• Government Capping Compensation?

As you shelter yourself in a cool closet from the hailstorm of healthcare promotion, Congress and the President are sliding into home plate with compensation controls in the senior offices of financial firms, … for starters. The new Corporate and Financial Institution Compensation Fairness Act will provide no other than the SEC with the ability to establish the rules on how executives are paid, and will enable government agencies to effectively control the “inappropriate risks,” practices of financial companies. Institutions with less than $1 billion in assets will be exempt. This further intrusion into the fiber of corporate America by those who have completely failed in carrying out their responsibilities to the electorate is another misguided kneejerk reaction.

This bill will empower government bureaucrats to control compensation plans that will threaten the safety of financial institutions, or adversely impact economic conditions or financial stability. Have no fear, the newly hired experts will figure this part out, what it means and how to implement it, and they will diligently look after your interests.

There’s hope, however, with some minor good news in this bill that resides in its provision for procedures for shareholder approval of golden parachutes. What this portion of the bill looks like in final form will dictate whether or not it makes any sense, but in the meantime, three cheers for the crumbs thrown at demands for common sense. We shall not hold our collective breath. Another clause that might have provided teeth in a corporate structure fix was the providing of a voice to shareholders on executive pay. It failed miserably in its final form, since the shareholder vote on executive pay will be non-binding, therefore will leave shareholders where they were before, … “we’ll tease you with a little influence on the company you own, but, … naah, just kidding, get lost and go back to your trading screens.” Shareholders, large and small, should have greater influence on the proceedings of the public companies they own, and such influence should be addressed at the Board of Directors level. The government is not improving the lot of shareholders, but is escalating its own intrusion into the boardrooms of America.

We should remember that this is the same Administration and Congress that couldn’t even track the bailout money, or put strings on the money to restrict it from getting dished out in the form of bonuses. This is also the government that threw those billions at financial institutions on the pretext that they had to be bailed, to avert a depression, yet no one in government could tell you where that money actually went. So how was it, exactly, that those bailout billions were allocated? The toxic assets could not be defined or audited, which means that the fear mongering and threats were outright lies. Wall Street skunked this Administration, as well as the last one, and as a result a colossal extortion of the taxpayer was allowed. Did anyone making these horrendous decisions ask the hundreds of thousands of businesses from coast to coast what their banking preferences might be? … Would you rather deal with a gigantic-too-big-to-fail-market-dominant bank headquartered in New York, or a medium or smaller sized regional bank? When did “failure” get expunged from the dictionary of American Capitalism?

Government intervention has reduced competition in the banking sector, allowing the favored few bailout-receiver-therefore-government-backed behemoths to attract investor support, and has enabled their acquisitions of not so fortunate competitors.

All of this frenzied government activity pretends to be response to the outrage against some of the insanity exercised by some like AIG, Goldman Sachs, and Morgan Stanley. The $11 billion plus, awaiting the bonusable at Goldman should soon make for incendiary fireworks, and support the government cause. Using public anger as cover to implement invasive measures is rather expected from a government that has failed to acknowledge or accept any responsibility for the environment that incubated the bubble which burst into a recession. Giving more power to vehicles such as the SEC for example, reminds us of the abject incompetence the SEC demonstrated through the economic extravagance that allowed Wall Street the power and influence to exploit, and then erode, the financial health of the Nation. Did the SEC also not have a front row seat to Bernie Madoff’s implementation of an extensive 40 year long grotesque personal compensation program?

Sweeping expansion of government incompetence into corporations is an invasion that will not be reversed. Other more intelligent policies should be considered instead of launching clusters of bureaucrats to invade company offices in all corners of the country. One could consider implementing laws against monopolies, but it would be more effective to start with segregating the large banking institutions into more pure line of business sectors. It really comes down to reinstating certain portions of the Glass-Steagall Act that was repealed in 1999. Hundreds of millions were expended by the large banking institutions to achieve the repeal of the Act, therefore a reversal would be very difficult. Given the present climate of Washington dependence on Wall Street cash, even “difficult” might be a stretch, however, such reinstatement would bring back some peace of mind to taxpayers in the long-term.

The critical functions provided by undistorted banks operating within narrow guidelines should be reconsidered. The contamination of many banks over the past decade, with the annexation of such things as brokerages, and the underwriting or trading of complex securities, should be reversed. Government should direct existing oversight bodies to perform their duties, including the enforcement of laws dealing with asset requirements, capital ratio leveraging, and lending guidelines. Then, government might provide shareholders with more teeth to bite when necessary, and leave them to rule over freshly formed and more independent Boards of Directors.

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• Obama’s Not So Private Economic Conundrum

Having effectively been elected by a population believing in his redistribution of wealth promises, Obama has leaped into the fray of a game in which he has no experience. He arrived with an ideology, and seems to have learned little about the recession facing the Nation. Still he charges ahead. Along with millions of fawning supporters, Wall Street is quietly cheering and encouraging the moves of a neophyte CEO. You would too, if you controlled the game.

Many pundits and most of the mainstream media have intellectualized a rationality for the President’s actions with an unconvincing, “he’s a smart guy, he knows what he’s doing” or the very successful assignation, “the mess is Bush’s fault.” Others who once supported him now have stepped back a little with an abundance of “time will tell, give him some time,” brace-yourself sentiments. The American voters re-elected Bush to a rare second term, so this blames the voters, but more critically it is a disingenuous condemnation.

The anti-capitalism wave that swept the nation and elected Obama was a reaction to the financial sector’s abuse of influence and power. Within the reach of a compliant and not so watchful Congress, some players took absurd risks across the banking spectrum, breaking all rules of reasonable lending practices and leveraging. As Obama continues the out of control bailout of the financial services industry program Bush started, the problem America has faced for the past decade and continues to be saddled with, is the dearth of knowledge on the part of its President pertaining to its most critical challenge.

Any CEO who is perplexed when facing a balance sheet is incapable of effectively managing a large corporation, particularly one passing through a very turbulent and economically treacherous period. In such times, having in place an independent and objective Board of Directors is imperative, even if the CEO is aware. In the President’s case, Congress is expected to act as a balanced and diligent chamber, not an anesthetized rubber-stamping convocation. Both Republican and Democrats in Congress can take blame for having succumbed to the seduction of money, which led them to ignore the bubbles (housing and financial) that have imploded with worldwide ramifications. Congressionally mandated liberal (read: Standardless) mortgage qualifications, coupled with Greenspan’s loose money policies were the fuel that energized the bubbles. Bush was not responsible for the financial meltdown, and neither is Obama, although both can be accused of complacency. However, …

When the markets caved, Bush was in over his head facing challenges he did not understand, and he handed the hot potato to Paulson. Apparently Bush believed that a fox is the only one who has experience with chickens, and is therefore their inevitable overseer. It was evident that Bush had already vacated the White House premises mentally, and was running south for cover, hoping Obama would take over the reigns even before his time. In came Obama, with no more intimate knowledge, perhaps less, of the economic landscape and Wall Street than his predecessor. What did he do? Installed Paulson’s buddy and protégé of sorts to continue the good work of bailing out the financial community. Unfortunately for the taxpayers, Obama will continue to do whatever he is told to do.

At least Bush didn’t pretend he knew what he was doing. Obama’s ego on the other hand refuses to allow for such leak of doubt even in his private moments with the mirror. He is confident, and believes that he is intelligent, but the arrogance is leading him, and the Nation, overzealously into trouble. Problem is, the nation will pay for his ego and his lack of analysis or interest in educating himself.

As I’ve suggested previously he should shut the door of the Oval Office for a month, stay off Air Force One, and get a concentrated dose of education on the biggest challenges. He won’t. If America’s financial house is in order, every other challenge facing the country will be more easily remedied. It deserves his attention and intimate understanding of subtleties. A few phone calls will roundup all the teaching talent he can use. The objective is not to transform him into an economist. That would be just as disastrous. The goal it to get the CEO to become aware of what he doesn’t know, and get a grasp on some right questions to ask those that he has delegated authority to.

The U.S. Treasury and The Fed deserve his attention though they don’t want it. Who wants meddling when you’ve got yourself a key to the vault? They are happy to work with someone who doesn’t know enough to probe effectively with relevant examinations. They have been content for over a generation with residents of the White House who did not know what they didn’t know. Their jobs were made so much easier. Clinton might be the only President in recent memory who might have come close to being analytical and inquisitive. Have we so soon forgotten Allan Greenspan’s endless tenure and obscure meanderings who propelled the money markets over the edge? Why has Geithner’s failed role at the New York Fed garnered him ultimate power in the new Administration? Simple. His boss doesn’t know any different.

The occasionally heard rationalization, “we need those who brought us this mess to help clean it up,” is actually touted as if it made sense. … Not to American taxpayers, it doesn’t. With the bobbing head of the President, those who manipulated the fashioning of the worldwide recession are now tapping into the taxpayer pockets with schemes that will eventually surface, but to no avail. There will be no repercussions because there is no elected official who knows enough to dig, or has competence enough to conduct even superfluous due diligence.

When, for example, will taxpayers ever be apprized of the realities that will have allowed banks to market packaged toxic assets to funds, with the taxpayers, through the deft fingers of Geithner, guaranteeing the losses? ... The funds being pools of capital formed in partnership with Treasury where the taxpayer is fifty percent partner. Yes, you, the taxpayer will be a 50/50 partner, and that’s not good news because you are also the backstop on any losses incurred. Losses will represent much of the packages because we’re talking about mortgage loans that have been under water for some time and worse, these wondrous financial baskets include miasmal securities that were created by the geniuses running these now thrashed financial institutions. The outside independent fund “partners” have you to thank for their lack of risk. Don’t hold your breath waiting for transparency from Geithner. Geithner’s buddies will continue to be bailed, make billions, replenish their coffers, and taxpayers won’t know the hows, whens or whats. Ever. If you think you have a few bucks to invest, and want to get in on this action, good luck.

The big lie was that such radical measures were necessary if big lenders were ever going to lend again. Think about the absurdity of that statement. Your corner lemonade stand entrepreneur knows better than that. Oh, and the other sensible reason was that these giants of the financial world required their lost capital replenished. So, in go the taxpayers, threatened and squeezed into recapitalizing incompetent banks by overpaying for assets, … well, not assets so much as worthless toxic waste.

Thousands of banks across the country with solid financial statements could easily have been provided government backing to loosen some cash for loans, with deals and conditions pre-negotiated, etc., etc., etc., we could go on and on. The Geithners around him, by the way, could care less what Obama does with headaches like GM, Chrysler etc., so he plays pretend capitalist flexing his newfound CEO muscles, guided by an irresistible ideological need to change the rules of capitalism, another game far beyond his capacities and experience. He now seems to be an expert in the desires of the American public, which is apparently clamoring for electric automobiles, but is evidently doing it very silently.

The Administration’s bungling of the GM restructuring completely extinguished any possibilities of renegotiating the repressive union contracts that weighed heavily in the collapse of the auto industry. Obama’s support of unions, and his indulgence of their quid pro quo expectations will have detrimental effect on the taxpayer investment in GM. Obama is adding a whole new level of risk to investments – political risk. With GM and Chrysler as examples of overzealous government intrusion, and being very indicative of the overall climate in Washington, unionized companies and those encumbered with legacy liabilities, can expect to encounter serious difficulties raising capital in the foreseeable future. Unions have an important role to play in the economy, however, overstepping bounds of reason is detrimental to the “host.” The free market system needs oversight, however, Obama is taking the concept of oversight a little too personally, and his insinuation of government into the free market system is exceeding all constitutional expectations.

Meanwhile middle America awaits a positive outcome from its new President’s policies. It holds fervent hope that things will work out, and his wealth redistribution will magically trickle down to better jobs and higher incomes.

The money game and Wall Street are influenced by major players who never write tell-all books. There is no conspiracy, but there IS a game. Even Geithners are pawns in the game, but they play just the same. The vast independent pools of capital circling the globe, are directed by astute, quiet, effective and ruthless administrators. If you influenced the management of $500 billion and more, would you leave the investments to the vagaries and whims of markets? Would you risk the capital? Absolutely not. You would influence, and manage as much of the game as possible to achieve your objectives. You would do what you have to do to preserve capital first, and maximize returns second, to whatever extent possible, as would any mid sized, or small fund, or even minor investor.

As for Bushes and Obamas? They don’t know there is a game. Ideology is blinding, and with arrogance stirred in, the clustered aggregate, marketed and sold with masterful dexterity, will be detrimental to a whole nation’s economic well-being.

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• Dilettantes At The Chrysler Gate

As Obama forces his personal views on the automotive landscape, his injection into the Chrysler debacle is evidence of the lengths he appears prepared to reach for morphing the Presidency into a willful bully-pulpit. Even the media is using words like “rogue group,” to describe the Chrysler creditors holding out for better treatment from the government.

Obama complained that the small “group of speculators,” rejected the government’s 33 cents on the dollar offer. Speculators? What a peculiar denigration of bankers who didn’t feed at the government bailout trough. This is a very serious misrepresentation of the reality surrounding the mess that has swirled around the government intervention into corporate America.

The “holdout group,” which included approximately 20 debt holders, claim they are being treated unfairly. No kidding. They have no seat at the negotiating table, and are required to be represented by recipients of taxpayer TARP money. Where is the common sense here? Why would the UAW and TARP fund receivers be more capable of representing the interests of the debt holders than they are themselves? These rogue investors, representing pension and retirement plans and school endowments, as well as teachers union, placed senior secured loans into the Chrysler coffers. Now Obama calls them “speculators,” as if the term is a dirty word that middle America and taxpayers should accept as such. Speculators are exactly what America’s business engines urgently need right now. Why disparage them?

This is simply misrepresentation and obfuscation floating from a White House seemingly unafraid of twisting perception of reality into support for a profoundly ideological agenda. The serious concern rests in the possibility that the government will corrupt the longstanding bankruptcy code that has stood the smooth functioning of the capitalist system very well. The bully pulpit in the hands of an effective salesman might well inflict permanent damage on the open and free corporate landscape which has fuelled America’s growth for over a century.

Those financial institutions who profited handsomely from taxpayer philanthropy which financed their bailout cash, distributed by the current and previous administrations, are understandably very solicitous of Obama’s demands. The White House accusing the holdouts of acting against the national interest, is injecting the government directly into the management and decision making process governing the funds. This is a pretense that the activity of bankruptcy is somehow unnatural and un-American.

Leaders of the rogue funds should continue to act and conduct themselves in line with what they believe are their fiduciary responsibilities on behalf of their investors, regardless what others in fear of the bully-pulpit might do to pacify the domineering harassment from the White House. The bankruptcy proceedings should be allowed to play themselves out legitimately under the rules and laws that have long proven effective and cleansing in corporate America, and the Administration novices should refrain from interference with management of corporate America and speculator fund management. America is a country of laws. Government should abide by them.

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• Disrespecting Taxpayers & Shareholders

As CEOs beg for Troubled Asset Relief Program (TARP) handouts, the new corporate mantra is, “maintain shareholder trust,” … sorry, make that the new corporate mantra is not, but should be, …”maintain shareholder trust.”

All Congress and White House promises of oversight on the bailouts don’t seem to apply to financial institutions. Bank of America received $45 billion from trusting taxpayers, and after its sloppily structured acquisitions of Merrill Lynch and Countrywide Financial, taxpayers watched helplessly as hundreds of millions were paid out in bonuses to the failed company executives. $2 billion went to the senior talent at Merrill for delivering $15 billion in losses for the last quarter. The excuse from B. of A., the 100 year old largest financial services company in the world, was that it couldn’t legally challenge the previously made promises for absurd payouts and bonuses to people who destroyed the companies they managed. Truth likely resides closer to lack of due diligence prior to the acquisition, and forgetting to impose much needed conditions upon closing.

How do The White House, Congress and B. of A. CEO Ken Lewis forget to make the cancellation of these extraordinary payouts part of the negotiation when the acquisitions of Merrill and Countrywide were being so brilliantly conceived? Now the Bank is looking for more bailout money from taxpayers. That’s after destroying one quarter of a trillion dollars in shareholder value. Why are taxpayers continuing to be so generous? Why are Obama and Congress not refusing to provide more money? Why are they not demanding removal of B. of A.’s Board of Directors and CEO? What has been perpetrated on taxpayers and shareholders is well beyond the bounds of abusive, and certainly not within the definition of “trust.”

Leaks of Merrill CEO John Thain spending over a million dollars to renovate his office pales compared to the $83 million he paid himself, before his company imploded, receiving $10 billion from taxpayers last October. Is anyone really paying attention? Handing out bailout money appears to be very easily done. Could it be dished out a little less sloppily perhaps?

The Citigroup version of abuse after receiving its $45 billion bailout from taxpayers includes a very visible $50 million executive jet. No flying coach for these managerial failures. Is there someone coaching these folks on effective PR? Now that the public distaste has become an impossible pill to swallow, Citigroup announces a decision not to take delivery of the plane. And this incompetence requires that it be paid millions in compensation so that it does not leave the fold for greener pastures? Who would hire these decision makers? Another bank adept at taxpayer and shareholder abuse?

Are Obama and Congress making good on their promises? It appears that such lack of interest is as extreme in disrespect of taxpayers and shareholders, as the extent of transparency, control and disclosure is lacking. Their response to the public outrage is disheartening and rather pathetic. What category of oversight does, “… (Citigroup) should not be spending its precious greenbacks on frivolous luxuries,” represent? Getting a Treasury Department official to ask Citigroup to rescind the decision after the furor became deafening was proof of incompetence in the execution of the duties to represent taxpayer interests. Should parameters for use of funds not have been decided on and agreed to before the cash bags were delivered?

Where in the rainbow of possibilities contained in the term, “accountability,” does the taxpayer-funded influence peddling of politicians by these companies, get such interpretation? Should taxpayers be grateful that B. of A. has decided to curtail its visible lobbying for bailout money? It will do so more privately from now on, and the rest of its lobbying activities will advance unabated. Politicians will continue to be influenced with taxpayer bailout money, but the manner of this manipulation will be much less embarrassing to taxpayers. Whatever partial non-lobbying the bank is not participating in, seems to be working. It’s expected to receive another traunch of TARP funds as its own exotic and toxic securities ferment into further billion dollar losses.

All of this has nothing to do with tightening regulations on the banking industry, though some is required. This is about setting in place firm agreements and conditions under which the hundreds of billions are to be accepted and spent on behalf of the taxpayers who will be on the hook for the money. This is about establishing a government agency that would, on behalf of taxpayers, become the guiding body watching over the complex intricacies of the whole financial system and its ability to create derivatives no one understands or analyses. This is also about showing respect for sweat that America’s broad middle class will endure to pay back all of this bailout money.

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• You’re Fired. Now, Where’s My Raise?

Today Microsoft announced a shaving of 5,000 jobs internally and a reduction of thousands of external jobs with its contractors or suppliers. This is rationalized by “economic conditions.” Did we read anything about wholesale compensation cutbacks? Not much.

This is not a condemnation of Microsoft, but a statement on Executive responsibility and attitude. Management in companies across this continent, particularly senior management, holds meetings on how and where to cut back roll calls, and diminish hard, non-discretionary costs weighing on the cash flow statements. The purpose of these thousands of meetings in fluorescence filled rooms is first, to save the most senior jobs, and second, to save the most senior jobs. Why? Because they can. Why? Because they’re more senior than the rest. If you are a senior executive in this economic climate you would have to commit evident fraud to get fired. The economy gives you all the rationalization for failure you will ever need, “It’s not my fault, and the economy sucks.”

None of these meetings are discussing the extermination of options from compensation packages. Starting with the CEO on down the layers of each corporate pyramid, each individual has been convinced that options are the way to riches. Middle and lower ranks dream of the day when they will get a taste. Wall Street pulled all of corporate America into its game. Brokerages influence companies through their prejudice of CEOs and Boards of Directors, and as well as through their control of the public trading markets of the companies these executives manage. Employee options are one key to that control. There are other schemes used to control CEOs, however, for the manipulation of the senior crowd, options are a perfect and very effective tool. Corporately, options can be argued to be effective in up-markets. The effectiveness argument looses fervency when options are under water, as is the case for many in the markets we are now experiencing. So why is no one arguing against them as an effective tool in the motivation arsenal? Options don’t work in a down turn. So why use them? DON’T.

Employees, including CEOs, should not be preoccupied with stock markets. Doing their jobs effectively will strengthen the company and that will, or should, satisfy shareholders. Forget the broker. This employee option business is a Wall Street subterfuge and everyone is familiar with the refrains that attempt to legitimize the practice. Any executive hiring a consultant who sings the “equity compensation” song to his board or to the shareholders, should be fired. Their rhyming couplet about, “aligning executive interest with shareholder interest,” is a fraud. Throw them out.

Middle America has been lulled into accepting that those at the top of the corporate food chain know something it doesn’t. Middle America has come to accept that the lofty layer of American capitalism somehow deserves hundreds of millions in annual compensation. The practice should be stopped and all shareholders should demand an end to it. The senior ladder of success should be compensated with salaries and bonuses structured around objectives intended on building the business. Objectives such as growth and profitability. You don’t need a complex algorithm to establish actuals against quotas for sales or margins that could be employed to dictate an employee’s compensation.

None of the above mentioned corporate meetings are having serious discussions on ethics, moral standards, sustaining the human community, or sustaining jobs through the recession by dramatic overall cuts in salaries and bonuses. Have any companies announced immediate 20% pay cuts to the top half of the employee spectrum? Is anyone making over $100,000 in total compensation getting chopped by 20%? Is anyone making over $250,000 getting a 25% haircut? As for anyone taking over $500,000, … hmm, OK, for you maybe we’ll, hang on, ... let’s talk about a loan back to the company, could we? You get the point. Implement major cut backs in salaries and bonuses, and save jobs. You can’t save all, but save as many as humanly possible. This will require an attitude shift in senior management.

Such a strategy would allow people to continue supporting their families, buy food, make car loan payments, and pay their rents or mortgages. I’m not suggesting that corporate America turn into Sally Ann, however, the whole economy needs creativity injected into its limbs if it is to by-pass a depression. Don’t keep positions that are not required or redundant, but most of the employees now being fired were hired for good reason. As markets shrink so too will payroll, but in these times of bailouts, the escalated compensations of senior staffs need revisiting. These senior levels must take compensation diet pills. Big ones. Such therapy can only be prescribed by those taking home the largest piece of the pie. All CEOs should make a visible and public effort to save the rank and file.

The economy does not need to read about any more cuts in work forces, as 3 million already lost their jobs last year, but it really needs to read that you, the CEOs, implemented drastic cuts in compensation. Even if you personally take one cut of $30,000 to save one job, that is a move in the right direction. Each company can do its part. The positive PR will do wonders for your frame of mind, for your company, and most importantly, you will be forever grateful. Really.

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• YAHOO’S BOARD AND ITS SHAREHOLDERS

Here we are again at the whining post of shareholders lamenting the sale that might have been. There is a rueful cry heard from Yahoo shareholders that $34 would have been a great price at which to have sold their shares. The original $42 billion plus in cash and shares bid from Microsoft was at the time, and in retrospect, an astronomical sum. By any objective measure, this was an overpayment inflated with ebullience. Yahoo’s share price currently languishes at around $25 and Microsoft’s has slid from over $37 last year to today’s $29. The well over $40 billion dollar hoard would have even choked Microsoft, … and Yahoo’s response?

The Yahoo Board responded with a nonplussed, and perhaps baffled, “the proposal substantially undervalues Yahoo!” Where have these Board Members been for the past five years? More importantly, where have they been since Microsoft stepped forward? Was anyone surprised at the time of the offer that there was no parade of sign-brandishing shareholders marching up and down First Avenue in Sunnyvale, California? Why were they not clamoring for the Board to get the deal done? Greed, and absurd expectations had long set-in.

It was also evident that for the few Yahoo shareholders remaining with any signs of common sense, the corporate structure provided little real possibility for input or influence on direction. When large shareholders have to file lawsuits to be heard, such as the Detroit public employees pension fund and the Detroit firefighters and police pension fund, the cracks in the corporate system are evident. This is another glaring example of broken corporate governance and the need for reorganization, particularly in the Boards of Directors. This is also evidence of some abject and shameful incompetence.

On behalf of the shareholders, if for no one else, the Yahoo board should have dispatched an emissary to set up a tent inside Balmer’s office, keeping the dialogue alive face to face. At least the shareholder interests would have been more diligently attended to, while the rest of the misguided Board Members, as well as their ineffective consultants and advisors, were going about embarrassingly scrambling for dead-end negotiations with AOL or Google. Microsoft might have actually been convinced to remain at the table with something close to the original and enormous offer. Something might have been negotiated, providing some level of autonomy to the Sunnyvale organization within the fold of the giant’s garment. Details of a relationship with respect to merging of some services, methodologies and technologies might have been set out, and provided evidence of “good faith.” This would have been the minimum expectation of conscientious and assiduous management. This should have also been an expectation of the shareholders. They were failed by pride first, and bad advice second.

On the Microsoft side, the shareholders also need to find the next leader that will lead this giant into this century. Microsoft is so large and flush with cash, it still doesn’t know the year 2000 came and went. It hasn’t needed to. For continued growth, Microsoft should be injected with some vision on what the Internet can become over the long term, or purchase a company that does. Even if tempted in the future, it should leave Yahoo alone. This didn’t start out well and probably wouldn’t end well on the domains of synergy. For the rest of us non-Yahoo-shareholders seeking innovation and competition, the breakdown of the deal is to our advantage in the long term. Thanks, Yahoo Board Members.

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• BOARDROOMS NEED RESTRUCTURING, … AND NOT IN A DECORATIVE SENSE

While wondering where the legal extremes of corporate abuse, or less legal malfeasance might next surface, there is one prevailing trend that has swept corporate America and led to Congress scratching its assembled intellect. A gradual shift of control of the boardroom. That is now complete.

For any system to succeed over the long-term it should be tended to and altered where improvements can be affected. Starting at the top the capitalist system is in very urgent need of adjustments and a few repairs. Let’s look at one such fissure in the realm of responsible governance affecting one cog of the system. The Board of Director structure and control.

A Board’s responsibilities, as representative of shareholder interests, are broad. They include oversight of business strategies, their implementations, as well as direction of corporate compliance with laws and regulations. The Board dispenses its fiduciary duties through a management it is supposed to control. Most Boards don’t. Whether they are active, interested or complacent does not really matter much. The shift that has swept through all boardrooms over the past thirty years has made directorships a primarily comfortable and financially rewarding posting.

Instead of Chief Executive Officers (CEO’s) reporting to a Board chaired by a Chairman, we have Boards reporting to CEO’s who are also Chairmen and therefore report to themselves. In a structure where the CEO reports to the Board with an independent Chairman who is only that, a Chairman and not a manager, you have a higher likelihood of Board independence and proper oversight. Directors are more likely to influence corporate direction and guide adherence to laws and codes of ethics. Impact of both subtle and overt pressures change when the Board is structurally the final arbiter of governance between the management of the enterprise and its owners. The Board can therefore more effectively and evidently demonstrate the trust and confidence with which it has been entrusted. Shareholders as well as society at large, employees, customers and suppliers expect it.

A Director should not be a CEO’s friend or associate first, and overseer second, as is currently the predominant situation. Although there is pretense to the contrary, North America’s corporations have become the purview and domain of CEO’s in an absolute and royal sense.

Congeniality as well as pandering to the requirements of a CEO is, for the vast majority of directors, the path of least resistance whether those solicitations are subtly delivered or outright demands. It is also the path to continued receipt of all commensurate benefits requiring little mental energy. Even less appetizing for most outside the boardroom is the fact that since there is widespread cross-pollination of Boards, the qui pro quo and indulgence on CEO remuneration results in the gross examples of unrestrained abuse to which America is being exposed. No need to provide examples here since publications, such as Forbes and Fortune, provide copious lists for stimulation of either aspiration or envy. We can also easily recall being treated to the impact that such ineptitude at the Board level can achieve.

Asking the difficult and right questions is never easy. Such exigence requires effort and knowledge. Demanding that such questions be answered is almost impossible in the current atmosphere of convivial boardrooms. This can only come from independence of appointment and independence of thought. Until that is achieved in the boardrooms, there will be little if any scrupulous and effective monitoring of management for signs of abuse, fraud, or the exercise of basic common sense on behalf of all stakeholders.

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