Reforming Corporate Board Structure: Why Barney Frank Is Right

I caught the last snippet of Barney Frank's interview on CNBC Thursday morning. I wanted to track it down and watch the whole thing, so I went to the CNBC website and dug it up, which you can watch here. I would highly suggest you watch it.

Frank acts like a jackass at the end of the interview. Mark Haines was asking legitimate questions, and Frank responds like a petulant, teenage Prima Donna and storms off. However, he is absolutely bang on in his argument, and is correct when he says that shareholders should have increased power over corporate boards.

The United States has serious issues at the board levels of corporations. Too often, boards are like clubs, with directors being too close to the CEO, who is often also the Chairman of the Board (another serious problem since no CEO should be the Chairman of the Board). There is not enough independence amongst directors, nor is there enough independence amongst the compensation committee.

The best model for corporate governance in the world is in Sweden (.pdf). In Sweden, shareholders have far more rights to oversee what management is doing with their money, including

• The separation of the titles of Chairman and CEO
• Mergers must be approved by shareholders
• Shareholders of a certain size can call extraordinary meetings
• The nomination committee to the board must have shareholder representation
• It is much easier to remove management, CEOs and directors
• Compensation is approved at the AGM
• A plurality of votes, rather than a majority, is needed to pass resolutions and amendments.

Reforming board structure in America along the lines of governance structures in Sweden would go a long way towards eliminating the venality and agency/principal risk inherent in corporate America, which contributed to the debacle in the financial industry.

Comments

[VennData:]

This is what happens when everyone on CNBC tries to talk over their guests ala Larry Kudlow.

Of course, if you want the sound bite answers, that's all you'll get, but if you want to deal with the complexity of the real world, the CNBC journalists will have to wait their turn.

Jun 12 06:28 AM

[Slimsum:]

Mark Haines couldn't ask an intelligent question if it was handed to him, and this attitude of talking over the guest is annoying. Frank handed it to him on a platter just as he should have. These talking heads that get a kick out of their own silly patter and non-senseical summations that are only given to fill up air time with chatter should not take themselves seriously. None of the rest of us do. And as for the author of this piece of toro crap........... Well, draw your own conclusions.

Jun 12 08:30 AM

[yellowhoard:]

The board of directors of any company should be the praetorian guard on behalf of the shareholders.

Mutual funds should take a more active role nominating board members that will watch the store.

That said, I think Frank is a baffoon. His constituency must be extraordinarily addled to continue sending him back to Washington where he smashes, breaks and loots his way through our financial institutions.

Jun 12 09:11 AM

[yellowhoard:]

Giving Barney Frank a committee chairmanship is like putting a chimpanzee on the 50 yard line at the Super Bowl, giving him a hit of acid, then handing him a machine gun.

Jun 12 09:33 AM

[CautiousInv...:]

I think corporate governance mus be reformed to the point where there a semblance of governance.

As it stands, there is a community of prominent people who have made there way into an elite club in which they share directorships and, in some cases, a CEO of company A may share directorship with Frank on the board of company B and Frank is also a director on the board of company A. It's way, way to cozy.

In this clubby atmosphere, it's impossible to make impartial decisions and place the interests of faceless shareholders above those of your golfing and drinking buddy Frank.

Jun 12 10:23 AM

[NAFI:]

Toro, Frank has been wrong too many times for even one ounce of right to matter much to me. The guy is a politician at heart and not a gate keeper like he should be. He failed at his job and has the audacity to blame his former CEO for his borderline fraudulent service.

CNBC is the same as Frank that's why they can't get along. If anyone thinks that a CEO is going to take a job where he can be removed at a whim and controlled like a dog and there is no money to catch him on the way out, think again. In comes Barney............duh, du, duh, dah, duh!

Jun 12 02:16 PM

[Graham and ...:]

Dear Yellow Hoard:

Well put.

I made the point in one of my instablogs that the Chairman of the Board ought to be the "Chief Stockholder's representative." As such, s/he should be different from the CEO, the Chief Management Representative.


On Jun 12 09:11 AM yellowhoard wrote:

> The board of directors of any company should be the praetorian guard
> on behalf of the shareholders.
>
> Mutual funds should take a more active role nominating board members
> that will watch the store.
>
> That said, I think Frank is a baffoon. His constituency must be extraordinarily
> addled to continue sending him back to Washington where he smashes,
> breaks and loots his way through our financial institutions.

Jun 12 03:00 PM