There has recently been a good deal of attention on the downfall of CEOs such as Scott Thompson of Yahoo and Brian Dunn of Best Buy for alleged indiscretions. These developments are said by some to be a triumph for shareholders. I'm not sure why anyone should think so. As one who has pondered and written about the nature of good corporate governance, I'm troubled by this turn of events, and feel that it bodes ill for our economy.
Shareholders invest in public corporations to make money as a result of the efforts of management. Management should be evaluated by shareholders based upon whether they attain "good" financial results and do so in a lawful manner. None of this has anything to do with their personal behavior, indiscreet or not, yet recent events place the focus on the latter. In my opinion, this is ultimately detrimental to shareholders and should give pause to corporate governance advocates.
I understand that once revelations of personal malfeasance are made public, if they are true, their impact on management credibility is such that termination is probably required, but question why shareholders go looking for this sort of thing.
Mr. Thompson may or may not have been the right man to lead Yahoo out of the doldrums, and early returns as to his policy decisions gave little indication that he was on the right track. It would not have been absurd for shareholders and directors to have misgivings about such decisions, but there is no indication that this was the case. Instead, he was cashiered primarily [solely?] as a result of his false statement that he had a computer science degree and an accounting degree from Stonehill College, when in fact he had only the accounting degree.
While I certainly do not condone such misstatements, what does they have to do with his judgment as to matters of business policy? If he lacked the technical knowledge of computer programming to succeed at Yahoo, this should have come out when was interviewed and otherwise vetted, or at worst, been apparent from his performance. In any event, it is independent of what degrees he holds. As pointed out by Dan Lyons in the preceding link, the state of computer science is a bit different today than it was in the 1970's when Mr. Thompson claimed to have acquired his degree; the knowledge would have been largely irrelevant.
What did the "activist investor" who unearthed the false statement really accomplish by doing so? If Mr. Thompson did have the requisite knowledge and was doing a good job, firing him strictly because of the misstatement as to his degrees did a real disservice for shareholders.
From all accounts, Mr. Dunn was canned as a result of his personal relationship with another Best Buy employee. No one could have been impressed with his strategic initiatives and the company appeared to losing more and more ground to online electronics merchants, yet his board seemed to be relatively unconcerned about that state of affairs [no pun intended!]. They were prompted to act, and pushed out the company's founder/chairman as well, only in the face of the revelations of personal indiscretions. This is wrong and the stock price hitting a three year low suggests that the market concurs. One would hope that the "corporate policy" which was invoked also includes an admonition to "do right by the shareholder!"
Again, I don't condone the indiscretions, but as a matter of corporate law and common sense, boards are supposed to be the steward of shareholder investments. This means they need to focus on evaluation of financial results and legal compliance, and not on evaluation of managers' observance of family or moral obligations.
It is clear that our efforts to recover from our economic crash to a great extent hinge on better performance by large company managers. Recent events such as those in the Risk Management Group [oxymoron?] at JP Morgan, do little to suggest that this is happening or that managers are acting with the requisite sense of urgency to avoid debacles.
I suggest that one important factor in instilling such sense of urgency is focusing public attention on the results of business decision-making and not on personal minutiae. Let's put the focus and accountability on whether CEOs are making good business decisions and not on their resumes and personal behavior.
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