Why Goldman should overhaul its board

By Colin Barr, senior writer, Fortune Magazine

April 20, 2010: 4:13 PM ET

(Fortune) -- Not so long ago, it would have been heresy to say Goldman Sachs should take a cue from Citigroup. But as Goldman's sins come to light, Lloyd Blankfein could do worse than to follow Vikram Pandit's path to redemption.

Goldman (GS, Fortune 500) said on Tuesday its first-quarter profit nearly doubled from a year ago. But all is not well.

Goldman's giant pay packages and its omnipresent ties to Washingtonhave made it a target for populist outrage since the financial crisis hit. That anger is now bubbling over following Securities and Exchange Commission allegations that Goldman ripped off some clients by aiding a hedge fund customer thatprofited from their misguided bets.

Goldman denies the charges. But even some who take the firm's side say big changes are overdue. They start with the composition of Goldman's board and the tone of the firm's dealings with the public -- two areas in which Citi (C, Fortune 500) has made real strides.

"Goldman has taken a real drubbing in the court of public opinion," said Eric Jackson, an activist investor and hedge fund manager in Naples, Fla. "That is a perfect reason for making some changes."

Jackson has been saying since last year that Goldman's board is too cozy and lacking in financial know-how to diligently oversee top management.

The board is packed with honchos who led companies that have paid large fees to Goldman, such as Indian steel magnate Lakshmi Mittal and former Fannie Mae (FNM, Fortune 500) chief James Johnson.

The problem with these choices, Jackson said, is that "these people seem to be favorably disposed to senior management's way of thinking," and are therefore unlikely to act as a check on CEO Lloyd Blankfein and his team.

Coziness isn't the only strike against Goldman's board, Jackson said. He believes it is also lacking in financial savvy. Where Citi has reshuffled its board to add the likes of former U.S. Bancorp (USB, Fortune 500) chief Jerry Grundhofer and onetime Philadelphia Fed President Anthony Santomero, Goldman's board lacks any bank CEOs or former top regulators.

And then there are the scandals.

Regulators are examining the role of Rajat Gupta, who said last month he won't return to Goldman's board, in the Galleon insider trading case. Stephen Friedman, who remains on Goldman's board, quit the New York Fed after he was found trading Goldman stock, which is a no-no.

"The board is becoming a lightning rod," said Eleanor Bloxham, who runs the Corporate Governance Alliance in Westerville, Ohio. "Lightning keeps striking them over and over."

All of this has added up to a significant blow to Goldman's once glowing reputation.

"I don't know who's been giving Goldman advice about their public relations, but it has been a disaster," said Jackson, who has no stake in Goldman but owns shares of Citi. "They need to get ahead of this train."

Pandit, after his bank's many brushes with disaster, has recently tried to make amends. Citi's board has added eight members over the past year and the bank lately has been emphasizing its gratitude for taxpayer support extended in the dark days of 2008-2009.

"We owe taxpayers a huge debt of gratitude for assisting us at a critical time," Pandit said in Citi's earnings release Monday.

Of course, Pandit has an easier task than Blankfein in the sense that Citi's governance couldn't get worse than it did in the bubble days. Back then, the firm ended up loaded with toxic investments and prominent board members professed total ignorance.

Still, Goldman has been all over the map. Blankfein issued a vague apology late last year for the bank's role in the subprime crisis, not long before he infamously told a British newspaper Goldman was doing "God's work."

And though Goldman has highlighted its support of pay reform measures such as clawbacks and bans on guaranteed bonuses, in one way its corporate governance is behind the times. Blankfein continues to serve as chairman and CEO, even as the trend in recent years has been toward independent board leadership.

At a time when every decision at the firm is going to come under scrutiny, that conflict doesn't look like a winner in the eyes of the public.

"The issue for Goldman directors is whether they have been able to control the agenda," said Bloxham. "Directors must be asking, can we do our job?"

Given Goldman's unsteady response of late, it's hard to believe the answer is yes.

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Reasons to Like Citigroup Again $C

By Eric Jackson

RealMoney Contributor

3/11/2010 8:00 AM EST

Click here for more stories by Eric Jackson

Over the past year, I've been very critical of Citigroup (C - commentary - Trade Now) CEO Vikram Pandit and of the company's improved but still-deficient board of directors. Perhaps there's no greater example of a once-great company laid low by the financial tsunami of 2008 than Citi.

Yet, the company, which has been plagued by persistent bad press for the better part of two years now, seems to have turned the corner, with investors taking particular notice in the last week. Yesterday, the stock touched $4 for the first time in three months.

It's time to give Citi its due, and it's time to get long the stock. Here's why.

Vikram Pandit has been abysmal CEO, but he is actually learning from the massive criticism he's received. Pandit has done himself no favors since taking the top spot from Chuck Prince. He told a reporter after his ascension that he called his father in India to tell him of the good news by saying, "The Prince has gone and the King has come." Last week's performance of Pandit in front of the TARP oversight committee and with media afterwards was beyond reproach. He struck just the right tone of modesty and wanting to do what's right for Citi shareholders and the country. If he can be coached here by his PR team, it gives me hope that he can also be coached in improving some of the other parts of Citi that need work.

....

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The Activist Investor: Citigroup

By Eric Jackson

RealMoney Contributor

3/1/2010 8:15 AM EST

Click here for more stories by Eric Jackson

On Friday, Citigroup (C - commentary - Trade Now) announced a few more changes to its board of directors. Former Xerox (XRX -commentary - Trade Now) CEO Anne Mulcahy is not going to stand for re-election to the board this spring, nor is former AT&T (T -commentary - Trade Now) CEO C. Michael Armstrong. Citi had already announced in January that MIT professor John Deutch wouldn't be seeking re-election. Instead, Citi will put forward former Mexican President Ernesto Zedillo.

Citi's board has been under fire since its government bailout. After all, how could what was once (and not too long ago) the dominant global bank be reduced to such a sorry state, requiring massive government and taxpayer intervention to keep it afloat?

In spring 2008, prior to Bear Stearns'collapse, Citi's board consisted of the following members:

• Armstrong (71), a Citi director since 1989
• Alain Belda (66), CEO of Alcoa (AA -commentary - Trade Now), a Citi director since 1997
• Deutch (71), a Citi director since 1996 (also 1987-93)
• Sir Win Bischoff (68), Citi director since 2007, but Citi executive since 2000
• Andrew Liveris (54), CEO of Dow Chemical (DOW - commentary - Trade Now) and Citi director since 2005
• Mulcahy (56), a Citi director since 2004
• Ken Derr (73), former CEO of Chevron (CVX - commentary - Trade Now) and Citi director since 1987
• Roberto Hernandez (67), former CEO of Banco Nacional de Mexico and Citi director since 2001
• Citi CEO Vikram Pandit (53)
• Now-Chairman Richard Parsons (61), who has served on Citi's board since 1996
• Judith Rodin (65), president of the Rockefeller Foundation
• Robert Rubin (71)
• Robert Ryan (66), former CFO of Medtronic (MDT - commentary - Trade Now), a Citi director since in 2007 (also a Citi executive 1975-82)
• Franklin Thomas (75), Citi director since 1970

As of today, fewer than half (Belda, Liveris, Pandit, Parsons, Rodin and Ryan) remain on the board.

The new directors include.....

....

[This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required.]

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Benmosche Bests Pandit

08/26/09 - 09:07 AM EDT

C , AIG , MET , WFC

By Eric Jackson

NEW YORK (TheStreet) -- The federal government is running some of America's largest and formerly most influential companies, including Citigroup, AIG(AIG Quote), Bank of America(BAC Quote) and GM.

The track record of government managing -- let alone turning companies around -- businesses is poor. Still, it's calling the tune at the moment, sitting in on internal meetings, pushing out CEOs (like GM's Rick Wagoner), CFOs (like Citigroup's Ned Kelly) and directors (see the reconstitution of the Bank of America board since its April shareholders meeting), and determining whether prearranged pay packages should still be treated as valid contracts.

Yet, the government, with all the best intentions, will never turn around these companies. It's the companies themselves and their employees who must turn things around. AIG and its new CEO Robert Benmosche get that, while Citigroup and its CEO Vikram Pandit don't. Both companies are extreme corporate basket-cases now controlled by the government on behalf of taxpayers. Yet, the styles of Benmosche and Pandit couldn't be more different.

Pandit's been the quintessential invisible CEO: quiet, passive, and immediately forgettable when he does speak. Benmosche is on the other end of the spectrum: straight-talking, aggressive, asking challenging questions, and lots of slaps on the back. Benmosche doesn't suffer fools gladly; Pandit appears to suffer fools for years without saying boo.

As horrible as AIG has been as an investment since last fall, Citigroup has been worse. AIG's stock price is 15% higher than Citigroup's since the government took over the company. When the market learned of Benmosche's hiring and digested some of his positive comments on the company, it responded positively, sending up AIG's stock by 35% last week (and still higher this week).

Although I've yet to meet with a Pandit apologist (maybe the only ones are Citigroup's directors who hired him), if I did, they'd likely say he is just one man and certainly didn't cause Citigroup to be the unmitigated disaster it is today. They'd also say one person -- even the CEO -- isn't responsible for a company's stock price.

Certainly there are many people who also deserve blame for Citigroup's current state of affairs: John Reed, Sandy Weill, the entire board, including Dick Parsons and Bob Rubin and Chuck Prince. Yet, Pandit's been in the corner office for almost two years during the crisis. Citigroup's stock price fell in lockstep with Bank of America's from the fall through the March lows. Yet, since then, Bank of America is up 90% more than Citigroup. Yes, assets and past underperforming loans matter, but so does leadership. Pandit's been a dud as CEO, and that affects investors' interest in the company.

Recall that back in early October last year Citigroup was trading at $23.50 after the Federal Deposit Insurance Corp. backed it to buy Wachovia over a competing offer from Wells Fargo(WFC Quote). Five months later, Citigroup's shares touched 97 cents. It's been a breathtaking evisceration of the former king of the American financial world. Pandit has done little to inspire investor confidence.

Pandit's response to being owned by the government since taking TARP money has been to shrink back even further from public scrutiny and contact with staff. The introverted, bookish professor has become even more bookish.

When he has spoken up, it's irked regulators and peers alike. Jamie Dimon of JPMorgan Chase(JPM Quote) called Pandit a "jerk" under his breath on a conference call with Treasury last fall. Lloyd Blankfein has joked that Citigroup was crazy. One business journalist summed it up to me this way: "I've never seen a Wall Street CEO who gets punked that often."

Where is the leadership going to come from? Sheila Bair is not going to turn this company around. Neither is Tim Geithner or Ben Bernanke. Did Citigroup also sign an addendum to receiving its TARP funding that it had to manage its affairs as if no one were really in charge?

Contrast Pandit's style with Benmosche's, the former head of MetLife(MET Quote) and new head of AIG. If any company is a ward of the state more than Citigroup, it's AIG -- it's actually a $182.5 billion ward.

Yet, here was Benmosche coming out swinging last week. He said in an internal town hall meeting that he sees the government as only one of several critical stakeholders -- the others being clients in the U.S., Asia, and Europe; employees, and then "the people we owe money to" (otherwise known as the government).

Benmosche said undoubtedly AIG would have to sell some of its businesses to pay back the government but ruled out an imminent sale for its investment advisory business and said other asset sales could wait until the company received full value. "I don't liquidate things; I build things," he said. "If the government wanted this money back quick, they shouldn't have come in in the first place."

Benmosche even had the nerve to suggest his management team should have the flexibility to pay its employees more if they've just "shot the lights out" in a given year.

Financial blogger Barry Ritholtz called him "totally absurd" to think he's going to pay back the government "in our lifetime." Maybe. But, if you worked for AIG (or were a stockholder), you cheered last week. It's clear who's in charge at this company. It's not the regulators but actually the AIG and its employees. This is quite a contrast in styles from his caretaker predecessor, Ed Liddy, and of course Pandit.

Benmosche finished an employee town hall meeting recently, warning: "My fear is that you'll say, 'I don't know if Treasury wants it, I don't know if the Fed wants it, I don't know if the lawyers want it, I don't know whatever.' If you sit there every day not making the right decisions to take us to the next level, we'll miss an opportunity."

And, he's exactly right. I'm for leaders who see the facts clearly and don't lead their organizations off a cliff. Both Citigroup and AIG went over the cliff a long time ago. They're down in the valley -- but they're still going concerns and they still need leaders. They're not going to be shut down and shouldn't be led by CEOs who would be suited for winding down companies -- like Pandit.

Ask yourself, if you were working in the bowels of one of these companies, who would your dig deeper for: Benmosche or Pandit? That hidden effort will start to show itself in the operating results and stock price in the coming quarters.

The government would be wise to get out of the way of these companies as quick as it can -- assuming there are competent management and directors. The government and taxpayers deserve the best long-term return on their investment, but they aren't suited to micromanage the businesses. They should get the right managers, get the right risk management and get out of the way.

The CEOs of Citigroup and AIG should push back on government requests when they are unreasonable or at odds with the long-term interests of the business. Benmosche appears well-suited to do that; Pandit doesn't.

We got into the current mess by too many people at AIG, Citigroup, and other firms playing fast and loose with other people's money with poor or no risk management. To fix that, we've needed government intervention.

We've got to get back to a true free market system. To heal these firms and our economy, leaders and employees at AIG and Citigroup need to treat assets they oversee as if it's their own money and -- with proper risk oversight -- start making free choices again on how to grow those assets.

-- Written by Eric Jackson in Naples, Fla.

At the time of publication, Jackson had no positions in stocks mentioned.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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Citi's Vikram Pandit on the hot seat

Fortune

The FDIC is said to be looking to replace Pandit, a sign that regulators won't go easy on the managers of banks that might have failed without taxpayer help.

By Colin Barr, senior writer
Last Updated: June 5, 2009: 3:34 PM ET

NEW YORK (Fortune) -- It's starting to look like the spring awakening in bank stocks may not be enough to save the CEOs of America's biggest troubled banks, Citigroup's Vikram Pandit and Bank of America's Ken Lewis.

A top banking regulator is agitating for Pandit's removal, according to a report Friday in the Wall Street Journal. The clash between Pandit and Sheila Bair, the head of the Federal Insurance Deposit Corp., comes just a month after restive shareholders at Charlotte-based BofA (BAC, Fortune 500) stripped CEO Lewis of his chairmanship.

The FDIC told CNN it had no comment on the story. Citi (C, Fortune 500) says it stands behind Pandit, who took over as CEO at the end of 2007 and has spent much of his tenure trying to clean up the messes left by his predecessors Chuck Prince and Sandy Weill.

In a statement to CNN Friday, Citi chairman Dick Parsons said the company was "confident in our management."

BofA has similarly endorsed Lewis, and the three-month-long rally in bank stocks has quieted talk of wholesale government takeovers of these firms.

But given the massive investor losses at these banks and the failure of their top managers to anticipate the industry's meltdown last year, few would shed a tear at either executive's departure.

"These companies are sort of the poster children for the excesses that created this crisis," said Eric Jackson, an activist investor and managing member of Ironfire Capital in Naples, Fla. "I think it's appropriate for the regulators to push for substantial changes in management and on the boards." Jackson's firm does not own shares of either bank.

Citi and BofA have been the two biggest bank recipients of federal aid since the financial crisis erupted last fall. Together they have taken some $500 billion in federal aid, the lion's share of which has come in the form of federal guarantees of their troubled assets.

Recently, both firms have shown some signs that they have broken out of what earlier this year looked like terminal decline.

Shares of Citi have tripled since Pandit surprised Wall Street by saying Citi was on track for its first quarterly profit since mid-2007. BofA's stock price has quadrupled during the same time frame.

Both banks went on to report better-than-expected first-quarter results in April. Those surprises further boosted the shares even as many observers warned the numbers were padded by one-time gains and legal but incredible accounting maneuvers, such as profits tied to the declining value of the banks' own debt.

The hopes of a banking sector recovery only intensified after regulatory stress tests showed banks didn't need that much more money. The findings helped spur a surge of capital raising from the private sector that has bolstered the balance sheets of many big institutions.

But while investor fears of a giant bank failure have dissipated, regulators haven't lost sight of the problems ahead. Though the 10 of the 19 biggest banks that had to raise $75 billion in capital after the stress tests had no trouble doing so, future loan losses will surely dwarf that figure -- which means further capital raises could be necessary.

"There's a desire to make sure the banks don't get complacent," said Douglas Elliott, a former investment banker who is an economic studies fellow at the Brookings Institute in Washington.
"Until we have a better grasp on exactly how bad the losses are going to be, it's important to be cautious."

Even before the FDIC's push to oust Pandit came to light, it was clear that policymakers intended to shake up the big banks.

BofA named a new chief risk officer this week after regulators questioned the management failures that led BofA into its current morass. Citi shook up its own board earlier this year, with former Time Warner (TWX, Fortune 500) chief Parsons replacing Win Bischoff as chairman and Clinton administration Treasury Secretary Robert Rubin stepping down. (Time Warner is the parent company of Fortune and CNNMoney.com.)

Still, skeptics such as Jackson say a change here and there won't be enough, given the size and visibility of the two big banks.

"How can you have such massive failures without there being accountability?" said Jackson. "Citi and BofA are so large, so critical, they're almost a case unto themselves."

And some observers believe that even management changes won't be enough, and BofA and Citi will have to be broken up.

Vernon Hill, a longtime bank executive who is now chairman of investment firm Hill-Townsend Capital in Bethesda, Md., notes that a recent national customer satisfaction survey showed Citi was either last or tied for last in each of the five regions in which it does retail banking.

"Citi has been dysfunctional as long as I can remember," said Hill, who owns "only minor amounts" of both stocks. "How many times are we going to let these guys get in trouble before we put an end to it?"

CNN's Amy Sahba contributed to this report.

First Published: June 5, 2009: 2:33 PM ET

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BAC and C Need to Turn the Page with New Leaders

Bank of America (BAC) piled too much on its plate in terms of acquisitions -- especially the most recent ones that are so much larger than the little retail branch acquisitions that have been their bread-and-butter through their history.

However, there's a simple answer to their CEO question: he should leave. Imperial CEOs and their lackeys like to create this myth at times of stress and pressure that they are "indispensible men." Some shareholder during yesterday's BAC annual meeting even got up and asked the audience of shareholders: "If not Ken, who's going to lead us?" [To which he got a hearty applause]

I think there's an abundance of managerial talent available -- outside the bank if not inside the bank. The best thing for BAC shareholders (and for the ones of another embattled bank, Citigroup (C)) would be for a change at the top. Maybe they're good guys who are a victim of circumstance, but you would have to acknowledge that Ken Lewis and Vikram Pandit have failed their test of leadership in the last 18 months. It's time to turn the page and move on.

I would argue that Lewis has no credibility now after yesterday's vote to stay on as CEO. People need to realize that most of the BAC shares held by brokers were automatically counted towards his re-election yesterday and for him to keep the Chair and CEO titles. Had those votes not counted either way -- as will be the case thanks to the SEC starting in 2010 -- the votes against him (and the other directors) would have likely been 15 - 20% higher than the numbers reports.
This means a real majority of shareholders voted down the re-election of several BAC directors yesterday and almost three-quarters opposed Lewis keeping the Chair title.

That's not a mandate to continue leading. It's time for Lewis and Pandit to go.

Position: None.

Originally published in RealMoney.com on 4/30/2009 7:57 AM EDT

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SEC puts Under-performing CEOs and Directors on Notice

Some great news today that the SEC is planning to end the current broker vote rules. This is a "win" for any shareholder who is tired of seeing over-paid and under-performing directors re-elected by seemingly vast majorities of shareholders at their annual meeting.

Take the Citigroup (C) meeting earlier this week. Several in the media pointed out that, despite the large number of angry shareholders voicing their displeasure at the meeting, Citi's board (including Vikram Pandit) was "comfortably" re-elected with about 70% of the vote. Turns out this is really an inflated number.

As the Wall Street Journal reported today, these vote numbers are skewed because the large number of brokers, who hold shares in companies and never hear from the underlying shareholders as to how they want those votes cast, end up throwing them behind management.
The article discusses the upcoming Bank of America (BAC) meeting next week where Ken Lewis will face a lot of heat. Because Ken Lewis will have 1.22 billion broker votes in the bag from the start, he only will need to capture about one-third of the votes from real voting shareholders to "win" a majority of support.

The SEC, under Mary Schapiro, is saying that this free ride is over starting in 2010. These broker votes will no longer count towards the encumbents' stash. All CEOs and directors will truly have to receive a majority vote. That's good for everyone -- including, ultimately, the directors. We'll have much more vigilant boards and better capital markets.

If Ken Lewis survives the vote next week, he likely won't in 2010 under these new rules, which is why my bet is that he announces his departure sometime this summer (after declaring that BAC is stonger than ever and poised to reap the benefits of his Merrill and Countrywide deals).

Position: None.

Originally published in RealMoney.com on 4/24/2009 2:48 PM EDT

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MSFT's Earnings Call: No Ballmer and No Strategy

Microsoft (MSFT) held its Q309 earnings call last night. The market liked that they met the consensus of $0.39 EPS (if you back out severance costs). They liked that the company announced an additional reduction of OpEx by $1B and CapEx by $200MM from the January call. Shares ended the after-hours session up 3%.

But, the real reason for the rally was that MSFT didn't fall off a cliff.

Some observations about the call:

Where was Steve? Steve Ballmer pulled a Vikram and didn't make himself available for the call. That shocked me, given the short interest and bearish sentiment on the stock over the last year. The message Ballmer -- and any CEO who does this -- sends to shareholders (including MSFT employees) is: "you're not important enough for me to spend my time with you." Evidently he was doing "real" operational work -- perhaps thinking of how to get the Online Services Business (OSB) segment to start making money.

A Dour View. Chris Liddell, the CFO, handled the call and provided three quarters of an hour of pure bleakness. There were no upbeat earnings to discuss like at AAPL or AMZN. You get the sense from Liddell that everyone at MSFT is in the bunker waiting for the all-clear. The leaders' best guess of when that will happen seems to be FY11 or FY12. Not very motivating for employees -- or investors. Fortunately for me a holder of the stock, the market seems to discount Liddell's apocalyptic views.

"Hurry Along. Nothing to See Here." MSFT's new GM of IR at MSFT, Bill Koefoed, who handled the earnings call, had the most militaristic approach I've ever heard to analysts on an earnings call. The analysts were warned they would get 1 question. It had to be short -- no embedding multi-part, multi-threaded question, and certainly no follow-ups. You had the impression these analysts were being hustled in the room to ask their question and hustled right back out. Koefoed also had an uncanny ability to not allow half a second to pass between Liddell's last word and urging to moderator to get on to the next analyst. The call ended 49 minutes after it began -- a record for any earnings call I've been on (unless you count some of the sub-$200MM market cap companies I've listened to who only have 2 analysts on the call). I love efficient people -- especially engineers and CPAs -- but the whole point of these calls is to let shareholders and analysts ask questions, not shut people up as quickly as possible, which is how it came across.

Analysts Posed No Questions About OSB's Performance The analysts' quesitons were largely forgettable. There were more to help them tinker with their Excel models than address some of the real challenges facing MSFT. For example, I would have liked to hear Liddell expound on where things stand with the OSB segment. Revenues for the segment dropped and losses doubled. None of the rumored partnership deals with Yahoo (YHOO) will really change that.

What is the Growth Strategy for this Company? Stepping back, it would have been nice if one of the analysts asked: "where is this company going?" The costs savings this quarter are great (and there are -- in my view -- many other areas where they could further reduce costs). But how exactly is this management team going to use its considerable assets to grow the business segments again? How are they going to get MSFT's forward multiple up from 8x (ex-cash) to above the S&P average of 15x?

Cash is Still King. Despite these issues, the company continues to be "Fortress Redmond." Its cash increased to $25B in the quarter. They are clearly conserving their horde, by slowing down stock buybacks and showing no interest in acquistions. Liddell indicated that this attitude would continue indefinitely -- or when the economic nuclear winter ends, whichever comes first.

Well done: Server & Tools. This segment -- the smallest of the biggest 3 segments -- actually grew revenues and EBITDA in the quarter (7% and 32% respectively).

Position: Long MSFT.

Originally published in RealMoney.com on 4/24/2009 7:00 AM EDT

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Vikram Too "Tied Up" to Make Last Friday's Earnings Call

When we wondered a few days ago where Vikram Pandit was for last Friday for Citi's (C) earnings call, we weren't the only ones.

According to yesterday's Wall Street Journal, several shareholders asked about it during Tuesday's annual meeting in New York.

Mr. Pandit responded that he was tied up with "a lot of other things." Mr. Parsons [Citi's chair] then elaborated saying that he and Mr. Pandit had to meet Friday morning with Citigroup's federal regulators, "who hold the fate of the company in their hands."

If true, I would hope, in the future, the federal government (as a 36% shareholder in C) would see that it's important for Pandit to carve out an hour four times a year to talk to shareholders on these calls.

Originally published in RealMoney.com on 4/23/2009 7:38 AM EDT

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CEO Accountability: Why They Need to Be on all Earnings Calls - and Taking Questions

Some great feedback to my Friday post about how I think it's shameful when any public company CEO (like Vikram Pandit at C or Steve Ballmer at MSFT) misses a quarterly earnings call with analysts and (more importantly) shareholders.

One reader said:

As an institutional investor, I am appalled when CEOs aren't [on these calls], and I always read it as somehow sneaky or deceptive. Macy's (M) is famous for this. Terry Lundgren is NEVER on the calls. And Tom Ryan at CVS tried to get away with not being on the calls a while back, but finally came back. Mike Jeffries at ANF has been on and off the calls. As soon as his new CFO gets more settled, I bet he gets back off the call.

Next worse practice is when companies do prerecorded, listen-only calls. WMT does this. TIF does a live call, but doesn't take any questions.

Frankly, if you're man enough to be CEO, then you should be man enough to answer investor questions four times a year in a public forum. If you're not, that's a definite strike against me wanting to provide capital to your company.

Absolutely agree.

Originally Published in RealMoney.com on 4/20/2009 12:20 PM EDT

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All Public Company CEOs Should be Required to Attend Quarterly Earnings Calls

This morning, Vikram Pandit decided not to attend Citi's (C) earnings' call. To me, this is an affront to any C shareholder. Even in the best of times, a public company CEO should see it as a job requirement to be on these 4x a year calls. After taking billions from taxpayers, I'm amazed that Pandit couldn't fit this in his schedule and left CFO Ned Kelly to soldier on without him. Whatever conflict Pandit had, he should have rearranged it. The optics are terrible and optics matter these days.

Next week, Microsoft (MSFT) will report. Until the last earnings' call in January, Steve Ballmer had routinely skipped these opportunities to communicate with his shareholders -- leaving his CFO, Chris Liddell, to fend for himself. I simply can't understand such reasoning. Do you think Larry Ellison skips out on these kinds of calls? Never.

We shouldn't need Mary Schapiro at the SEC to have to mandate this: public company CEOs need to simply start seeing these calls as obligations -- not distractions.

Originally published in RealMoney.com on 4/17/2009 3:39 PM EDT

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Boards Caused This Mess. Here's How To Fix Them

From Forbes.com

By Eric Jackson and Sydney Finkelstein

02.18.09, 11:25 AM EST

A simple two-step program for greatly improved governance.

Who's responsible for the swift and severe downturn in the economy over the last 18 months? Many groups deserve blame, but the most culpable group of all is boards of directors. They let their organizations leverage up enormously without fully understanding the risks or seriously considering the possibility that housing prices could level off or decline.

The last six years have proved beyond a shadow of a doubt that a tick-the-box legislated attempt to improve corporate governance, like the Sarbanes-Oxley Act of 2002, is just not sufficient; secondly, business leaders don't deserve a free pass to police themselves. We propose a two-part carrot-and-stick process, for both fixing boards and reducing the odds that such a calamitous breakdown in capital markets would happen again.

Politicians have a way of showing up at a crime after the fact (as long as it's serious enough to register with public opinion, that is) to produce legislation they hope will make people think they've done something to prevent the same problem from occurring in the future. Before September 2008, when Washington was forced to come to grips with the vastness of the downturn, politicians hadn't been so interested in business since the dot-com bubble burst eight years ago.

Back then, the drop in stock prices that savaged Americans' 401(k) portfolios was accompanied by revelations of egregious corporate wrongdoing at companies including Enron, WorldCom and Adelphia. Sarbanes-Oxley was the politicians' answer to that bad corporate behavior. It was supposed to make boards more vigilant and accountable for their companies' results. But it was utterly ineffective in preventing this biggest market breakdown since the Great Depression.

We know, from years of research and empirical evidence, that good governance does improve corporate performance and prevent corporate breakdowns. We also know that what makes governance "good" vs. "bad" has nothing to do with most of the "best practice" that finds its way into legislation. A board can be made up mostly of "independent" directors (however you define that); it can have some less tenured members and a chairman who is not also the chief executive officer, but all that has little to do with actual financial results.

The factors that most correlate with better governance and performance, it turns out, are things such as the quality of debate in board meetings, the open-mindedness of the CEO and the directors, whether the board does extensive scenario planning and whether it engages in playing devil's advocate when discussing possible courses of action. None of that is easily measured, so it can't easily be introduced into legislation. Yet it is absolutely critical to good governance.

Business leaders and their apologists at the Business Roundtable and Conference Board criticized Sarbanes-Oxley for years after it passed. They said it was too expensive, bureaucratic and good only for auditors, who got to raise their fees astronomically. They argued that Washington should take a much more hands-off approach. Businesses could police themselves, thank you very much. That point of view has been thoroughly discredited by the econolypse of the last year and a half.

In the two-part carrot-and-stick strategy we propose for improving the functioning of our country's boards, the carrot is better self-governance. Boards need to regulate themselves more effectively. The Securities and Exchange Commission can't be a fly on the wall to every board to tell it whether it's debating issues enough; boards must do that themselves.

The past year's massive destruction of both real capital and reputational capital at firms like Citigroup (nyse: C - news - people ) and Lehman should send shivers up the spine of every public company director. They should be seeking advice from other directors or consultants who have been successful at improving governance.

We have been involved since 2004 in implementing corporate early-warning systems at the board level to help directors address potential problems in a much more rigorous and systematic way. One basic measure of how a board is doing is whether it has an early-warning system in place. Boards must do everything they can to insulate themselves against failure.

But hoping public companies' boards will self-regulate is hardly sufficient. In our opinion, there needs to be a stick in place, too. To create it, SEC chairman Mary Schapiro and her commissioners need to swiftly enact something called proxy access. Today, when any shareholder in a public company wants to nominate a candidate for the company's board of directors, that shareholder must foot the bill and jump over an extraordinary number of hurdles.
The cost is, at minimum, $1 million for lawyers, mailings and proxy solicitors. The candidate must run against the incumbent board member, whose campaign is paid for entirely by shareholders. Imagine the same kind of stacked deck in favor of a one-party system in a political context--we'd call it Venezuela.

Well, U.S. shareholders have been trying to run against Hugo Chavez for years here, with Chavez protected by Delaware court decisions and SEC rules that seek to maintain the status quo (and that also keep the state coffers of Delaware filled, by the way). Proxy access would allow a shareholder who had held shares in the company for some time to nominate one or more board candidates on the company's own proxy. The challengers wouldn't have to pay the costs of mailing out proxies. If a challenger can make the case that he or she should be on the board in place of an incumbent, it should happen. May the best directors--not only the friends of the CEO--serve.

Critics of proxy access argue that shareholders who seek to be elected this way will either have extremist views (i.e., groups such as the AFL-CIO or Teamsters may gain more influence than a true majority of shareholders would want, and hijack the process), or "short-termist" views (i.e., shareholders will demand quick fixes for company problems instead of trusting management to do what's best for the long term).

In our view, these criticisms have no merit. Any potential director up for election to a board of directors, incumbent or challenger, needs to make a case for deserving the seat. We trust shareholders to judge for themselves. We believe Capital Research, Legg Mason (nyse: LM - news - people ), Vanguard, and other big investors can tell if a potential director is a crackpot or an extremist--or, on the other hand, a pawn of the CEO who will do nothing more than rubber-stamp his decisions.

We don't believe proxy access, if passed, will cause a major increase in board challenges, but there will be a few, and those could result in a sea change in board effectiveness. If board members are more closely tied to the people they are supposed to represent--the shareholders--they are bound to ask tougher questions. And that will be in everyone's best interests.

Eric Jackson is founder and managing member of Ironfire Capital LLC and general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. Sydney Finkelstein is professor of strategy and leadership at the Tuck School of Business at Dartmouth and is author of Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You (Harvard Business Press, 2009).

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