In Anglo Saxon Britain, kings were answerable to the Witan, a council of wise elders which was the precursor to Parliament. It is the wave of the future in the boardroom.

The Rockefeller’s dispute with Exxon Mobil’s Rex Tillerson over the chairman/CEO role split was rejected by shareholders. And whether that was the right or wrong decision will become evident over time. Either way, the argument of the family members, relatives of John D. Rockefeller who founded Exxon progenitor Standard Oil, does have some merit.

There is a genuine business reason for tearing asunder what has long been a staple of the American executive suite – the job of chief executive is becoming distinct philosophically from that of board chair. The CEO is the principal leader and advocate for the company, and while that may be closely aligned with the shareholder, it is no longer the sole focus.

The CEO’s job today is indisputably complex: regulators, social activists, customers, partners, all form a haze of interests the CEO must work through in order to run a business effectively. And then the real work begins, setting strategy, approved by the board of course, and execution. The separation of the two roles allows the board to focus on the main shareholder issues, from Say on Pay to Proxy Access to social activism.

To CEOs: you are not losing a chairmanship; you are gaining a focused chief executive.

It also opens up a new era of governance.

Can we find independent board chairs with the requisite skills and reputation? Can they run a board without meddling in operations? Will they become shadow CEOs? Will they stand up to shareholders when necessary? Will they fight the compensation battle when it is not their own wallet being skinned?

Marty Lipton is at it again. Late last year, we brought you coverage of a battle that was playing out among corporate governance titans—Marty Lipton’s duel with Lucian Bebchuk on shareholders vs. stakeholders. Lipton—not known for shyness or reticence—went as far as to label an academic paper he wrote: The Many Myths of Lucian Bebchuk.

Now he has picked a fight with one of our greatest financial thinkers: Michael Milken. At the Tulane University Corporate Law Institute conference earlier this month, Lipton blamed the current credit mess on Milken and his financial engineering offspring. “The financial crisis we’re in today stems from the invention by Drexel Burnham Lambert of the junk bond,” Lipton argued. And if that wasn’t clear enough he continued that the link is not merely circuitous: “You can draw a straight line from Drexel Burnham to the financial world today.”

In a recent paper on the topic, reported in Andrew Ross Sorkin’s Times Dealbook column, Milken equated blaming him for the credit crisis to blaming a scalpel for the botched surgery of an incompetent physician.

That the two should square off is hardly a surprise and, for those of us who love a great sprawling policy debate, long overdue. Lipton has spent his distinguished career thinking about and creating ways for directors and managers to fend off unwanted buyers and corporate raiders, often fueled with the kind of financial machinations Milken championed. In the sport of the deal world, Lipton is the defensive guard; Milken an offensive genius. As the fathers each of the poison pill (Lipton) and high-yield bonds (Milken), their playbooks were designed with the other in mind.

BOARDROOM JUNGLE

Mike Armstrong, former CEO of ATT, was removed as audit committee chairman of the Citigroup board. Incompetence or scapegoat?

Anyone who knows Mike Armstrong and his stellar career knows the answer. It is a latter day rush to blame, pure and simple; the investment community and activists’ pressure on the board was undeniably the reason for this precipitous move. No matter. If true board minutes were released, they would read like this: in our examination of our risk management practices we have discovered that our asset/liability models can no longer forecast the true risk inherent on our balance sheet (and off balance sheet) with any degree of reliability. If ever there was a black box, this is it. There are literally hundreds if not thousands of products, segmented and syndicated to an unknown number of counterparties, all of which have different but related risk models. It is hopelessly beyond the ability of senior management and its advisors to manage. It is complexity to a higher degree than we can conceptualize. We are clueless as to how regulators will try to resolve.

ET TU, JACK?

The ‘screw up’ heard round the world was a vintage Welchism – hardcore audacity from the man who loves to tell it like it is whether the listener is a journalist, shareholder or regulator. He has since offered a public apology on BusinessWeek.com which should put the matter to rest.

Nonetheless, I was surprised the limelight would fog Jack's ordinarily street smart savvy that he is so well known for. Even the sorely tested among us can get weak kneed when the mike is pushed into our face. And then the words pour forth like a demagogue at a rally. So even the greatest CEO of our time found it too tempting to give utterance to the boardroom equivalent of trash talk. But still surprsing....

Particularly when he so resented the bum’s rush himself. Try to recall GE’s acquisition of Kidder Peabody for $600 million (which ultimately cost the company over $1 billion) and ended up as the poster child of financial supermarket hysteria, and after a long scuffle with both regulators (does the name Joe Jett ring a bell?) and Wall Street was sold at a bargain price to Paine Webber (UBS).

But Welch was mortified that GE was accused of falling when it had only stumbled. Forbes wrote a trenchant article clarifying this and Jack called me personally to thank me (I was publisher at the time) for pointing out the obvious.

So I will do so again: Immelt’s miss was the result of changes in the economic landscape that no one has been able to ascertain; GE and Immelt will not only figure it out but when they do, will benefit  mightily.

“There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things.”

“What a lousy fouled up job this has turned out to be.”

First Quote: Machiavelli

Second Quote: JFK (to Senator Barry Goldwater, after his first three months in office and dealing with the Bay of Pigs invasion).

VOLCKER ERRATA - Laments Economy not Economists

When the NYT and WSJ editors review the expense accounts submitted by the reporters who claimed to have attended the Volcker lunch at the Economic Club of NY, they should be hastily returned for lack of evidence or for having been spent at the bar. Both reporters were more "out to lunch" then at it. How else to comprehend their stories which played up the notion that the Great One's lament was aimed at successors Greenspan and Bernanke? In fact, Volcker bemoaned our economy, not our economists. All who were there and actually listening could not help but see he was decrying the extreme steps we appear to require to reign in the excesses of good old capitalism. The FT got it right as usual; Chrystia Freeland's follow up turned out to be on target, not merely targeted.

NYT HELP WANTED: RESEARCHER NEEDED RIGHT AWAY

The NYT reported that the SEC had lost both its wisdom teeth and its sharp incisors when it said that the agency had missed an opportunity to impose a penalty against JP Morgan for failure to detect wrongdoing at a client for which it is a trustee. Sounds good so far as it goes, but it would have been more helpful if the NYT actually knew something about the regulation: On April 9th, the SEC issued the following statement: “Contrary to the New York Times article’s assertion, federal law prohibits the imposition of a financial penalty for such a finding.”

The SEC has asked the New York Times to correct its story. I am sure they are thinking about it.

THE RATING GAME

With prodding from Chuck Schumer and the media, the SEC announced its decision to review the potential for ratings conflicts among the three major rating agencies – including taking a hard look at their business model, fee structure, and conflicts of interest generally. What is not being said is that the markets often (and purposely) misunderstand the role of the rating agencies. Use them when it suits, criticize them when it doesn't. Moody's and S&P are not simple arbiters of creditworthiness. Their role is to assess the long term likelihood of default, based largely on historical principles and empirical evidence. They are not odds makers testing the weakness of a market’s froth on a daily basis, as does equity pricing. They would crater an entire sectors' debt structure overnight if they did. During a time of crisis, when we seek nuanced views, you might think of a rating agency as having only a nuclear option. That is the main area of conflict, not the fee structure.

Mort Zuckerman about the economy:

"An optimist feels these are the best of times; the pessimist feels the optimist may be right."

 
Ed Koch on voting:

"If you agree with 8 out of 12 of your candidate’s positions, vote for him or her. If you agree with 12 out of 12, you should see a psychiatrist."

WHAT GOES AROUND...

Remake of the Graduate: I have one word for you (plastics). Only now – it’s copper.

The news that Governor Eliot Spitzer was caught in an IRS probe of cash flowing betwixt and between shell companies and a high roller escort service is just the sort of thing to make a journalist feel good about his or her choice of occupation. This is as close as it gets to guaranteed employment for scribers.

Spitzer's real troubles are only about to happen, however, as journos are lined up with sources to spare, extramarital and otherwise, to stretch this baby. Now any wonder why resignation is on the table?

The upcoming weeks are likely to be brutal beyond anything Bill Clinton had to contend with...why?

1. Tip O'Neil said, "all politics is local" only the locale now is NYC and DC. The city desks will be having a bumper crop, their sources fertilized and cared for over the years - doormen, bartenders, housekeeping maids - all pay off now.
2. Spitzer's own hubris and brilliance (corollary buds really) will bring on an epidemic of that most infectious breed of single minded cell, enemae amoeba - when former acquaintances and even friends suddenly rethink the years together, concluding they were onto you from the beginning pal....something in our culture breeds 'kick them when they are down' and people who actually liked you feel the need to opine on how unethical, dishonest, weak, sex crazed you (always) were. Harvard Law School alums will be among the finest opiners on Spitzer's mental health.
3. The news cycle - this one has weeks written all over it because of new disclosures, particularly from clients, patrons, management of the bordello in question; Spitzer has a few folks out there who would pay good money to have made this happen, they are only too happy now to lend fuel and fodder to this conflagration.
4. What happens in Albany stays in Albany - not this time. Now the NY state capital is going to be on everyone's radar scope and you can bet they are going to enjoy the attention.
5. The Republican and Democratic infighting has always been fierce in this jumped up capital of no where-on-the Hudson, but now watch for proclamations and indignations, Olympic style.

Predictions:

Eliot Spitzer needs to be put on suicide watch, and this is serious if either tax evasion or felony for interstate commerce charges are brought with vigor.

Dick Grasso's life gets easier, as does Ken Langone's. Not sure if their issues go away, but prosecutorial zeal will be modified to the extent the benefactor's name is associated.

Hillary gets some contamination not only for Spitzer's endorsement but her attempt to sanitize things by removing any trace of him from her website at the moment he was outed. This also brings up the specter of Monica again....no one is saying it, everyone is thinking it.....and one thing about our former First Lady, she's been tested, as she likes to point out.

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