Wednesday, August 06, 2008

More About Incompetent Corporate Boards: GM & Wachovia

A combination of Wall Street Journal articles from yesterday and mid-July gave me the inspiration for this post.

The mid-July piece described Wachovia's new CEO Robert Steel's initial moves to hold that ailing bank together in the wake of the damage done, and still being realized, by Ken Thompson's quest for growth and size.

What caught me by surprise was Wachovia board chairman and CEO search committee leader Lanty Smith's admission, as quoted by the Journal,

"There's been a complete recognition at the board level that Golden West was a mistake, and we have to deal with the consequences of it."

First, as an aside, I cannot let 'Lanty' Smith's remark pass without it reminding me of William "Hootie" Johnson, another colorfully-named southern businessman. Why is it these southerners all sport such silly names?

I can't recall the executive, but I do recall Hootie being the board member who cashiered some CEO of a large-cap firm over a decade ago- well before Hootie became infamous for the gender war at the Augusta National Golf Club, of which he was President. It sparked this recurring image in my mind of a powerful CEO telling his secretary, in earnest,

"And Doris- do NOT take calls from anyone named 'Hootie'."

Anyway, back to Lanty Smith's remark.

Why is Smith, or any of that board, still seated? After making such a blunt confession that, as board chairman, he now acknowledged that Thompson's bid to buy Golden West was a mistake with which, we assume, the entire board concurred, how can he seriously remain as a shareholder representative.

Why didn't Bob Steel call for an entire new slate of directors before taking the CEO job at Wachovia?

God knows he probably had the leverage. And who would want to begin their latest private sector stint by reporting to such a crew of numb skulls.

A group of people so stupid as to have wrecked there bank with just one ill-timed, ill-considered acquisition?

But that's not even the extent of the boardroom idiocy observed in this post.

No, it gets better.

Yesterday's Journal ran an article entitled, "GM's Board Support of CEO Continues."


Until when- Wagoner has lost the last dollar of shareholder equity in the till?

Until he has drained all value from the brands and logos associated with the near-fatally wounded, once-omnipotent US automaker?

According to the Journal piece

"One person close to the directors said the board "is totally behind Rick, realizing nobody could deal with this situation any better than he." This person added, "It's a case of an excellent plan, and delivering on all promises."

Here's a Yahoo-sourced, multi-year view of the prices of GM, Ford and the S&P500 Index.

Since 2000, when Wagoner took over GM, it has been in steady decline. So has Ford. It's hard to determine from this chart which company has lost more value, but the slopes of the declines are similar.

Thus, to say that Wagoner has managed the situation 'better than anyone' is patently absurd.

As the Journal notes,

"But Mr. Wagoner has struggled to show results on the bottom line. GM reported cumulative losses of roughly $50 billion for 2005, 2006 and 2007. GM has lost more than $18 billion so far this year."

How can any board of directors accept such abysmal performance from a CEO?

Here's yet another case where not only should the CEO be jettisoned, but shareholders deserve a new, better board, as well.

Both the Wachovia and the GM situations seem to be examples of the popular cult of denial among board members of ailing firms. They hire the CEO and approve his actions, then behave like somebody else was responsible for the resulting failure.

It's just shameful.

Thank God that real shareholder democracy means selling poorly-performing equities, not waiting until hell freezes over, which is when some of these companies will finally experience their ever-receding 'turnaround.'

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