VideoIt's been a tough few months for Citigroup Chairman and CEO Sanford Weill.
In late April, Weill announced that Citigroup had agreed to pay $400 million to settle charges that Citi and nine other investment banks had allegedly issued pollyanna stock research to curry favor with investment banking clients. Later, Weill withdrew his nomination to the NYSE board of directors because of the fallout from that settlement. Then, in early June, news broke that securities regulators had requested to see E-mails from Weill and the CEOs at eleven additional Wall Street firms to see if the chief executives had any idea that analyst research had been influenced by investment banking considerations.
Yesterday, Weill got some more good news. The Corporate Library, an independent research firm that provides analysis of corporate governance issues, announced that Citigroup had received the lowest rating in its annual Board Effectiveness Rating.
The study by the Portland, Maine-based, Corporate Library examined the boards of the 1,700 largest companies in the U.S. "The business meltdowns of the last two years have proven that there is a category of 'governance risk' that investors want to understand more fully," said Ric Marshall, The Corporate Library's CEO. "But the post-Enron reforms have led to over-focus on compliance and structural indicators."
Nine other businesses got a failing grade from The Corporate Library: In alphabetical order, they are:
- Allstate Corporation
- Emerson Electric Company
- Gemstar-TV Guide International
- Honeywell International, Inc.
- J.P. Morgan Chase & Co.
- Loews Corporation
- SBC Communications Inc.
- Verizon Communications Inc.
- Walt Disney Company
Several of the companies on the list, including Disney, have actually received a fair amount of press for recent governance initiatives. But in explaining the results of the survey, Nell Minnow, editor at the Corporate Library and a noted shareholder activist, asserted that good corporate governance is more about intent than policies.
"Investors should be less concerned what the governance policies say, or what I call 'resume independence' than they are with the practice of independent judgment," Minnow said. "We do not evaluate directors on what they say they do; we evaluate them on what they actually do. We grade them on how well they handle the toughest calls."
Researchers at the Corporate Library lambasted Weill for allegedly trading preschool admission for a more favorable analyst report on AT&T. The shareholder activist group also criticized the Citigroup CEO for not taking a bigger financial hit over the $400 million Wall Street settlement. According to the report, the fine was paid by Citi's current shareholders (and the shareholders of Citi's insurers), "not by any of the people responsible."
Marshall also lauded Colgate-Palmolive CEO Reuben Mark for his "willingness to stand up to Weill and his other fellow directors at Citigroup over the issue of CEO succession planning -- one of the most critical tasks facing any board."
Indeed, Minnow noted that living up to the letter of the law does not necessarily make for good governance.
For instance, the survey took into account the willingness of boards to adopt shareholder-approved resolutions. Minnow offered the example of Maytag, which rates quite high according to many best practice benchmarks for governance -- including director independence. "But for three years running they have refused to enact shareholder proposals that were approved by a majority vote," said Minnow. "What clearer demonstration of a board's failure to understand their obligation to shareholders can you get?"
As for a few of the other companies receiving a failing mark: The report criticized Emerson for its perk-filled compensation contract with Chairman C.F. Knight, dubbing the deal "a shareholder nightmare." The study also came down hard on Disney, charging that governance reform in the Magic Kingdom has "been slow, grudging and often inherently crippled or compromised, tailored to meet the letter rather than the spirit of the relevant tax, legal and regulatory standards."
The report skewered Allstate as well, noting that the insurer appears to comply with most governance best practice standards. But according to the study, those practices are "backed in reality by a weak, ineffectual board, and a near total absence of vested owners to complain about it."
Interestingly, consultancy GovernanceMetrics International launched a governance-tracking system of its own last year. At the end of December, the firm announced it had rated all of the companies that make up the Standard & Poor's 500 Index. Based on that system, just 5 of the S&P 500 received the highest rating of 10, which GMI describes as "well above average" in governance policies and practices. The five companies? Johnson Controls, MBIA, Pfizer, SLM, and Sunoco.
(Editor's note: To read an exclusive CFO interview with the Corporate Library's Nell Minnow, click here.)
Reader Comments» Post a comment