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Countrywide Financial Corp. ("CFC" or the "Company") revealed that Henry Cisneros resigned from its Board of Directors ("BOD") today (October 24). Cisneros resigned on October 18 and will be spending his time working with CityView, a firm that finances homebuilders in urban locations. It's rather convenient that a director with no risk capital yet paid handsomely by CFC shareholders for his 6 years as a Board member now decides to shirk any sense of responsibility to shareholders by walking away. Cisneros provides an easy target in reflecting what many Board members truly are - overpaid goons that add no shareholder value.

Looking back on CFC's latest proxy provides some interesting details as to what Cisneros' responsibilities were in regards to his BOD "responsibilities":

Audit/Ethics: This group met 14 times to oversee CFC's financial statement integrity, compliance, and internal controls. Could anyone be wondering what Cisneros and the three other committee members did during these 14 meetings while CFC's balance sheet and capital position were vaporized due to an obvious lack of internal controls for loan origination and maintenance?

Corp Gov/Nominating: This group met 5 times to identify individuals to become BOD members. So someone like Cisneros that leaves when leadership is needed most is looking to select other CFC BOD members?

Operations/Public Policy: This group met 5 times as well to oversee CFC's operational objectives, risk matters including operational and reputational, and matters related to responsible lending. Cisneros and the three other committee members must have covered tremendous ground during these 5 meetings in 2006 when one considers CFC is the poster child for irresponsible lending. CFC drew down its entire bank facility and still needed a preferred stock infusion from Bank of America ("BAC") to remain afloat. This drama usually accompanies imploding hedge funds, not an everyday mortgage originator. As for reputation, CFC is a class act given that this committee turned a blind eye to the "pre-planned" stock sales by CEO Angelo Mozilo.

Should CFC shareholders feel comfortable with people like Cisneros on their BOD? The last proxy indicated he owned just 30,412 shares and, while it's just conjecture on my part, I'd bet he didn't pay for a single share. Further, page 68 of the last proxy shows that Cisneros' total compensation for sitting on CFC's BOD in 2006 was $358,966. This is an outrageous sum for a total of 24 meetings that, based on CFC's current situation, illustrates that either the BOD has significant contempt for CFC shareholders, employees, and customers, is incompetent, or perhaps all of the above.

To me it's likely all of the above. Don't most people have a sense of obligation to people they are responsible for? In the case of CFC, Cisnero, as a BOD member, is supposed to be a fiduciary for CFC stakeholders. One would expect someone that takes this role seriously to dig deep during a crisis situation and help the company emerge from the crisis. Instead, Cisnero stuck around during the good times and collected a nice pay check for what looks to amount to 24 days of work - if that considering some committee meetings are done back to back.

In the grand scheme of corporate governance, Cisnero's departure probably won't be a focus but his actions once again demonstrate the need for shareholders and employees to collectively push for better corporate governance and representation. There has to be much, much more risk capital represented in board rooms, and that risk capital needs to be purchased capital, not the typical free grants and awards. A board that includes significant outside equity owners and non-executive employees can probably provide much better oversight than a bunch of CEO's friends that get free stock awards and cash fees for "work" that generally amounts to reviewing presentations by consultants.

Further, while $358,966 is a small sum compared to the billions that have been wiped out by CFC's problems, investors should seriously consider pushing for clawback provisions related to to BOD fees and compensation when the definition of "earned" compensation comes into question given such gross oversight in situations like CFC. While I have no economic interest in CFC, it's sickening to see that a fiduciary can collect this type of compensation when the committees he was assigned to should have provided a check against the wreckless practices that put CFC in its current predicament.

Disclosure: AUTHOR HAS NO ECONOMIC INTEREST IN CFC

Source: Countrywide's Henry Cisneros Was a Useless Board Member