Fool LouAnn Lofton wrote on Monday about the high regard many have for just-named Freddie Mac (NYSE:FRE) Chief Executive Officer Richard Syron. I take a different view. This appointment is a sellout, an absolute disaster for those who would insist upon strong corporate governance at Freddie Mac, which is mired in scandal following years of malfeasance by its executives.
Today federal regulators announced they were imposing fines of $125 million on Freddie Mac, finding that it had manipulated earnings. The regulators noted "weaknesses existed in every aspect of Freddie Mac's accounting process" and claimed that senior executive compensation practices contributed to the company's misdeeds. They also aimed some chin music at Freddie's board of directors, saying that the board "clearly understood the intent of management to smooth earnings."
There is an implied backing of Freddie Mac by the full faith and credit of the United States Treasury (read: your tax dollars), which means that what goes on with Freddie is important to you whether you own the stock or not. As a taxpayer, I'd expect those who regulate Freddie Mac to insist on a manager who takes compensation issues seriously and is a corporate governance hawk.
Instead, we get Richard Syron, someone who recently, as chairman of the compensation committee for John Hancock (NYSE:JHF), approved and then vigorously defended a pay package for Hancock's CEO, David D'Alessandro, that was by most measures obscene, and may actually have been illegal under Massachusetts insurance laws. This payment went to a CEO who priced the company's 2000 initial public offering absurdly low, and then declared the later rise in stock price a sign of the success of the company. This, even though Hancock's 2002 earnings slumped miserably due to, among other things, large purchases of Enron bonds.
Syron's most recent role has been at the helm of Thermo Electron (NYSE:TMO). But prior to this, through mid-1999, Syron headed the American Stock Exchange. We noted recently that the AmEx had attempted to keep itself afloat in part by ignoring its own listing requirements so that companies could retain their standing and be traded on the board. Much of that took place after Syron's watch had ended. But more troublesome is a BusinessWeek article from 1999 that details claims of trading improprieties, poor enforcement, and failure to investigate numerous allegations of wrongdoing. All of this is alleged to have happened on Syron's watch at the AmEx.
Freddie Mac shareholders don't need someone who knows how to lobby in the halls of Washington -- they need someone who is going to clean up the mess and instill an atmosphere of propriety at what is one of the most important institutions in America. Instead, they get a man who may be most qualified based on the belief that he poses little threat to a board of directors -- a group that, by all rights, should be thrown out on their ears. If Freddie Mac shareholders don't demand better, federal regulators should. If they do not, we as taxpayers most certainly should.
Have your own take on Freddie's new CEO? Post it on the Freddie Mac discussion board.
