Off to the Big House?
Yesterday Ken Lay and Jeff Skilling were found guilty on a slew of charges related to the collapse of Enron. Lay, Enron's founder, and found guilty of all six counts of conspiracy and fraud against him, faces a maximum of 165 years in prison (ouch!). Skilling, Enron's president and found guilty of 19 of 28 of his charges will face up to 85 years in prison. In addition to Sarbanes-Oxley, there have been some interesting changes as a result of the collapse of Enron. According to the Christian Science Monitor:
- Today, CEOs can no longer use the excuse that they can't be responsible for other people robbing the company. They can't reward friends with a seat on the board of directors - today, the board must consist of knowledgeable people who will challenge company procedures when it's necessary. And, CEOs, if they choose to ignore the changes, could well be out of their jobs.
- This is part of a unified effort by state and federal authorities to wage war on white-collar crime.
- This has undoubtedly had a powerful effect on the corporate mind-set. CEOs from Main Street to Wall Street are going to be more hesitant to deceive investors while lining their own pockets.
- Since Enron, forced turnover at the top has doubled.
- The CEO used to be the pinnacle of a career, the reward for a long, hard slog - Now, it boils down to your performance - if it's not there you are probably not either.
- One reason boards are starting to exert themselves more are changes in how board members are chosen.
Succession Planning in Public Companies
An interesting article today in the WSJ (registration required) - All in the Family: Why Should Executive Posts at Publicly Traded Companies be Passed on Like Heirlooms? The article discusses the idea that many senior level positions at major public companies are filled with children of current leaders. According to Professor John Ward of Northwestern, "...such handoffs happen smooothly only about one-third or one-quarter of the time." Add to that the concerns recently about corporate governance and objectivity, and a slew of questions can be raised. Why should a controlling shareholder also serve as the CEO and then be able to pass the baton to their offspring? Are children really as qualified? The article goes on to cite examples where advocates describe how the offspring is often groomed for the position, starting early on in their careers leading divisions of the company, etc. What strikes me as inherently problematic is the idea that opportunities are created for offspring that are not afforded other, perhaps more capable contenders. In addition, many of these companies, have multiple classes of stock. The stock that you and I buy have restrictions on their voting. Essentially, the family who runs it, owns all the voting stock. So, why do we call these public companies? And are the decisions to hand off the controls to Junior when Dad retires REALLY in the best interests of shareholders?
Posted By Diane Pfadenhauer In Corporate Governance 1 Comments | Permalink