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Home Publications Blogs Beat the Press Corporate Boards Are Still Failing

Corporate Boards Are Still Failing

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Sunday, 12 May 2013 07:03

The median pay for a member of the board of a Fortune 500 company is almost $240,000 a year. This typically involves 4-8 meetings a year. One of the top priorities of the board is supposed to be ensuring that top management doesn't rip off the company. They have not been doing a very good job as Gretchen Morgenson points out in her column today.

That raises the question of what exactly they get all this money for? Director Watch will be coming soon to a website near you.

Comments (11)Add Comment
Dean Baker Doesn't Get It: $240k is the Efficient Market Price for a Director, Low-rated comment [Show]
Corruption
written by Ellis, May 12, 2013 11:04
Companies rip off workers and consumers, while feeding wars for oil and power. So, is it really such a surprise that they are also corrupt?
...
written by John Emerson, May 12, 2013 12:43
If what "Last Mover" wrote is not intended as satire, he's missed the point. Dean isn't necessarily saying that $240,000 is too much for a director to get. His point is that that's far too much to pay someone who isn't doing their job and who well may be complicit in the problem.

Wingers are good on the vehemence and not much else. And they're not afraid of looking stupid.
Chasing Morgan
written by Downpuppy, May 12, 2013 4:07
With all the rampaging crime running through JPM, why did Morgenson focus solely on the whale?
Poe's Law
written by watermelonpunch, May 12, 2013 6:20
@ John Emerson
FYI Last Mover is the Beat the Press blog court jester. ;)
If Baker would just allow avatars, we would pressure Last Mover into using a picture of Danny Kaye.

Anyhow...

Most people complain, and find atrocious the amount of compensation these kinds of positions get for doing positively lousy jobs.

What what is the solution? I'd like really like to hear more about workable solutions to this problem.
With a problem so egregiously obvious, and so many people who would like this sort of thing to change, you'd think there could be some solutions that various could rally around.
What are they?
...
written by skeptonomist, May 13, 2013 8:36
Are corporate managers and board members failing in their duty to shareholders? Not if you judge by the level of corporate profits, which are higher as a fraction of GDP than since WW I (and have been since around 2006). Stock prices have correspondingly risen, and stockholders are way ahead of where they were in 2009 anyway.

The failure is in corporations' obligations to society. As Dean has pointed out before corporations originated in explicit authorizations by governments for enterprises that were supposed to be for the nation's good, not to enrich capitalists. They were not considered to be essential parts of a free-enterprise system - Adam Smith was opposed to corporations. The Supreme Court has judged that corporations are some kind of capitalist super-persons, but they exist only at the discretion of Congress and their powers can be curtailed at any time. One thing that has already been done in many European countries is to mandate labor and government representatives on boards, although I am not sure how effective this has been overall.
corporate profits are roaring...good job boards!
written by pete, May 13, 2013 9:18
I really don't see the issue. Most U.S. companies are doing quite fine thank you. JPMorgan made $21 Billion last year. Wow. What an awful board since they didnt make $28 Billion because of some goof. And Dean wants them to do better, since pension funds need over 8% in stock returns to counteract low bond returns and keep them afloat to pay the retirement of the underpaid workers who give us high corporate profits...oops...something doesn't add up there!!!
skepto...I think corporations are state chartered, not U.S....
written by pete, May 13, 2013 12:50
Might make a difference. E.g., Delaware is the home to many.
That is why I bought some shares of IEP
written by Floccina, May 13, 2013 3:54
Icahn Enterprises, L.P. (IEP). Icahn likes to fire highly paid management and replace them with people at lower pay.
...
written by watermelonpunch, May 13, 2013 9:45
@ skeptonomist
Are you saying that getting rid of the headless-monster-as-person corporations, or just their personhoods, would stymie this problem of growth investing in bubbles being lucrative on profit levels short-term?

I am totally not sure if that sentence should make sense. But that's my question. Because I'm not clear if you're saying there is a solution here... if maybe if has something to do with that Adam Smith guy...
Or, if maybe I've missed some Poe's Law angle in your post, and you're saying there is no solution needed, because it's working well for "shareholders" en masse. Which growth investing is said not to be overall good investing... so I'm not sure how that could be good for the bulk of shareholders.

Or is there controversy about that issue too growth vs. value investing?
...
written by Chris Engel, May 14, 2013 6:30
John Emerson,

you must be new here! Last Mover keeps you guessing, but his snark is A-level.

I look forward to Director Watch -- even if they're partnering with a blood-sucking corporation at huffpo.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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