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March 22, 2010 Monday 09:21 AM EST
NEWS & ANALYSIS; TheStreet Ratings
Goldman, AIG Wrestle With Governance
David MacDougall, TheStreet Ratings Analyst.Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor’s degree in finance and is a Level III CFA candidate.
NEW YORK (TheStreet) — More than a year after the financial meltdown put corporate governance in the spotlight again, many of America’s largest companies haven’t eliminated conflicts of interest, aligned pay with performance and boosted risk management.Here’s a closer look at the corporate governance issues that persist at eight major companies. Goldman Sachs Goldman Sachs(GS:NYSE) Chief Executive Lloyd Blankfein also serves as the company’s chairman, an inherent conflict of interest. Rather than form a separate committee to oversee the company’s risk exposure, the board’s audit committee oversees risk management in addition to its financial statement preparation duties. Citigroup Citigroup(C:NYSE) appears to have its house in order with good committee appointments and a separation of the roles of CEO and Chairman. However, the bank’s compensation system raises questions. CEO Vikram Pandit earned more than $38 million in 2008, including $1 million in salary, after the financial meltdown sent the company’s stock price down to $7 per share by year-end. When Pandit took control of the company, the stock was trading around $30 per share. Bank of America Bank of America(BAC:NYSE) is in better shape now that the roles of CEO and chairman have been split, though that happened after the acquisition of Merrill Lynch. The company has no financial experts on its risk management committee, an issue that could lead to trouble in the future if the members don’t understand the risks facing the company. JPMorgan ChaseJamie Dimon is CEO and chairman of JPMorgan Chase(JPM:NYSE). Lee Raymond, the former CEO of Exxon Mobil(XOM:NYSE) is the chair of the board’s compensation committee. Raymond’s retirement package from Exxon was worth about $400 million, so don’t expect any shareholder activism from him on compensation matters. Wells FargoJohn Stumpf is the chairman and CEO of Wells Fargo(WFC:NYSE). The bank has fared better than most during the downturn but these roles should be split and a greater focus on risk management should be included in the audit committee’s charter. The tasks of risk management deserves prominent placement in the charter or perhaps a separate committee dedicated to its oversight. American ExpressKenneth Chenault serves as CEO and chairman of American Express(AXP:NYSE). Chenault earned $50 million in 2007 and almost $43 million in 2008 despite poor performance by the company that resulted in its share price falling by more than half. During both years, he earned more than $6 million in cash bonuses, which suggests that compensation at American Express isn’t tied to performance. American International Group AIG(AIG:NYSE) is the worst of the worst when it comes to risk management. The board’s risk management committee appears to have adequate financial expertise so the problem is most likely due to the lack of disclosure to the board or a lack of diligence among its directors. It’s a bit ironic than an insurance company would be so oblivious to its own risks. Morgan StanleyDuring the ramp up to the meltdown, John Mack held both the CEO and chairman positions at Morgan Stanley(MS:NYSE), which may have helped obfuscate the company’s risk issues to the board. The positions are now separate, but the situation still isn’t ideal. Mack has retired as CEO but remains chairman, a position that’s best served by an independent leader.— Reported by David MacDougall in Boston.
March 22, 2010