The Wall Street Journalâ€™s Joann S. Lublinâ€™s June 6th article on boards that keep CEOs on board, as it were, after their â€œhumble exitsâ€ from their own companies missed two critical points.
The first point centers on the term â€œhumble exit.â€ Humble exit was a euphemism for everything from â€œrun out of town on a railâ€ to â€œfalsified his rÃ©sumÃ©â€ to â€œpaid the SEC a fine for wrongfully passing along information to analysts about his publicly traded companyâ€ to â€œgenerally lacking business acumen.â€ Depends on the meaning of the term â€œhumble exit.â€ 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 â€“ 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 â€œutter failure.â€ 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. Syronâ€™s reputation is so damaged by Freddieâ€™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 companyâ€™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 Millsâ€™ board members refused to accept Mr. Odlandâ€™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 â€œtone at the topâ€ that directors and management preach is compromised through these inconsistencies. The directors claimed that Odlandâ€™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 companyâ€™s performance?
Ah, but the piece quoted Charles Elson, a governance expert, â€œJust because you failed as a CEO doesnâ€™t make you a bad director.â€ Actually, thatâ€™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. Elsonâ€™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 Dunlapâ€™s actions. The rest of us saw it coming. Judgment is not his strong suit.
Mary â€œBetsyâ€ 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 â€œextensive executive level experience within the retail industry.â€ 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 â€œhumble exitsâ€ even as they continue on these boards ainâ€™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 directorsâ€™ leads: protect your friends, let things ride, and â€œitâ€™s not such a big deal.â€ One governance expert said that directors keep these humbled CEOs on because they donâ€™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, â€œPlease, 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.â€
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 rÃ©sumÃ©. The poor shmuck! He should have realized that failure is the key to staying on boards â€“ why bother to inflate your credentials? Theyâ€™ll keep you on no matter what you do, as long as it is all over the newspapers.
Joann S. Lublin, â€œStaying on Boards After Humble Exit,â€ Wall Street Journal, June 6, 2011, p. B1.