Corporate Boards Gone Wild

For every corporate accounting scandal, overpaid CEO or episode of imprudent risk taking, there's usually one common denominator — a board of directors who signed off on it.

And while corporate boards, many of them dominated by retirees, have not had the kind of negative attention reserved these days for the Wall Street set, a new report highlights a number of questionable practices going on in America's boardrooms that are not in shareholders' best interests. The report, released earlier this month by the Portland, Maine-based independent research group The Corporate Library, raises serious concerns about just how conflicted the boards of publicly-traded companies have become.

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Among the examples of perks for directors:

At Halliburton Company, two retiring directors received lump-sum payments of $678,812 and $567,869 respectively when they left the board in May 2008. The opportunity for board members -- who attend a few meetings a year -- to cash in on such a generous retirement program calls into question their loyalties, according to Greg Ruel, author of the study. "After all, it is a rare line of work that affords one the opportunity to earn a lucrative pension without ever serving as a company employee," Ruel said.

At XTO Energy there were provisions in place that would pay board members "change of control" awards in the event of a merger or acquisition -- as much as $1 million each. "It is ultimately the director's decision whether or not a merger or acquisition comes to fruition," said Ruel, "which brings into question whether it is appropriate that they earn any incentive from the outcome."

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At the Stryker Corporation, a medical device maker, one board member was paid $4,500 a day in consulting fees, totaling around $130,000 in 2008. Ruel says it is unclear what consulting services were actually rendered, let alone why the director made more in a day than the average nurse earns in a month.

Flying High

A number of companies, including Chesapeake Energy Corporation, allow directors personal use of private aircraft. "The inclusion of such a benefit could make directors less inclined to challenge management and risk losing the comforts," Ruel said.

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While bankers, traders, government authorities, rating agencies, the financial media and a host of other contributing culprits have been fingered in the quest to find out what led to the near total collapse of the financial system in 2008, a growing chorus of voices is decrying the behaviors of boards.

"It's shocking how irresponsible boards have behaved, especially when it comes to the issue of executive compensation," said John Gillespie, coauthor of the book "Money for Nothing: How the Failure of Corporate Boards is Ruining American Business and Costing us Trillions."

In the case of Chesapeake Energy, Gillespie and his coauthor David Zweig chronicled a board seemingly out of control. (Fortune magazine had an article about it too.) Average pay for Chesapeake board members was a staggering $670,000, or three times the norm. Even assuming the members contribute 100 hours a year, that's more than $1,000 an hour, great work if you can get it.

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