO of Citi bring to Johnson & Johnson? Look at what has happened to J & J over the past year with government inquiries, production issues, and lagging sales and re-assert that there is some Prince magic that allows him to remain after being forced to resign from Citi and a bailout there.

Mr. Elson’s distorted view of governance may stem from his experience. He served on the board of Sunbeam as Chainsaw Al Dunlap used barbecue-grill-channel stuffing to cook the books. Elson was one of the few on the planet surprised by Dunlap’s actions. The rest of us saw it coming. Judgment is not his strong suit.

Mary “Betsy” Burton left Zales after two years as CEO there, but only after the company lost its market lead. Staples has kept her on as a director because she has “extensive executive level experience within the retail industry.” Experience losing market share is what a board and company need!

The common sense missing on the part of these boards is astonishing. The compensation these directors have earned since their “humble exits” even as they continue on these boards ain’t small potatoes. At least half a mil for all of them. The insensitivity to employee perceptions of two sets of rules will be followed by a cultural shift within the company. Employees will follow the directors’ leads: protect your friends, let things ride, and “it’s not such a big deal.” One governance expert said that directors keep these humbled CEOs on because they don’t want to give up on their friends. Sometimes the best thing you can do for a friend is give them time out and time away. And, such a step would be even better for directors who are accountable to the shareholders and who need the respect of employees. Speaking as someone who has worked in the trenches with frontline employees after boards make knuckleheaded decisions such as these, “Please, help me to help you. You can talk yourself blue trying to justify retention, but you only make matters worse as employees chuckle at your mental gymnastics.”

The only board member cited in the article for being sacked was poor David Edmondson, former CEO of Radio Shack, who resigned from the Advanced Micro Devices board when we learned that he had inflated his résumé. The poor shmuck! He should have realized that failure is the key to staying on boards – why bother to inflate your credentials? They’ll keep you on no matter what you do, as long as it is all over the newspapers.

Joann S. Lublin, “Staying on Boards After Humble Exit,” Wall Street Journal, June 6, 2011, p. B1.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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