Monday, October 13, 2008

Financial Companies missing Board Level Asset Oversight?

So, more on the Congressional hearings of last week....especially Willumstad and company from AIG, Dick Fuld and company from Lehman.

A common thread that came out at each of these hearings was a lot of "I don't knows" and "I am not aware of that" and not to mention,"I don't remember that".

But each of the people interviewed were or used to be members of their company's Board of Directors and its committees. So how do these things work? Do directors get paid good money to conveniently 'forget' when asked for justifications of their decisions? As per consultancy Steven Hall & Partners,(as quoted on ) median total pay for independent directors at the 500 largest U.S. companies increased 14 percent compared with last year, rising from $162,363 to $185,000.How's that for inflation?

There are different committees of a Board of a publicly listed company that directors can serve on. There are generally 'required by law' committees like Audit Committees (we will discuss them in later posts) plus Compensation Committees, Nomination and Governance Committee and a few others. Sometimes, the type of industry also determines specific types of committee for high level oversight. One might naturally think, in the light of the current happenings ('Financial Tsunami' as Mr.Sullivan liked to keep referring to it during the hearing), in case of the financial industry this would include having an 'Asset Management' (read Asset = mortgage backed assets) or 'Asset Valuation' type committee. Envision a responsible, attentive, Board reviewing the financial arrangements that gave rise to those poisonous (and risky) mortgage based securities. And steadily warning senior company managment about the impending doom...

Now, lets review how many large companies from the financial industry have such 'Asset Management'or 'Asset Valuation' type committees:

1. Citi- None
2. Goldman- None
3. JPM- None
4. Bank of America- Yes. (Asset Quality Committee with 4 members.) More on the committee members for later...
5. AIG- Sort of (a Finance Committee which is supposed to review asset management policies and quarterly asset reports and nothing else.)

So, is it any surprise that most senior Board members either pleaded ignorance or lapses of memory when questioned? It appears that there was never any Board level oversight over Assets.

Keep checking back for more financial industry companies being added that are missing Board level 'Asset oversight'.

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