Boards of directors are becoming a tough crowd these days. At the slightest hint of impropriety -- let alone actual wrong-doing -- boards are ousting their executives, seemingly on a whim. Undoubtedly, as the drive mounts to hold directors just as accountable for acts of negligence or criminality by executives, this will be a more commonplace event. All too often the board is seen as being complicit in the actions of management, or at the very least acting as enablers, and directors are clamping down.
The ouster of Boeing's
Boeing's board asked for and received Stonecipher's immediate resignation on March 6, yet he will remain on the company payroll until April 1. During that period of corporate limbo, Stonecipher will still collect his $1.5 million annual salary (or about $60,000 pre-tax), receive a $2.1 million incentive bonus, and have use of the company car and corporate jet (with permission). At least in Stonecipher's case, there was improved corporate performance during his tenure; all too often in CEO ouster-reward situations, boards of directors simply dole out shareholder money for poor performance.
Consider Henry Ancona, the former president of Pegasystems
There were five ways Ancona could separate his employment with Pegasystems, and two of them -- being fired "for cause" or leaving "without good reason" -- would only entitle him to accrued benefits. His abrupt resignation fell within the "without good reason" category, but the board of directors decided to reward him anyway. They changed the basis of his severance package to give him full benefits as "if he were terminated without cause or resigned for good reason." Ancona received $325,000 cash, options worth about $4.5 million, an undisclosed "bonus," and full salary and benefits for a year. The board simply transferred money from shareholders to Ancona's pocket.
Cereal maker Kellogg
Not exactly. The board of directors changed his employment agreement so that he could collect full benefits, as if he had been with the company for 30 years and retired at age 55. Based on his average salary and bonus over the past three years, his pension should be worth more than $2 million. In addition, he received a $500,000 bonus and lump sum payouts under two company investment plans. He sold 400,000 shares of stock options for $4.5 million. And he had already cashed out some 1.2 million in options he had been given the week before that. Sweet deal.
When Scott Livengood resigned from Krispy Kreme Doughnuts
By all means, boards of directors should take a stand and get rid of poor, incompetent, or criminal CEOs and other managers. If executive actions will undermine the good name of the company, then the executives should be ejected. That is the purpose of the board, to oversee the operations of management, and for that task they are handsomely paid. But let's not make a mockery of that same fiduciary responsibility and reward those managers on their way out.
Shareholders ought to take note of how their boards deal with management separation, and if they see them doling out the largesse at their expense, they need to remember that it's their money that's being given away and they should start a revolution to overhaul the board.
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Fool contributor Rich Duprey wonders how Krispy Kreme doughnuts can taste so good yet be so mismanaged. He does not own any of the stocks mentioned in this article.