Thursday, February 02, 2006

Independence Fray

There are many reasons why good pay so often happens to bad (or at least mediocre) people. But one of the biggies is the ease with which management has been able to seat directors who are independent on paper but not in reality. This brings me to an intriguing sentence in the SEC’s 370-page proposal on executive compensation disclosure:

“The proposals would require, for each director or director nominee identified as independent, a description of any transactions, relationships or arrangements not disclosed...that were considered by the board of directors of the company in determining that the applicable independence standards were met.”

Damn An outright attempt by regulators to second-guess a director's independence. It’s nosy, intrusive, and everyone will hate it. Sounds like a winner to me.

Speaking of independence, remember the casting job accomplished by former Disney CEO Michael Eisner? You can find the details in the otherwise wimpy Delaware judge’s opinion in the shareholder suit over the Ovitz Affair (now on appeal to the Delaware Supreme Court). The good justice provided a list of "examples of Eisner’s success at surrounding himself with non-employee directors who would have sycophantic tendencies":

Irwin Russell, head of the compensation committee, was "Eisner’s personal attorney."

Former Senator George Mitchell was "hand-selected by Eisner to serve on the board, and now serves as chairman, a position which provides Mitchell with substantial remuneration worth about $500,000 annually."

Reveta Bowers was "an administrator of a private school in West Hollywood, California, that was attended by three of Eisner’s children and to which Eisner and entities related to the Company have made substantial contributions."

Leo O’Donovan "was president of Georgetown University from 1989 to 2001 (Eisner served on Georgetown University’s board of directors from 1985 to 1991), where Eisner’s son attended college until 1992, and to which Eisner made a $1 million donation in 1996 at O’Donovan’s request."

As lazy lawyers like to say, res ipsa loquitur ("the thing speaks for itself"). Not to be confused with The Thing, a non-Disney film almost as scary as Eisner's board.