Let’s say I went to Marymount College, majored in Journalism and English, and in 2001 became the CEO of Xerox. In 2002 I became the chairman of the board at Xerox. I suppose at that point you could say I’ve pretty much made it. But what if I felt like there was something missing in my life? What if, despite having no finance experience, never having worked at a bank, and not even packing an education on the subject, I decided it would be a good idea to serve on the board of directors at Citi?
Well that’s what I did, if my name was Anne Mulcahy.
Anne not only serves on the board at Citi (and has since 2004) she works in the group responsible for RISK MANAGEMENT.
Hey all you non-finance types, if I said to you “our tier one capital has been reduced 10%, residential defaults are 3 times what they were last year, the commercial portfolio may experience some volatility in the next 3 quarters, and our swap division’s net income for the year is in the red” would you be able to tell me if all these problems are potentially related and perhaps suggest what we should do to fix it?
No, you can’t. I can barely understand it all myself AND I MAJORED IN FINANCE AND ACTUALLY WORK AT A BANK. Do you think Anne Mulcahy* would perhaps even have a clue how to audit a bank or know a thing about managing its risk? Not a chance. No wonder Citi is up to its white collar in bad loans.
If you think Anne is alone here you’d be dead wrong. I didn’t single out Anne because she is the only non-finance director at a bank, she was just the first one I came across after learning only 15% of directors at the top 10 commercial banks have any actual banking experience. Throw in people with investing, insurance, and accounting experience and that number leaps to the grand amount of 33%. That’s right, of the directors at the top 10 banks, only 1/3 of them even have experience related to banking.
Counterpoint: No board should be made up of only insiders. It should have representatives from academia, the community, the industry, and of course the company itself.
However it should be mostly made up of the last two. Instead they are a minority. The article linked above (courtesy of Clusterstock) goes on to point out boards contain the head of the Pennsylvania Horticultural Society and retired military officers.
What’s going on then? I can only conclude that boards elect their own. Elites, college roommates, relatives, that guy you owe a favor to, and anyone that might make you look good. They aren’t selected for their credentials, they’re selected for lack of them apparently.
*I would think being chairman and CEO of one company would keep one person busy enough; but I guess they have some spare time. In addition to serving on the board at Citi, Mulcahy also works on the boards at Catalyst, Fuji Xerox, Fannie Mae, The Washington Post, and Target.
Photo: sby
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Said,
Said,
Excellent post! I think this is overlooked all the time. One thing I would add, is that it is the Board that is choosing the compensation for most executives. So not only is Anne involved in a COMPLEX business model she is likely to know nothing about, she is voting on the CEO’s compensation.
So next time you get angry that you get angry that CitiGroup’s CEO made $38,000,000 in compensation in 2008 – blame the board!
List of CEO compensations:
http://www.aflcio.org/corporatewatch/paywatch/ceou/database.cfm?tkr=C&pg=1
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