Thursday, April 23, 2009

CEOs and Other Execs Should Be Barred from Serving on Outside Boards

Where do current CEOs and even their underlings get the idea that it's a good idea for them to sit on another public company's Board of Directors?

This was a big beef I had with former Yahoo! (YHOO) CFO Sue Decker. Over the last two years of her tenure at Yahoo!, she received two promotions, going from CFO to eventually president (although she always referred to herself as Jerry Yang's "partner," which I assume means she thought of her job as co-CEO). With each promotion, she received increased responsibility and an increased number of direct and indirect reports to oversee.

The pressure on her and the rest of Yahoo!'s board and management to turn around the fortunes of the floundering Internet company remained intense -- yet, the stock collapsed. Through it all, Decker continued to serve on no less than three other public company boards: Costco (COST), Intel (INTC) and Berkshire Hathaway (BRK)). I asked her and Yahoo! Chair Roy Bostock at last August's annual meeting how they justified her spending what I calculated to be an extra 187 hours a year on different outside board and committee meetings (although I didn't factor in travel time to Omaha, Neb., and Issaquah, Wash.). Neither Decker nor Bostock really had an answer.

Bostock said the Yahoo! board was "proud" of Decker's associations with this other board. As a shareholder, I understood how these directorships were a benefit to her personally but didn't see how they were helping Yahoo!'s stock price. Decker left the company a few months ago when Carol Bartz was hired as the new CEO.

I recently was going over Citigroup's (C) board of directors from last year (before the bottom fell out on the company). I was stunned to see that Alcoa's (AA) then-CEO Alain Belda, Xerox's (XRX) CEO Anne Mulcahy and Dow Chemical's (DOW) CEO Andrew Liveris were all taking time out of their busy jobs to hobnob in NYC on that board.

In retrospect, shareholders for all three of these CEOs' companies should have been ringing the alarm bells when they saw this. These three companies' stocks are down 70% on average over the last 12 months. To make matters worse, Mulcahy also serves on the boards of Target (TGT) and Washington Post Company (WPO).

Let's be honest: The only reason these busy CEOs agree to serve on these other boards is vanity; it's not for the knowledge they glean or the social contracts they make. In this post-Sarbanes-Oxley world where directors have to slog through binders of risk disclosures and company updates, it makes no sense for any officer to sit on an outside public company board.

Not only does it hurt their own firms' stock prices, it hurts the stock prices of the companies on whose boards they sit. Did Liveris and Mulcahy really have enough time to go through the full extent of Citigroup's risk exposure last year? The composition of Citi's board is another story entirely.

Originally published in on 4/20/2009 4:18 PM EDT

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