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Should Failed CEOs Be Allowed to Remain on Corporate Boards?

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Is it inappropriate for disgraced CEOs to remain on the boards of public companies?
This is the issue New York Times reporter Andrew Ross Sorkin looks at in his latest article.
Sorkin cites examples like former Fannie Mae CEO James Johnson, who, despite having stepped down from the government-sponsored enterprise in 1999, is considered to have set in motion the 2008 collapse of the housing market. Today Johnson sits on the boards of Goldman Sachs (GS) and Target (TGT). Last week, prominent Sequoia Fund manager David M. Poppe wrote a public letter to his investors urging them to vote against Johnson's re-election to Goldman’s board.
Other fallen CEOs who still sit on corporate boards include Chuck Prince, notorious for guiding Citigroup (C) to disaster, who is now a director at Xerox (XRX) and Johnson & Johnson (JNJ), and Stanley O’Neal, who similarly brought Merrill Lynch (JPM) to the brink of collapse, and is now a board member at Alcoa (AA).
Persons of the moment Eduardo Castro-Wright, a Wal-Mart (WMT) vice chairman who has been a principal figure in the retail giant’s bribery scandal, and Andrea Jung, who stepped down as Avon (AVP) CEO because of a bribery investigation, will also undoubtedly see their directorships at MetLife (MET) and Apple (AAPL) receive heightened scrutiny.
Why is it problematic for these leaders to be on corporate boards? According to Poppe, it's because they have displayed ethical failings that ought to be of concern to shareholders. Poppe noted that Johson was a board member at UnitedHealth Group (UNH) when its CEO faced charges of backdating stock options, and at KB Home (KBH), when its CEO was convicted for the same offense. As Sorkin writes:

Mr. Poppe noted that in both cases, Mr. Johnson was on the compensation committee. “What does that say?” he asked.

He then recounted a famous line from Warren E. Buffett: “I’ve been on 19 boards and they put me on one comp committee — and they regretted it. They’re looking for cocker spaniels, not Dobermans.”

Of course, it can be argued that failure is not damning, and that it can even be an asset for someone serving on a corporate board since with failure comes experience and wisdom. Presumably.

For its part, Goldman seems to believe in the latter argument. The firm released a statement defending Johnson’s re-election, stating: “Mr. Johnson offers deep insight into governmental affairs and the regulatory process, gained from, among other things, his tenure at Fannie Mae and his work with Vice President Walter F. Mondale, including as the vice president’s executive assistant.”
POSITION:  No positions in stocks mentioned.