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Businesses HP

Why Bad Directors Aren't Thrown Out 205

Posted by Soulskill
from the power-behind-the-throne dept.
An anonymous reader writes "For publicly-owned companies, the CEO gets most of the spotlight. If the company is successful and the stock goes up, the CEO gets the credit. If the company stumbles, the CEO gets the blame. But an article at the NY Times points how the board of directors for most companies seem to get a free pass, even when their decisions or their CEO selections consistently go wrong. 'Last year, there were elections for 17,081 director nominees at United States corporations, according to the service. Only 61 of those nominees, or 0.36 percent, failed to get majority support. More than 86 percent of directors received 90 percent or more of the votes. Of the 61 directors who failed to get majority approval, only six actually stepped down or were asked to resign. Fifty-one are still in place, as of the most recent proxy filings.' The article uses Hewlett-Packard as an example; the past several years have seen poor CEO choices, the abominable Autonomy acquisition, and billions in write-offs for other failed endeavors. Yet HP's directors were all re-elected."
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Why Bad Directors Aren't Thrown Out

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  • by Anonymous Coward on Saturday March 30, 2013 @01:04PM (#43319331)

    Sure, corporate interlock isn't as bad as it once was (don't believe anybody who claims it doesn't exist anymore) but the real reason is that the whole system is an asshole club based on friends and schmoozing. We don't have a mechanism to put good people in charge, and the people running things don't want it that way.

    There isn't much social mobility in this country. Directorships and positions like them are just part of a big scam to perpetuate dynastic transfer of wealth.

    The system is rigged.

    • by yuhong (1378501)

      http://michaelochurch.wordpress.com/2013/03/25/gervais-macleod-16-healthy-culture-vs-why-you/ [wordpress.com]
      Notice in the comments I have talked about how hiring CEOs based on years of experience doing the same job is a bad idea.

      • Well, you have to admit, most CEOs have a lot of experience at driving companies in the ground and asking for bailouts...

        • CEOs have a lot of experience at driving companies in the ground and asking for bailouts.

          And unfortunately innovative bail-out strategies are more important skill for US business than running a company that actually invents cool stuff.

          The detroit automaker bailouts proved that. Rather than let them fail so the dozen small US automakers with near-production-ready electric cars and motorcycles could compete (and buy the factories and hire the talent they need in the big-3-bankruptcy sales), the government keeps bailing out the "too-big-to-fail" automakers who proved they can't invent a decent car if their very existance depends on it.

          Good thing (for them) that it doesn't. Bailouts are a far easier way to get big bonuses than doing actual good work.

          • CEOs have a lot of experience at driving companies in the ground and asking for bailouts.

            And unfortunately innovative bail-out strategies are more important skill for US business than running a company that actually invents cool stuff.

            The detroit automaker bailouts proved that. Rather than let them fail so the dozen small US automakers with near-production-ready electric cars and motorcycles could compete (and buy the factories and hire the talent they need in the big-3-bankruptcy sales), the government keeps bailing out the "too-big-to-fail" automakers who proved they can't invent a decent car if their very existance depends on it.

            Good thing (for them) that it doesn't. Bailouts are a far easier way to get big bonuses than doing actual good work.

            Actually, the interesting thing is that if the Government hadn't bailed out the Detroit auto makers, Ford would be the only one left intact. They didn't take a bailout and were able to ride out to the storm. GM and Chrysler would have had to go through the Bankruptcy process.

            • CEOs have a lot of experience at driving companies in the ground and asking for bailouts.

              And unfortunately innovative bail-out strategies are more important skill for US business than running a company that actually invents cool stuff.

              The detroit automaker bailouts proved that. Rather than let them fail so the dozen small US automakers with near-production-ready electric cars and motorcycles could compete (and buy the factories and hire the talent they need in the big-3-bankruptcy sales), the government keeps bailing out the "too-big-to-fail" automakers who proved they can't invent a decent car if their very existance depends on it.

              Good thing (for them) that it doesn't. Bailouts are a far easier way to get big bonuses than doing actual good work.

              Actually, the interesting thing is that if the Government hadn't bailed out the Detroit auto makers, Ford would be the only one left intact. They didn't take a bailout and were able to ride out to the storm. GM and Chrysler would have had to go through the Bankruptcy process.

              What you have failed to point out is that the lesser known and much smaller vehicle manufacturers in the US which could have benefited from the demise of Chrysler and GM are again, left out in the cold because the biggies are getting all the attention from the government

            • by TheRaven64 (641858) on Sunday March 31, 2013 @05:40AM (#43323265) Journal
              That's only part of the story. Ford was in favour of the bailouts, even though they didn't take them, because if GM and Chrysler had gone out of business then a lot of other companies that supplied parts to GM and Chrysler would also have gone out of business. Many of them also supplied parts to Ford, so Ford would have suffered a sudden supply chain shortage and they didn't think that they'd be able to survive this. That's what 'too big to fail' means: that if the company fails, then it will affect significantly more than just that one company. Ford was in the strange position of not being able to survive the sudden failure of their competition.
    • Corporate boards glad hand the execs for the same reason as boards and executives in utterly unrelated lines of large businesses hang together as a lobby if one is threatened by labor/regulation/public vilification that would help the others: class solidarity. They by-and-large see the interests of their peers as identical to their own, even when they're objectively not. An excellent recent example, fighting attempts by the US Federal government to bring the major banks to heal after they nearly dragged the

  • ... and this differs from the US political system ... How?
    • Re:uhhh... (Score:5, Funny)

      by Black Parrot (19622) on Saturday March 30, 2013 @01:08PM (#43319351)

      Actually, I thought the headline referred to George Lucas or Michael Bay.

    • Re: (Score:3, Insightful)

      by nametaken (610866)

      You should read the article, because it doesn't resemble how the US political system works at all. If it did, these feckless board members would be removed all the time.

      • Re:uhhh... (Score:5, Insightful)

        by femtobyte (710429) on Saturday March 30, 2013 @03:47PM (#43320209)

        If boards worked like the US political system, there would be two distinct groups of board members: about half wearing neckties, and the other half wearing bow-ties.

        Every few years, people would say "those folks wearing bow-ties are completely screwing everything up. Let's kick them out, and replace them with the necktie wearers."
        A few years later: "those folks wearing neckties are completely screwing everything up. Let's kick them out, and replace them with the bow-tie wearers."
        And so on...

        Meanwhile at the country club, the necktie and bow-tie wearers are enjoying scotch and cigars together, gently ribbing each other for wearing the wrong goofy neck-decorators.

    • by kenaaker (774785)
      The primary difference is that you can vote against someone in a government election. (Ok, vote for the opponent).

      I don't think I've ever seen a proxy ballot where I could vote against anybody. It's always -- Vote to confirm the directors and the recommendations or withhold. That's a candy-ass rigged system.

  • by John3 (85454) <john3@cornells. c o m> on Saturday March 30, 2013 @01:08PM (#43319355) Homepage Journal

    Director elections are stacked in favor of the incumbents due to the way the elections are structured. The directors nominate candidates for the board, usually through their governance or nominating committee. It's in their interests to keep the status quo and nominate themselves to be the only choices on the ballot. Nearly every corporate ballot (proxy ballot) has just enough director nominees to fill the available slots so there really isn't a choice. Corporate governance is a slow process and companies don't really want a lot of turnover on the board. In most situations this is a good thing, for investors and for the company as a whole.

    However, this process does have the effect of protecting directors when things go south as it takes a real grass roots movement from stockholders to get other names nominated for the director slot. Most commonly you'll see this when a large holding company decides to pool their stocks and distributes an alternate proxy.
     

    • Even when the incumbents receive a majority of 'withhold' votes, they often continue to serve. According to one report [gmitest.net] (PDF), only 5-8% of directors who receive a majority of withhold votes depart as a result.
    • There are typically a lot of shareholders and even those that may hold relatively large blocks of the voting stock are still typically in a minority position. So it is hard to mobilize them to do anything in concert, such as rejecting a corporate nominee.

  • Nokia CEO ? (Score:5, Insightful)

    by jcdr (178250) on Saturday March 30, 2013 @01:12PM (#43319373)

    This is in fact the real questions:
    * How the Nokia board slowly changed to the point it elected a CEO that bring Nokia to his fall.
    * How can the board allow disruptive and destructive action from the CEO without limitation or even a reaction ?

  • oh oh oh i know (Score:5, Insightful)

    by Anonymous Coward on Saturday March 30, 2013 @01:19PM (#43319393)

    Could it be because capitalism is just an excuse to get the idiots at the bottom to think that Aspiration Will Get You Up There while those at the top are just a bunch of layabouts scratching each others' backs and mostly giving not a fuck about anything beyond making enough money to buy another yacht before they receive their golden parachute?

    The world runs thanks to careful centralised regulation and provision of education and research combined with small, agile businesses - and in spite of behemoth corporations.

  • In what parallel universe is this true?

    • by sgt scrub (869860)

      The one where people doing the work do not get laid off before "the CEO gets blamed". The one where the workers designing/developing the companies products and future are not alienated, pissed off, or bullshitted out, by someone's brother in law getting hired.

  • Ruling class (Score:5, Insightful)

    by rsilvergun (571051) on Saturday March 30, 2013 @01:24PM (#43319419)
    they're your ruling class silly. Your masters. They own you. Sure, you could do something about that. But you'd need a lot of power. Somethin' like a government body. And that'd be socialism (cue dramatic music).
    • they're your ruling class silly. Your masters. They own you. Sure, you could do something about that. But you'd need a lot of power. Somethin' like a government body. And that'd be socialism (cue dramatic music).

      There is another solution. It was all the rage about 250 years ago. But people need to be dragged down even further until they are willing to risk their cushy livelihoods for a real change of the guard.

      Fuck it. I probably already have an FBI file.

      • but you're just being naive. There's a million reasons why it doesn't work. For one thing, you're ignoring how horrible things were 250 years ago for everyone except a lucky few. For another, America won it's revolution with lots and lots of French help, and countries don't do that any more. The rulers work together. If you want a future, the working class have to work together sensibly for it. That means using the only tool with enough power to stand up against old money: Government.

        Sure, you might scr
    • Somethin' like a government body. And that'd be socialism (cue dramatic music).

      The more powerful the regulators become, the more it is in the interest of those regulated to control or influence the regulators.

      The incumbent regulated then use the regulators they influence or control to exclude competitors, fatten their profit margins, or extract subsidies.

      Obviously some regulation and the accompanying trade offs are necessary for a well-functioning society, but the abuse I just described happens every single

      • Got one? A strong central gov't seems to be the only thing that can stand against banking trusts. Worst case scenario the jack boots are publicly owned, so I'll take my chances with the gov't.

        Besides, there's plenty of ways to regulate a government. That said, it is a complex problem. You don't get to throw up your hands and say "The Free Market (tm) will take care of it!" and call it a day. Also, you have to be willing to accept the idea of elitism. e.g. that some people are better at some things than
    • The late Ed Wood [wikipedia.org] says "hi".

      And also "braaains", but in a stilted and really rather pathetic tone.

    • Could you imagine what would happen if Uwe Boll was elected to HP's Board?
      • I think they'd buy out the Mortal Kombat franchise and then sell it in tablet form.

      • by will_die (586523)
        His plans for making money for himself and his investors was good. He found a good may to legally maximize profits and do so on a great scale. He was able to select people to that could carry what was needed.
        So putting him on the HP Board would probably be good.
      • by TarPitt (217247)

        HP's stock price would soar - they would have a board member with management skill far above the existing board

  • Eerily familiar (Score:5, Interesting)

    by fustakrakich (1673220) on Saturday March 30, 2013 @01:28PM (#43319435) Journal

    This sounds a lot like why corrupt politicians who impose bad policy constantly get reelected and appointed to office. For instance, we still have people like Rumsfeld, Kissinger, and the rest of that wrecking crew exerting their influence, damn near fifty years on. Must be a psychological issue.

  • The Big Lie (Score:5, Insightful)

    by benjfowler (239527) on Saturday March 30, 2013 @01:43PM (#43319527)

    Ostensibly we live in a free society, but that doesn't meant that our elites, with the connivance of Hollywood, propagandize to suit their elite interests. The stories they tell always fit an elite, self-serving narrative.

    The greatest lie of our age, is that hard work is rewarded. So when things are unfair, we blame ourselves for not working hard enough, which is convenient for the rich, who are born into power, marry into it, or at least make the right friends.

    This also explains the existence of the Tea Party, and why stupid and gullible people fight so savagely for the interests of the elites, and against their own -- they've drunk the Kool Aid, and honestly believe that each and every one of them are potential future billionaires, if it weren't for teh liburls, gays and leftists.

    We do NOT live in a meritocracy -- far from it.

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      You got it!

      I'm about 4 years out of college with my first real company. I founded it and it's doing great so... I probably am fighting my own future interests here although I totally agree. I have employees who are being paid crap wages. I'm doing well because I understand the market, am willing to take risks, and exploiting my employees.

      In my defense at least some of them aren't worth what I pay them. However I do have at least one person who should be making $60 USD / hour whose making $15 USD / hour. Ano

    • Please explain then how roughly 80% of the millionaires in the US are first generation wealthy.

      • Re:The Big Lie (Score:4, Insightful)

        by Anonymous Coward on Saturday March 30, 2013 @02:37PM (#43319763)

        A million dollars really doesn't mean what it used to. Note the GP's chosen word; BILLIONAIRES. A millionaire is arguably just upper-middle-class due to inflation and other economic effects, particularly if you're talking about someone with low-seven-figures total net worth, depending on the part of the country you're in. If you invest well, over the course of a decent upper-middle-class type job, I could totally see lots of self-made millionaires at retirement age. This doesn't mean the game isn't rigged for the upper-upper-class, as GP is arguing.

        • by TarPitt (217247)

          "I always wanted to be a millionaire. Never thought my ticket would be a house in Van Nuys"

          - Former co-worker

      • Re:The Big Lie (Score:5, Insightful)

        by sjames (1099) on Saturday March 30, 2013 @03:51PM (#43320233) Homepage

        Everyone loves a rags to riches story, so most of the 'big successes' will play that story up for all it's worth. They'd rather not admit that they went from moderately wealthy with connections to extremely wealthy. Dig deeper and you'll find their rags of childhood were made by Gucci most of the time.

      • Real estate is expensive. People spend their whole lives trying to own a house, and once that mortgage is gone, they have a sizable nest egg. The house alone can push you half way to being a millionaire in my area of the country; a small, 2 bedroom townhouse is frequently upwards of $300k.
      • by Rich0 (548339)

        Please explain then how roughly 80% of the millionaires in the US are first generation wealthy.

        He said that it was a myth that hard work is rewarded. You're saying that the people who are rewarded worked hard. These are not, in fact, contradictions.

        Suppose you have 20 million people who work really hard. 19.999 million of them end up treading water their entire lives, with a fair bit dying without being able to pay for decent medical care. One thousand of them become millionaires. Every one of those millionaires worked hard, and yet almost everybody who worked hard didn't amount to much of anyth

    • by DarkOx (621550)

      That sad thing is you really think that crap is true. Most people are not as dumb as you think. The vast majority of libertarian / tea party type folks I know; don't expect to ever be billionaires. Most of us just want to be able to claim a few acres of own and be left alone. Which we probably could do if "teh liburls" would not try to tax us for breathing.

      • YOU could, whether future generations could is an open question ... the ability of capitalism to avoid wealth concentration in the absence of redistribution is an open question (obviously crony capitalism is even better at wealth concentration, but that's a different matter ... you can have relatively large government without crony capitalism, see Sweden for instance, or even Switzerland which is a whole lot more socialist than most libertarians pretend).

        In the end feudalism is perfectly compatible with ana

  • by Anonymous Coward on Saturday March 30, 2013 @01:44PM (#43319529)

    In The Trial of Socrates, I.F. Stone wrote, "The "destruction" Socrates predicts for the bad ruler is little or no consolation to the ruled." All you have to do is recall the destruction of Germany, first at the hands of the New York Fed and the Versaille Treaty, then at the hands of the Nazis, to know how true this really is. After WWII Germany was in ruins... but hey, they we were rid of Hitler!

    Stop investing in feudalism and start leading your life like it mattered, and you wouldn't have to listen to the inevitable crap as if it were news. We don't have to continue to swallow the same old crap from conservatives whose paramount consideration is there own wealth & power.

    This isn't news, it's history repeating itself in the endless loop of greed, avarice and will to dominate rather than learn. Apparently, glory is a concept that reincarnates itself to the detriment of most anyone who thinks they deserve to live more grandly than the previous asshole.

  • Obligatory Stupidity (Score:2, Interesting)

    by Jeremy Erwin (2054)

    Normally what one does when confronted with bad corporate governance is to disinvest. But Hewlett Packard is in the Dow Jones Industrial Average, so "index funds", which are popular because they extract minimal fees, are obligated to invest in HP.
    Activism, it seems, is not in an index funds nature, and so the proxies are routinely signed, keeping bad board members on the job.

    • Index funds are balanced by large pension funds like Calpers, hedge funds, activist investors, private capital looking to buy out companies, etc.

      HP's board cam very close to being thrown out due to dissatisfaction from these investors.

      http://www.guardian.co.uk/business/2013/mar/21/hewlett-packard-shareholder-rebellion-directors [guardian.co.uk]

      • The two longest-serving directors, John Hammergren and Kennedy Thompson, were rebuked for a series of missteps including the ousting of two chief executives in as many years, with 46% and 45% of votes cast against their re-election.

        Sounds like a fairly comfortable margin to me.

      • You make the article's point - after all that has happened at HP over so many years as close as they got to consequences for the board was "cam (sic) very close to being thrown out" (your words).

        Nothing else needs to be said, I rest my case.

  • Some needs to dump out kim jong before they all get nuked.

    But even when some like this is down at the smaller companies level and you don't risk a public execution some people are ifly about makeing a move.

  • Simple solution (Score:5, Informative)

    by PPH (736903) on Saturday March 30, 2013 @02:18PM (#43319657)

    Of the 61 directors who failed to get majority approval, only six actually stepped down or were asked to resign. Fifty-one are still in place, as of the most recent proxy filings.

    61 - ( 51 + 6 ) = 4

    The other four were dragged out and burned at the stake by irate shareholders. Encourage this response and I'm certain the other BoD members will straighten their acts out. You only need to make a few examples.

  • by benjfowler (239527) on Saturday March 30, 2013 @02:22PM (#43319681)

    So I make a very ordinary salary as a software engineer, but could probably raise it by 25% by changing jobs but not venturing too far outside my comfort zone.

    However, I've got friends who went from earning roughly as much as I did, to quadrupling what I'm making, simply because they play fast and loose: lying about past salaries, standing job offers, etc, to get raises; and taking jobs they're not always qualified for, simply because they're good at bullshit.

    What this is REALLY saying, is that they're doing well because the free market values liars and bullshitters. The people who are the most profitable to employers however, are the people whose personalities and personal moral code precludes them from earning too much, allowing employers to get a bigger spread between 1) what they pay employees, and 2) what those employees contribute to their bottom line.

    The reality is a bit more complex than I make out (bad directors persist, because big institutional investors want stability and don't want to rock the boat; nepotism (sometimes a good thing!!); information asymmetries everywhere, etc., etc.). Simply put, being a slimy, lying cunt pays -- and not everybody can be a director, because not everybody has the stomach to do what they need to do to get there.

    • So I make a very ordinary salary as a software engineer, but could probably raise it by 25% by changing jobs but not venturing too far outside my comfort zone.

      However, I've got friends who went from earning roughly as much as I did, to quadrupling what I'm making, simply because they play fast and loose: lying about past salaries, standing job offers, etc, to get raises; and taking jobs they're not always qualified for, simply because they're good at bullshit.

      What this is REALLY saying, is that they're doing well because the free market values liars and bullshitters. The people who are the most profitable to employers however, are the people whose personalities and personal moral code precludes them from earning too much, allowing employers to get a bigger spread between 1) what they pay employees, and 2) what those employees contribute to their bottom line.

      The reality is a bit more complex than I make out (bad directors persist, because big institutional investors want stability and don't want to rock the boat; nepotism (sometimes a good thing!!); information asymmetries everywhere, etc., etc.). Simply put, being a slimy, lying cunt pays -- and not everybody can be a director, because not everybody has the stomach to do what they need to do to get there.

      I am tempted to declare this, one of the best posts in Slashdot's history.

    • Yes, yes, and yes. And, to the person who says this is one of the best posts in Slashdot history: yes.

    • doing t1 support for five different clients at the same time. Right now they are implementing the LEAN methodology, but so far haven't told us what exactly this means. Well, we where told no more overtime. The only info I've been given is this ridiculas print out comparing our new policy to "lean meats, such as chick, turkey, pork, and fish." Luckily for me, there IS a question on it "What is the LEAN process?", however the answer is describing how an employee will come around to my desk "wearing squea
  • People who go through a series of marriages and divorces to the same dysfunctional, destructive types of spouse, and wonder why things never change

  • The thing that this story misses is that directors are elected by large shareholders not the business management. For example, almost a quarter of HP stock is owned by the ten largest institutional or mutual fund holders and almost 80% is held by institutional investors in general.

    It stretches credulity to claim that these powerful investors can't get the directors and the control over the company that they want. Instead, I believe what we're seeing is exactly what they want. It's worth remembering that
    • by dbIII (701233)
      Which is how News Corp has a mid twenties ballerina on the board and Australia's Telstra had a discredited revisionist historian with few publications, a politician's wife that does a vanity piece in a newspaper once a week and had a failed small block farmer with failed dabblings in being elected to politics as the chair.
      In other words, puppets.
      • by khallow (566160)
        I agree. It's somewhat possible some of the people you mention have relevant business experience, but it's more likely that they're puppets for some institutional managers somewhere. And in such cases, as long as they vote the way the institutional managers want, why would they ever be replaced?
  • There are mechanisms in the marketplace that tend to select out bad directors over time or at least put them into marginal and less profitable firms:

    The first line of defense against bad management and bad directors are the shorts. I presume that most of you know what I mean when I say that but for the benefit of those who don't a short is somebody who, in exchange for payment of a fee to the owner, borrows shares with a promise to return them at a future date. In the meantime the short controls the shares.

    • by DarkOx (621550)

      Good post. Which is why when you government trying to regulate naked shorting you know that is regulation being bought and paid for by the folks at the top to help keep them there. Shorts are good thing. The real tragedy is that when our banks were nearly shorted into the ground a few years back now; we let the pols interfere.

  • I work for a S&P mid cap company, heavily into science and engineering. I am not doing bad myself, holding on to a tiny fiefdom in the corporate empire. But my batch mate in my college went into academics, the usual Ph D, post-doc, tenure-track professorship. Did some serious original research, published some good papers and made a name for himself. Surprised to see him appointed as a director to my own company. So it is not all nepotism and dynastic mutual back scratching societies there. This Indian i
  • Look at Netflix for example. No matter how many stupid failures their CEO stumbles over.....It's because Netflix is barely a public company where most of the stock is held by a tiny group of 3 or 4 hedge funds. Each of which is run by ONE guy. So most of the voting shares are held by a half dozen people who all know the board personally.

    You do the math.

  • ...when it's traditional to use pH?

C for yourself.

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