Minow Points Finger at Boards

Nell Minow, the editor and chair of The Corporate Library, and a Directorship D100 honoree, says that the people most responsible for the meltdowns of financial institutions are the board of directors, according to an opinion article she wrote for CNN. The failure of directors to act as fiduciaries for shareholders in managing risk is why many major financial institutions have ended in disaster.

A self-proclaimed capitalist, Minow writes there is nothing that “infuriates” her more than executives are paid substantial salaries without earning them. She links the problems associated with executives’ compensation as incorrectly favoring quantity over quality. “If the executives' compensation is tied to the volume of business rather than the quality of business, we should expect deal makers to be more attentive to the number of transactions than the value they create,” she says.

Minow further compares the salaries of former CEOs Stanley O’Neal of Merrill Lynch and Martin Sullivan of AIG. O’Neal’s $91 million salary for 2006 was based on performance metrics paid out before the financial services company claimed $23 billion in write-downs.

Likewise, former AIG CEO Martin Sullivan received $68 million despite the company reporting losses for two consecutive quarters, totaling $13 billion.

Minow noted that fewer than 13 percent of public companies have claw-back policies requiring executives to return bonuses that are found to be based on inflated numbers. Executives, instead, “take the money and run.”

To ensure that executives are forced to earn their pay, Minow believes that shareholders should have a say in the matter. A “say on pay” vote on executive compensation should be standard for public companies in the U.S. She notes that the U.K. and several other countries have enacted various say-on-pay initiatives for shareholders.