Among the many proposals up for consideration at this year’s annual meeting at Morgan Stanley is one that deserves your attention and your vote. Proposal #7 calls for the separation of the positions or chairman and CEO and also requires that the chairman be “independent.” For those of you that pay attention to these sorts of things, an independent chair proposal is not new. What makes this proposal unusual is the corporate chutzpah that suggests that this proposal is not in the interest of shareholders. Remember that “financial crisis” from a few weeks back? The boys at Morgan Stanley were some of the dealers at that crack house fiasco.
Morgan Stanley, along with a number of other financial services companies on Wall Street were engaged in a range of financial transactions that contributed to the global financial meltdown. The company, along with its compadres on the Street, traded on a range of securities that bet on the failure of the mortgage market. This gamble based on a failed bet that the unsustainable mortgage market would last (i.e. millions of bad mortgages would not somehow fail all at once) blew up, leaving ordinary people in financial disarray, economies around the world in crisis and the financial companies at risk of collapse. So far so good?
In 2008 and 2009 the company was in crisis. The Company’s then CEO John Mack (now the Chairman) was under pressure from the Fed and the Treasury to merge the company with JP Morgan Chase. Eventually, the Company was forced to take TARP funds, which it has since paid back. While all of this was going on, shareholders were taking quite the hit. MS share price went from a high of $67 and change in 2007 to less than half of that amount in 2010. Of course then CEO and now Chairman Mack saw a $41 million payday in 2007, which has since diminished to a paltry $1.5 million and change in 2009.
Yeah, pay for performance is working here.
Anyway, late in 2009 the Company announced the change in duties of Mr. Mack and the co-President James Gorman but from a shareholder perspective has anything changed on the board?
While a number of new faces have appeared on the MS board over the last couple of years, much remains the same. Several directors are seriously overboarded, holding 4 or more board positions (James Hance (5), Donald Nicolaisen (4), Charles Noski (4), Laura Tyson (4)), several directors have held their posts for excessive terms (Robert Kidder (17 yrs), Laura Tyson (13 yrs)) and of course, the chairmanship is held by an insider, Mr. Mack. Perhaps these problems could be ignored if the company hadn’t, well, screwed the pooch. Unfortunately for the rest of the world, that was not the case.
For MS shareholders interested in sorting out the pros and cons of this shareholder proposal, the Company proxy statement is of little help. Regrettably, the proponent talks in platitudes about the merits of independent chairmen. (Yawn). But somehow, corporate hubris seemed to get the best of executives at the Company who offer that “[t]he Board should not be constrained by an inflexible, formal requirement that the Chairman be an independent director who has not previously served as an executive officer.” The proxy statement goes on for several more interminable paragraphs suggesting that its independent board and committees all somehow validated its decision to let Mr. Mack continue on as CEO-Emeritus/Chairman.
Okay, so let’s recap: Stock price in the toilet, entrenched Chairman, entrenched board, executive pay rewarding short term performance, shareholders left holding the bag. This is a no brainer folks.
Vote for requiring that the chairman be I N D E P E N D E N T!