Friday, February 1, 2008
What the. . . .!
Has Fannie Mae moved to another planet? The government-sanctioned mortgage company took a 30% loss in earnings and share price last year and so far this year, it's earnings are down by almost half. Might this indicate that leadership isn't doing a good job? The proverbial buck usually stops with the C.E.O., but somehow many of them seem to have some sort of non-stick covering when it comes to taking responsibility or blame. Frankly, I don't know how they sleep at night. They are already paid way more than they're worth -- an opinion held by more people than just me -- and yet their golden parachutes allow them to escape with nary a scratch when they screw-up! In Fannie Mae's case, Dan Mudd had to take a 15% cut from his 2006 compensation -- from $14.4 million down to $12.2 million. To help offset their financial losses, Fannie reduced its work force -- such a polite way of saying hundreds of people lost their jobs -- but not the C.E.O. Not too long ago, being appointed to a board of directors was prestigious. You got free travel and meals to attend board meetings in great places and deferential treatment by company exmployees. Rubber-stamping what the C.E.O. wanted made the job quick and painless -- didn't require that much thought. Governing boards can't afford to wash their hands of responsibility. New regulations will start holding them accountable and stake/stock holders are finding it easier to get crucial information about what actually goes on in board rooms and they're not happy. The stock market is ruled as much by emotion as by thoughtful analysis. Emotions are running high and angry about all the shenanigans in the business world. I would advise board members to get some back-bone and do the right things: 1) lower the outrageously high compensation packages for executives; 2) make sure they fully understand what they are deciding; 3) seek out the insights of frontline employees; and 4) stop allowing the spoon-feeding of misinformation and outright deception to the public. We'll be watching!