Corporate Boards Gone Wild

One "independent" director at Chesapeake was the cousin of the CEO, Aubrey Kerr McClendon. McClendon took home an outsized pay package -- approved by the board -- of more than $100 million in 2008. Additionally, the board approved the company's purchase of McLendon's antique map collection for $12.1 million. According to Fortune, Chesapeake's compensation committee rationalized the CEO's compensation based simply on the board's wish to keep McClendon as CEO. Asked by Fortune why Chesapeake compensates directors so aggressively, McClendon said, "We have a very large and complex company, and we value our directors' time."

Author Gillespie, who has worked as an investment banker and a CFO, pointed to the collapse of Lehman Brothers as an example of the role corporate directors played during the period leading up to the financial crisis. "Lehman had a risk committee that met twice a year," Gillespie said.

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Lehman's Leading Lady

One of the longest tenured Lehman board members was, up until two years prior to its collapse, a retired 83-year-old actress and heiress, Dina Merrill.

The Lehman directors, most of whom were handpicked by CEO Richard Fuld, also included a theatrical producer and a retired art-auction company executive. In a September 2008 conference call, Fuld told analysts: "I must say the board's been wonderfully supportive." Four days later Lehman filed for bankruptcy. Lehman shareholders lost more than $45 billion.

"The Lehman board wasn't merely asleep at the wheel, they were comatose," Gillespie said.

Even veteran corporate board recruiter Russell Reynolds, who has been helping companies select directors for more than four decades and who is a staunch defender of board behavior in general, admitted that in the case of, for example, Citigroup, "one does have to wonder what those directors were thinking."

Reynolds founded the giant recruiting firm Russell Reynolds Associates, and later left it to form a new company, Greenwich-based firm RSR Partners. He says that 90 percent of the board members he knows "behave exemplarily."

"Board members today work harder than ever -- the meetings take longer, there are more of them and attendance is required," Reynolds said. "There is a big demand for good directors with specific expertise, not just yes-men."

As ordinary Americans gnash their teeth over the gap between what top executives earn and the pay for rank and file employees, anyone still wondering how we got here can look, critics insist, to the boards of directors.

Large shareholders, mainly money managers such as Fidelity, technically wield more power than any board member.

Still, portfolio managers at big fund companies don't monitor boards closely because they invest in hundreds of companies and it's often not possible. In fact, the job of weighing how to vote on various proxy issues, including the election of board members, is usually outsourced by money managers to companies such as Institutional Shareholder Services. Individuals who get proxy statements in the mail tend to ignore them or throw them out.

In something of a feedback loop, the board members themselves can earn more as they approve swelling pay packages for the executives to whom they are beholden for their lucrative assignments. According to the Corporate Library, the median pay boost for board members in 2008 was 11 percent.

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