Before I post'Missing Leadership.... Part II', I have to comment on the interesting response that I received (well, indirectly) about the earlier post. To summarize, this individual felt that governance is over rated and it is almost impossible to attribute economic failures to the quality of leadership at any given company.
It is interesting that you should say that, because here are some instances in the current economic scenario that reflect this very thing:
1. Lehman top boss Mr.Dick Fuld has been questioned on the 'misleading' information that he presented during analyst calls. Many regulators believe the picture that was painted of Lehman during this call was misrepresented. There are several instances of people holding on to their investments in Lehman purely based on Mr.Fuld’s confident outlook on that and other calls.
2. At the ongoing hearings of Wall Street honchos, Congressmen want to hear evidence of poor leadership on the Lehman Board. (Similar points that I brought to light on Bank of America but only worse). I have attached a part of the transcript of the statement that was made before the Congressional Committee by a respected finance professional about Board failures at Lehman.
"While some of the individual director backgrounds at Lehman reflect more experience in banking and financial services than some of the other recent failed firms, overall it did not have the depth of experience it needed. Notes Dennis K. Berman of the Wall Street Journal:
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…. 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.
Until recently, one director was actress Dina Merrill, daughter of E.F. Hutton. She retired in 2006 at age 83 after 18 years of service. At the time of her retirement Ms. Merrill was a member of Lehman’s Nominating & Corporate Governance and Compensation & Benefits Committees.
Currently serving on the board is Broadway producer Roger Berlind, 76, the longest tenured member of the Lehman board, his only public company directorship. While we do not recommend over-boarding, it is usually not a good idea to have people on boards who have no other board or sector experience. Mr. Berlind is a member of Lehman’s Audit and Finance & Risk Management Committees. Also on the board is Marsha Johnson Evans, 60, a former Rear Admiral with the US Navy and head of the American Red Cross and Girl Scouts of the USA. Ms. Evans is a member of Lehman’s Nominating and Corporate Governance, Compensation & Benefits, and Finance & Risk Management Committees. She is also an active director of three other large US corporations: Weight Watchers International, Office Depot, and Huntsman Corporation; she is a former director of AutoZone. Michael Ainslie, who has been on the board for 12 years, is the former Chief Executive Officer Sotheby's and former President and CEO of the National Trust for Historic Preservation......"
3. Yahoo’s decision by top ranking executives to spurn the Microsoft offer at 33$. Yahoo shares hover around $12 today. That is a 60% reduction in less than 6 months.
These are just a few instances of top leadership failures that contributed to drastically reducing shareholder value. Let’s not fool ourselves into thinking that an investment strategy devoid of non financial research is an optimum one.
I hope I have not misconstrued the comment that was made. My only intention is to raise awareness of the average investor on non financial issues before making an investment decision.
Write back with your thoughts on this. I will be back with Part II later today.
It is interesting that you should say that, because here are some instances in the current economic scenario that reflect this very thing:
1. Lehman top boss Mr.Dick Fuld has been questioned on the 'misleading' information that he presented during analyst calls. Many regulators believe the picture that was painted of Lehman during this call was misrepresented. There are several instances of people holding on to their investments in Lehman purely based on Mr.Fuld’s confident outlook on that and other calls.
2. At the ongoing hearings of Wall Street honchos, Congressmen want to hear evidence of poor leadership on the Lehman Board. (Similar points that I brought to light on Bank of America but only worse). I have attached a part of the transcript of the statement that was made before the Congressional Committee by a respected finance professional about Board failures at Lehman.
"While some of the individual director backgrounds at Lehman reflect more experience in banking and financial services than some of the other recent failed firms, overall it did not have the depth of experience it needed. Notes Dennis K. Berman of the Wall Street Journal:
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…. 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.
Until recently, one director was actress Dina Merrill, daughter of E.F. Hutton. She retired in 2006 at age 83 after 18 years of service. At the time of her retirement Ms. Merrill was a member of Lehman’s Nominating & Corporate Governance and Compensation & Benefits Committees.
Currently serving on the board is Broadway producer Roger Berlind, 76, the longest tenured member of the Lehman board, his only public company directorship. While we do not recommend over-boarding, it is usually not a good idea to have people on boards who have no other board or sector experience. Mr. Berlind is a member of Lehman’s Audit and Finance & Risk Management Committees. Also on the board is Marsha Johnson Evans, 60, a former Rear Admiral with the US Navy and head of the American Red Cross and Girl Scouts of the USA. Ms. Evans is a member of Lehman’s Nominating and Corporate Governance, Compensation & Benefits, and Finance & Risk Management Committees. She is also an active director of three other large US corporations: Weight Watchers International, Office Depot, and Huntsman Corporation; she is a former director of AutoZone. Michael Ainslie, who has been on the board for 12 years, is the former Chief Executive Officer Sotheby's and former President and CEO of the National Trust for Historic Preservation......"
3. Yahoo’s decision by top ranking executives to spurn the Microsoft offer at 33$. Yahoo shares hover around $12 today. That is a 60% reduction in less than 6 months.
These are just a few instances of top leadership failures that contributed to drastically reducing shareholder value. Let’s not fool ourselves into thinking that an investment strategy devoid of non financial research is an optimum one.
I hope I have not misconstrued the comment that was made. My only intention is to raise awareness of the average investor on non financial issues before making an investment decision.
Write back with your thoughts on this. I will be back with Part II later today.
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