Why Pick on Her?

There is plenty of shame to go around among those who were directors of Lehman Brothers. But I can appreciate the outrage that women feel over the choice of photo by the New York Times to illustrate its article spotlighting directors of companies that collapsed during the financial crisis.

As you can see from the clip above, of all the Lehman board members that it could have chosen to splash across the top of the front page of its business section, the paper chose the one high-profile female director — Marsha J. Evans, a retired U.S. Navy rear admiral who after her distinguished military career ably led such organizations as the Girl Scouts of the USA, the American Red Cross, and the LPGA (Ladies Professional Golf Association) as well as being in demand for corporate board service.

I personally witnessed the umbridge taken over this sexist slight. It happened last month at the all-day globally oriented Gender Balance on Boards conference held in Washington, D.C., at Johns Hopkins University that I previously wrote about. One of the principal speakers held up the NYT offending page for all in the audience to see. A quite audible groan reverberated through the crowd — a room largely comprised of senior women executives, directors, academics and diplomats.

It is hard to tell on whom to pin the wrap for this questionable choice of graphic — the co-reporters (one of whom was a woman), the photo editor, the business editor, the copy desk, the makeup department, and/or other. But the women called it for what it was — a cheap shot.

In light of my previous blog postings this month on the theme of gender balance on boards, I am reminded anew of this experience as another example of the hard path it is, with unpleasant potholes (such as this article treatment) tripping them up, that women traverse to gain access to and succeed in the boardroom.

He Didn't Just Say That, Did He?

Amusing? Or appalling? You be the judge.

Vicky Ward shares this story in her new book, The Devil's Casino (John Wiley & Sons), about the collapse of Lehman Brothers. The tale goes back to the days when Lehman was first being spun out of American Express. Amex's then-chairman Harvey Golub was giving the Amex board a presentation about the benefits of the spinoff of the investment banking firm.

Ward writes: "The presentation — a basic rundown of the businesses within Lehman, and what the economics looked like going forward — went over well, and the board signed off on the deal. Two memorable moments occurred.

"First, when former Secretary of State Henry Kissinger, then on the American Express board, opened a sweetener packet, emptied it into his iced tea, then stirred the beverage with his pencil — eraser end first.

"The second was when another board member, former U.S. President Gerald Ford, asked Golub if he could please explain the difference between 'equity' and 'revenue.' There was an awkward moment of silence as everyone digested this.

"One person in the room recalls that Golub 'did a very skillful job. I was very impressed. It's a very basic concept, and he explained it to the former president without making it sound like he was talking down to him.' "

The Henry the K anecdote is amusing. The Gerald Ford anecdote? Not so amusing.

You read something like that and it sure explains a lot about the ability of these financial institution boards to oversee the complex wheelings and dealings of the firms, including — and most ironically — the abject failure of the Lehman board to prevent the firm's annihilation.

Stop Being Stupid

I am borrowing the title of today's blog post from one used by New York Times columnist Bob Herbert in December 2008. Here is a sample of what he had to say in his column:

"Americans must resolve to be smarter going forward than we have for the past few years. ... We have behaved in ways that were incredibly, astonishingly and embarrassingly stupid for much too long. We've wrecked the economy and mortgaged the future of generations yet unborn. ... We were stupid in so many ways. We shipped American jobs overseas by the millions and came up with the fiction that this was a good idea for just about everybody. We could have and should have taken the time and made the effort to think globalization through, to be smarter about it and craft ways to cushion its more harmful effects and to share its benefits more equally. We bought into the dopey idea that you could radically cut taxes and still maintain critical government services — and fight two wars to boot! ... It's time to stop being stupid."

This appeal to "resolve to be smarter going forward" readily applies to what goes on in the boardroom. On the day that I write this, March 12, the Wall Street Journal is reporting three developments that absolutely cry out for someone to say, "Stop being stupid." Allow me the dubious honor:

• AIG is announcing that it intends to recoup millions of dollars in retention payments slated for employees who have already left the firm.

• The Black & Decker board felt there was no perceived conflict of independence in putting on a special committee charged with appraising the company's acquisition by Stanley Works — which would trigger an enormous payout to Black & Decker's CEO — a member who was significantly invested with the CEO in a personal real estate development.

• What the WSJ describes as a "scathing report" has been released on the collapse of Lehman Brothers, alleging transaction designed to distort a clear picture of the financial soundness of the firm; a follow-up statement from a lawyer for Lehman's then CEO, Richard Fuld, is saying: "Mr. Fuld did not know what those transactions were — he didn't structure or negotiate them, nor was he aware of their accounting treatment."

C'mon, people. What is a board doing when it approves a multimillion-dollar compensation arrangement designed to reward executives to stay but will still pay them royally if they leave? What is a board doing permitting a director who is in bed with the CEO on a personal investment to be on a special committee approving his merger-instigated huge payout — and not thinking that's a conflicted situation? What is a chairman and CEO, well-documented for his hands-on role in running the firm, doing in saying that he had no involvement whatsoever in a tactic crucial to staving off the collapse of his company? (Granting that he had no such involvement, why would he issue such a statement anyway — what kind of a reflection is that on his leadership to be claiming such ignorance?)

Some of the best minds in governance believe that "courage" is the most important attribute in being a director. Last year I devoted an editor's note to that very topic. Yes, exhibiting courage in the boardroom is one way to have a governance system that functions the way it should. Another way is to stiffen the spine of the system through legal and regulatory ordering — hastily enacted legislation like SOX or some of the stuff now spewing from Washington.

A third way, and maybe the best way — thank you, Bob Herbert — is to just stop being stupid.

Two Joes Talkin' about Risk

Arithmetic was never my strong suit in school, but here is some math that even I can understand: "At 30 to 1 leverage, a 3% or 4% drop in asset prices means you're wiped out."

I thank Joseph Rizzi for the simple yet profound clarity of that equation. Mr. Rizzi is senior investment strategist at CapGen Financial. He was the guest speaker last month at a program on the lending crisis put on by the Center for Corporate Governance at Drexel University's LeBow College of Business. His presentation was the best I've heard all year in identifying the roots of the crisis and what needs to be fixed, from a governance standpoint. I'll be wanting to get more of his keenly observed analysis into the pages of Directors & Boards in the year ahead. 

I thought of his comment when something else just came across my desk: "Risk managers will emerge as heroes from the financial crisis." That's a powerful statement, put out by Joe Plumeri (pictured here), chairman and CEO of global insurance broker Willis Group Holdings. Speaking at the annual dinner of the Association of Insurance and Risk Managers on Dec. 10, Mr. Plumeri said that risk managers have never been more important than they are today in helping their companies evaluate risk and access capital.

I had the pleasure of interviewing Mr. Plumeri for a Directors & Boards cover story a few years ago. He calls it like he sees it, and this is picture-perfect vision.

I'm not sure how heroic it is to stare at a 30 to 1 leverage ratio and not recognize that there is, in the lyrics of my favorite movie musical, "trouble in River City." According to reports, Lehman Brothers was levered 32 to 1. Lehman is among the wiped out. 

But directors should appreciate the implications of Mr. Rizzi's risk equation and Mr. Plumeri's shining the spotlight on the role that risk managers can and should play in their deliberations on risk. The heroic nature of risk managers should come from keeping the leadership in a risk-aware state — note that I didn't say risk-averse state — and not from having to push back against a culture that, through ignorance or denial, could cause the board to preside over a wipe out.