Gob Cvo

And yet two members of MF Global's five-person audit and risk committee, former HSBC Bank USA CEO Martin Glynn and former ICAP Plc Chief Operating Officer David Gelber, sit on the audit committees of three other public companies.

Corzine's compensation also raises red flags among governance experts, who contend the way he was paid had the potential to influence the executive's willingness to take risk.A source close to J.C. Flowers told Reuters that all four members of the compensation committee agreed unanimously on all decisions regarding Corzine's compensation.

he owned relatively little company stock

"A cynic would say that he had the incentive to take a lot of risks," said Alan Johnson, a New York-based executive compensation consultant who works with Wall Street firms.

"It just feels like they gave him carte blanche," he said.

One board member's connections raise questions of conflict of interest from the start,

All of the eight board members had years of financial sector experience, including a former bank CEO and a former insurance company CFO.

critics say the brokerage and clearing firm's board tolerated at least one possible conflict of interest, bent its own rules and failed to rein in Corzine as he drove the company into dangerous bets.

themes

What should be the time-horizon of investor engagement? Do activist investors have too narrow a focus on short-term gains? How is engagement most effective? Is there a particular governance or ownership structure that promotes better engagement? How can mainstream large mutual funds and asset managers increase their level of engagement with companies? Are there specific incentives (or lack thereof) that prevent institutional investors from becoming more actively involved with their portfolio companies?

Mary Schapiro

Pershing Square

highlighted the positive impact of say-on-pay votes, and better disclosure of director qualifications.

SEC's commitment to address proxy voting mechanics and the rules around beneficial ownership disclosure.

first panel

Reuters Editor-at-Large Chrystia Freeland

agency's efforts to improve engagement between shareholders and their investee companies

Bill Ackman,

active ownership, and opposed the notion that activists have a short time horizon

engaging with management and the board, he argued.

Martin Lipton

Wachtell

Lipton, Rosen and Katz

acknowledged that some activist investors with long-term significant positions may benefit investee companies.

obsession for shareholder value in terms of quarterly results

diffused ownership of U.S. corporations

constitute "the greatest threat to the economies of the western world." 

Mats Anderson, CEO of the Fourth Swedish National Pension Fund

Runa Urheim

Scandinavian perspective

Norges Bank

Swedish system of boards fully comprised of independent directors and shareholder-led nomination committees

Norges Bank

ave a significant shareholder.

Nadia Calvino

Internal Markets and Services of the European Commission

view corporate governance as a key component of a well-functioning economy

new requirements should be made with great caution, since it may have substantial impact on numerous parties. 

second panel, Julian Franks

perspective of labor funds

"Unfulfilled Expectations? The Returns to International Shareholder Activism.”

paper

compared shareholder activism in Europe, North America, and Asia

abnormal returns when the activism results in specific measurable outcomes, such as changes on the board, payout policies, restructurings, and takeovers.

Brandon Rees

London Business School

AFL-CIO’s Office of Investment,

endorse active ownership but maintain a buy-and-hold investment perspective

easier access to companies' boards through proxy access and other means of engagement is in the best interests of all minority shareholders.

final panel

role of institutional investors and the barriers to engagement with corporations

law at the University of Pennsylvania

law professor at the University of Munich

Calvino's view that regulators should tread carefully in order to avoid any unintended consequences of regulatory action, and opposed the notion of mandatory engagement.

Horst Eidenmulle

Edward Rock

free rider problem among institutional investors, who are competing on cost, price, and performance relative to peers.

little incentive for any individual player to take on the costs of engagement with uncertain benefits as in comparison to its peers.

Luigi Zingales of the University of Chicago

institutions' lack of incentives to engage

the costs of engagement may be significant for individual institutions, there may be opportunities to overcome the collective action problem by permitting greater collaboration among investors and easier access to the board by minority holders,

voto di lista system

that directors permitted an unsustainable growth strategy designed to exploit the real estate market but failed to protect the bank from the substantial inherent risk associated with that growth, by overconcentrations in acquisition, development and construction loans, which in at least one case was over 80% of the bank’s entire loan portfolio, or lack of supervision of senior management and undue reliance on them in loan originations without assurances of core competencies in areas of credit administration and risk underwriting and without adequate policies and procedures to enforce prudent lending, informed decisions and adequate monitoring. that directors neglected to heed warnings from bank regulators, particularly those contained in reports of examinations and exit interviews, about deteriorating asset quality and capital, or failed to make corrective changes in accordance with the directions of regulatory authorities. that directors permitted the making of “insider” loans without adequate analysis or documentation. that directors declared dividends payable to the bank’s holding company at a time when asset quality was declining significantly and the required capital ratios were being reduced.

gross negligence would encompass a complete disregard of the institution’s statutory mandate and permitting it to engage in conduct which violates the law.

recurring themes

The lesson for directors or prospective directors of existing banks is that these FDIC-led challenges of past behavior help to delineate the boundaries of proper director fiduciary conduct expectations for banks. 

Directors have a broad responsibility for oversight of a bank and therefore service as a member of the board should not be seen as a “hobby” or a prestigious pseudo-club membership; significant amounts of time need to be dedicated for a director to adequately perform in accordance with FDIC expectations. Directors must not merely rely on the actions or recommendations of senior management but are charged with holding management’s feet to the fire in addressing strategic challenges and specific operational problems and proposing solutions. Directors must be exacting in their appraisal of the competency of senior management and must be in a position to make changes when incompetency is apparent, sooner rather than later. Directors must demonstrate that they are acting independently, free from any allegiance to management, and cannot allow themselves to be managed by a dominant CEO or controlling shareholder. Directors may not turn a blind eye to unsafe or unsound practices or to potential violations of law, particularly in those areas identified by bank examiners as warranting further attention or action. Directors must be very sensitive to the appearance of a conflict of interest and must leave all self-interest at the door.

FDIC officially has authorized lawsuits against 266 individuals with total damage claims totaling about $6.8 billion.