Should CEOs Sit on Other Companies' 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.

Comments

[Tricky:]

Actually, I think the main reason they sit on boards is because CEOs use the positions to pump up the "established market value" of CEOs

Apr 23 04:21 PM

[michael cor...:]

They sit on each Other's Boards for one Reason.

1). To receive huge compensation for wacthing each other's Companies fail and or go out of Business, while they walk around with huge compensation and impressive Titles.


Stock Holders would be happy to sit on the Board for "no" compensation.

CEO's are the biggest JOKE in America.

Go get a real JOB!

Apr 23 10:02 PM

[holmesnmanny:]

Let's be real here. It's a buddy-buddy system. I scratch your back, you scratch mine. That's what it comes down to.

Now the execs are scared that if they take the tarp money that they will be bound by the executive compensation rules that the treasure is trying to put in place, hence the reason for them trying to give it all back ASAP. It has nothing to do with acting in the interests of the shareholders and consumers.

Apr 24 02:22 AM

[nutty buddy:]

Actually it's a Nutty-Buddy system.

Apr 24 08:33 AM

[Randall Arnold:]

I agree Eric. If I were less cynical I'd say the SEC should limit or even eliminate this buddy system...

Apr 24 08:50 AM

[notsosmart:]

actually ceos should sit in the corner on a stool with a dunce cap on. the minute things go bad they did not "understand". all a sad joke for stock holders.

Apr 24 11:35 AM

[henarl:]

It's a lot more than just vanity. The CEO of your company sits on the board (and maybe the compensation commitee) of my company and the CEO of my company sits on your board (and comp. comm.). That way they can award each other big salaries and bonuses. These are all members of the good-old-boys club and they will spend huge amounts of company money lobbying to make sure it stays this way.

Apr 24 12:29 PM

[observer00:]

I agree the CEOs should not be sitting on multiple boards. In addition, the directors should not be sitting on more than 3 boards. There is not way they can do a credible job of running or directing a company. Now while it's good to vent our spleens, I'd like to suggest an approach to dealing with this rather than expect the government to do something about it. If all of the share holders consistently vote against directors and CEO sitting on multiple boards, maybe this will stop. It's what I'm doing. It doesn't hurt to try. Sometimes "grass roots" efforts stunt the weeds:-)

Apr 24 12:51 PM

[Allan Frain:]

Reining in this type of behavior is the responsibility of stockholders. Invest in a company with a part-time board at one's peril.

Apr 24 09:48 PM