Maggie Wilderotter Quits Yahoo! Board

Maggie Wilderotter -- the most recent addition to Yahoo!'s board, joining in July 2007 (not including Carl Icahn and his band of merry men who joined last September) -- is now its most recent departing director. She gave the company notice last week that she plans to step down at the end of the year.

The fact that she's leaving is "not due to any disagreement with the Company on any matter related to the Company’s operations, policies or practices."

When asked if she quit because of new CEO Carol Bartz, Wilderotter added in an email exchange with the FT that "I think Carol is terrific." The lady doth protest too much.

Of course, it is true that Wilderotter has trouble on the homefront with the company she's actually still the CEO for: Frontier Communications (FRT). She has only been able to squeeze in a few hours for that job over the past few years, while she's been serving as a director for Yahoo (YHOO), Xerox (XRX), and Proctor & Gamble (PG) -- whose board she joined this year to take Meg Whitman's slot who is now seeking to become California's next Governor.

Wilderotter's directorships pay well. In addition to the $5.5 million she made last year in her real job as CEO, she made $400,000 as a Yahoo! director, $132,000 as a Xerox director and she'll likely get $250,000 this year as a P&G director -- what the average director last year made there. Why give up the money?

I generally don't like former CEOs sitting on boards, as they help perpetuate the "I'll-scratch-your-back-you-scratch-mine" attitude that dominates most boards when it comes to compensation and really challenging the CEO. If you've been a CEO yourself, you would feel sympathy for the current CEO on whose board you sat. You wouldn't want to show him or her up.

But if former CEOs are bad directors, current CEOs are worse. From a shareholder's perspective, they have a job to do and they should be eating, sleeping, and drinking that job -- not flitting off to board meetings across the country. CEOs take on these directorships to network and further their own careers -- not bring back insights from another company to their home company.

Wilderotter is a good example. She joined Xerox's board in 2006. There, she met Robert McDonald, then COO of P&G. They hit it off. When Meg Whitman stepped down from the P&G board and AG Lafley decided it was time to hand the keys of P&G to McDonald, he called his old buddy from the Xerox board, Maggie Wilderotter.

Yet, all this learning, monitoring, and advising that Wilderotter has done as a director in these past few years has not translated well to performance at Frontier Communications -- or for the companies on whose boards she sits. Since she joined Yahoo!'s board in July 2007, Frontier's stock is down 52%, Yahoo!'s is down 36%, and Xerox's is down 60%. The NASDAQ over this time is down 20% (and Frontier's direct competitors have outperformed Frontier's stock by about 20% over this time). (Yet, Wilderotter's total compensation is up about 150% in the last two years.)

So there is an argument to make that she needs to make time for turning around Frontier. Yahoo! would have to feel a little hurt though that Wilderotter seems to see Xerox as having a brighter future than the Web portal (as she's staying on the Xerox board).

However, I think there's more going on here. When you join a big-time board like Yahoo!'s, you don't grab your ball and go home after 2 years. You look like a quitter. Heck, becoming a Yahoo! director is like getting tenure as a Professor -- except it pays much much better. You can settle in for as long as you like at Yahoo! -- just ask Art Kern and Eric Hippeau who are about to embark on their 15th year as a director there.

I think it's obvious that Bartz and Wilderotter didn't see eye to eye on something. This is Carol's board now -- and, if you're not on her team, you're off (as would be the case on virtually every other board in America today).

Wilderotter has no business being on any outside boards when her own company's stock is going down the tubes. However, compared to others on Yahoo!'s board, she looked like one of the stronger directors. I specifically recall Chairman Roy Bostock going out of his way at the 2008 shareholders' meeting extolling Wilderotter's virtues as a director.

As bad as Wilderotter was as a Yahoo! director, the remaining directors are worse.

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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 RealMoney.com on 4/20/2009 4:18 PM EDT

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Rochester Democrat & Chronicle: Rochester CEOs pull down tidy sums in 2007

Matthew Daneman • Staff writer • June 8, 2008

Anne M. Mulcahy runs a $17 billion company. She makes decisions that affect more than 7,600 workers in the Rochester area. And she gets paid a handsome sum to do all that.

The chief executive officer of Xerox Corp. made $14.6 million in 2007, according to a Democrat and Chronicle analysis of executive compensation at publicly traded companies with operations in the area.

Compensation includes not only cash in the form of salary and bonuses but also the value of perks and the estimated value of stock options.

Mulcahy was the most highly compensated CEO among those whose companies either have their headquarters in the Rochester area or have large work forces here.

But some other CEOs, of companies based elsewhere in the country and with relatively small Rochester-area staffs, did even better. For example, Exxon Mobil Corp. CEO Rex W. Tillerson had total compensation of $27.2 million in 2007, according to the analysis.

At Eastman Kodak Co., the area's largest publicly traded employer with 9,200 local workers, CEO Antonio M. Perez received $11.7 million in 2007.

In all, 51 of 72 executives in the Democrat and Chronicle analysis had compensation packages in excess of $1 million in 2007. The compensation data are available only for companies whose stock is sold to the public. The data come from documents filed annually with the U.S. Securities and Exchange Commission.

Typically, stock options or performance-based incentives make up much of a package. Sometimes, those awards wind up not having any value if the company's performance lags.

And for every Xerox, Kodak or Corning Inc., where the top executives all commanded at least $10 million in 2007, there is a Document Security Systems Inc. or First Niagara Financial Group or Performance Technologies Inc., at which the CEOs made less than $1 million.

Executive pay is a hot-button issue across the country because, studies have shown, the gap between what bosses make and what rank-and-file workers make is much larger than it used to be.

From the end of World War II through the 1970s, CEO pay grew gradually, according to a 2005 study by Harvard University and the Federal Reserve Board.

But between 1980 and 2000, the ratio of CEO-to-worker pay increased more than tenfold, from 42-to-1 to 525-to-1, according to a 2007 study by the liberal Institute for Policy Studies in Washington, D.C., and United for a Fair Economy, a Boston-based group that tracks CEO compensation.

Since 2000, the gap has narrowed slightly, the study found.

Consulting firm Mercer LLC's annual survey found that, on average, CEO compensation actually declined in 2007, with executives at the largest companies taking the biggest hits as financial performance also declined.

Unintended effect

New SEC requirements in the 1990s forcing companies to detail what they pay executives were intended to slow the growth rate of compensation by shining more light on the subject, said Eric Jackson, president of Florida-based activist investment firm Ironfire Capital. Instead, that openness might have helped push the growth. "The unintended effect was that it sort of became this constant escalating match of who is going to be paid the most," Jackson said.

Prompted by shareholders, a small number of companies this year granted those investors a say in executive pay packages. Insurer Aflac Inc. of Columbus, Ga., last month became the first major American company to give shareholders a vote on compensation.

Apple Inc. in Cupertino, Calif., and printer company Lexmark International Inc. in Lexington, Ky., gave investors an advisory say, though not a direct vote.

Similar proposals were shot down this year at a number of companies, such as Citigroup Inc. and Morgan Stanley, both New York City-based financial giants.

The House of Representatives in 2007 passed the Shareholder Vote on Executive Compensation Act, which would require that company stockholders get an advisory vote on executive compensation. Sens. Barack Obama, D-Ill., and Hillary Clinton, D-N.Y., have introduced similar legislation in the Senate in the past year.

With CEO compensation averaging nearly $13 million at Fortune 500 companies, critics abound.

"Is anybody worth that kind of money?" asked Gary Bonadonna, manager of the Rochester Regional Joint Board of UNITE-HERE, which represents about 1,400 tradespeople working at Xerox's Webster campus. "I don't think so."

But given what Xerox's peers pay their executives, Bonadonna said, "I don't think (Xerox) is out of whack. I don't have an issue with it. If they were attacking our wages, it'd be a different story."

Xerox retirees upset about the cuts the company has made in health care benefits get particularly fired up each spring when Xerox issues a proxy statement that details, among other things, what the company's top bosses made, said Dave Ferren, vice chairman of the Penfield-based Association of Retired Xerox Employees.

Executives are paid so much because they know a lot and do a lot, said James A. Brickley, Gleason Professor of Business Administration at the University of Rochester and an expert on corporate governance.

"I'm sure you can find some abuses in CEO pay," Brickley said. But running a large company is such a specialized job, he said, that handsome pay packages are necessary to attract and retain top talent.

Pointing to privately held companies that have hired CEOs from publicly traded companies, such as General Electric Co. executive David Calhoun leaving in 2006 to head Dutch market research firm VNU for a reported $100 million, Brickley said the private firms with hands-on ownership "are not going to go out and overpay a CEO's salary."

Compensation for heads of similar private and public manufacturing companies, for example, will usually be comparable, said Peter Oppermann, senior executive compensation consultant with Mercer LLC in New York City.

Oppermann said the increased public attention paid to executive compensation hasn't curbed the growth of pay packages but "has ensured that companies have paid for performance."

Brickley added: "There's a lot of focus and argument over CEO pay, but in reality that represents an incredibly small fraction of the overall value of these companies. ... So the pay is over the market rate. Is that as big an issue as not getting the right person in there?"

Set by boards

Executive pay can be a touchy subject for many companies. Major employers including Xerox and Constellation Brands Inc. declined to discuss the issue beyond pointing to their proxy statements.

Ultimately, executive compensation is set by companies' boards of directors. And typically those boards adopt packages that are designed to attract and motivate qualified executives and that are based on an assessment of corporate and individual performance. Companies also look to peers to help determine what they should be paying.

Many of those highly paid top executives are among a company's major shareholders. Patrick White and Peter Ettinger, CEO and president, respectively, of Document Security Systems, combined own more than 8 percent of the Rochester-based company.

At Perinton-based telecommunications company PAETEC Holding Corp., CEO Arunas Chesonis owns 8.3 million shares, or almost 6 percent of the total. And Kodak's Perez owns 1.2 million shares, though that amounts to less than 0.5 percent of the common stock, and has access to 1 million more through options.

Compared to companies around the globe, UR's Brickley said, American CEOs are more highly paid. But that can make for an apples-and-oranges comparison because "some (foreign) companies ... deal in less complex environments."

And as markets around the globe become more integrated, Brickley said, "the pay packages are tending to converge more."

MDANEMAN@DemocratandChronicle.com

Includes research by staff writer Jeremiah Curtin.

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