Worrying is how smart board members spend their time, so start worrying about state pension funds. Due to mismanagement of spending and over-reliance on cheap credit, states’ budgets are in a precarious, well, state. One example? Former Illinois Gov. Rod Blagojevich tapped the credit markets repeatedly to remain
Jeff Cunningham
within budget guidelines, but failed to recognize the small print about having to pay those funds back. So, states will now have to raise taxes, cut services including pensions that belong to state and municipal union employees, or both. Think CalPERS and the New York state pension fund, which happens to be one of the most aggressive lead plaintiffs suing directors. Note also, litigation settlements with a state pension lead plaintiff are 10 times higher than without. These institutions enjoy legal clout, strong local popularity (think home Court advantage) and now they have say on pay. If they see huge bonuses for CEOs it promises more hardcore media shellacking not to mention say-on-pay votes that will be caustic if not consequential. It is a reason to be doubly sure pay for performance is provable beyond a doubt.
Jeff Cunningham is managing director and senior advisor to NACD. He is nationally known for his views on boards and corporate governance. Prior to starting Directorship magazine, he was publisher of Forbes and managing partner of the U.K. private equity firm Schroders. He has served as an independent board chair or director of 10 public companies.