Countrywide’s Corporate Governance: Definitely Subprime

This post is from J. Richard Finlay of Centre for Corporate & Public Governance.

Countrywide Financial is a name that has come to be synonymous with the subprime meltdown that has shaken investors and sent the world’s central bankers scrambling to rejigger their playbook. Less attention has focused on Countrywide’s corporate governance and compensation practices, however. Therein lie some important clues to what is behind the turmoil now being felt by the company and its stakeholders.

The lesson of Countrywide is instructive at a time when there is considerable pressure to retreat from Enron-era reforms, with many claiming they are too costly and not necessary. On the contrary, Countrywide shows that improvement is far from universal when it comes to corporate governance and that, once again, excessive CEO pay is still the Typhoid Mary of the boardroom, showing up time and again just before calamity strikes, as it did with Enron, WorldCom, Tyco, Adelphia, Nortel, and more. It also shows that a single company’s misjudgments can carry profound consequences for other corporations, public institutions and a wider community of interests, which is why society itself has a considerable stake–separate and apart from that of shareholders–in seeing CEO pay returned to reasonable levels.

For example, in a recent post on my blog I argued that the first impression one gets looking at Countrywide’s board is that it is an old boys’ club. For one thing, the board is comprised entirely of men. That’s usually a sign, as I have said before, of an organization that isn’t fully adjusted to the 21st century. Countrywide’s is also a board that prefers to phone it in. Last year, it met formally and in person on only five occasions; the rest of its meetings were held by telephone. That’s usually a signal that both (a) the CEO is seeking to minimize board involvement and doesn’t want a lot of questions asked; and (b) the board has not grasped its obligations and what it needs to do to meet them.

Countrywide’s 2007 proxy filing starts talking about compensation on page 20 and doesn’t end that discussion until page 66. One of the reasons the board probably doesn’t mind spending so much time on the topic is because directors are also benefiting from the company’s beneficence. Directors receive a cash retainer of $70,000 plus meeting fees–in addition to fees for chairing committees and a stipend of $220,000 in restricted stock. In 2006, no director received less than $358,000; several pocketed more than $400,000; and one pulled down $538,000. The company’s generosity even extends to former directors. Three past board members received more than a million dollars among them in 2006 for unspecified services.

In a more recent post on Countrywide’s governance, I point out that, in certain respects, Chairman and Chief Executive Officer Angelo Mozilo seems to share the same uncanny knack for knowing just when to sell before calamity strikes that brought Enron’s Ken Lay, WorldCom’s Bernie Ebbers, Nortel’s John Roth, and a host of other CEOs into the public eye. What a shame that these remarkable gifts of CEO prescience never seem to translate into talent that might help their companies–and other shareholders–avoid impending disaster.

These posts, and further analysis of Countrywide’s subprime corporate governance, can be found here at my blog Finlay ON Governance.

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One Comment

  1. Jack Sorokin
    Posted Friday, November 2, 2007 at 12:20 am | Permalink

    I realize it is a small part of your comments, but I wanted to take exception to your comment that five face-to-face board meetings with the remaining meetings by telephone reflects poor board performance. It seems to me that the meeting pattern described reflects an active and engaged board. Considering the difficulties involved in scheduling what is usually a very busy group of people (and to a lesser extent the logistical problems of holding face-to-face meetings), telephonic meetings offer an efficient way to allow for substantial board involvement on an ongoing basis. Of course, whether the meetings are face-to-face or telephonic, it is still up to the board members to fulfill their obligations by making the effort to be informed, ask questions, and challenge management assumptions.

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  1. By CorpGov.net » November 2007 on Monday, September 5, 2011 at 3:00 pm

    […] members received more than a million dollars among them in 2006 for unspecified services.” (Countrywide’s Corporate Governance: Definitely Subprime, J. Richard Finlay, The Harvard Law School Corporate Governance Blog, […]