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SEC to Examine Boards' Role in Financial Crisis
During part of the tenure of former Merrill Lynch chief executive E. Stanley O'Neal, who took home $161.5 million as he left the firm, the Wall Street investment bank loaded up on investments derived from subprime mortgages and other risky loans. O'Neal was also chairman of the Merrill board -- meaning he was both the overseen and the overseer.
Watchdogs say the Citigroup board also exhibited poor practices. Three of the firm's directors also were serving as chief executives at other companies.
Other Citigroup directors had multiple roles at the firm. Robert Hernández Ramírez was both a board director and chairman of the bank's Mexican subsidiary. Former Treasury secretary Robert E. Rubin was both a board director and a top adviser to the firm, a role that earned him more than $100 million. Rubin recently retired, and Hernández announced he was stepping down this week, though Citigroup said he would retain access to aircraft on the company's dime.
Some business insiders say that boards shouldn't be held culpable for a financial crisis that just about everyone missed.
"The universe of people who misread the risks in what some of these firms were doing is very broad. You could extend it to the rating agencies, to managements, to regulators," said David Hirschmann, president of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce.
The inquiry into what went wrong at the board level comes as the SEC's Schapiro plans a broader review of policies governing how much shareholders can influence boards. She previously has expressed support for proxy access, which would make it easier for shareholders to propose new directors. Many public companies oppose proxy access, in part because it enables activist shareholders, such as from labor or environmental groups, to try to seek influence on boards.
Schapiro recently hired Kayla J. Gillan, a longtime shareholder advocate, as a senior adviser. Another one of Schapiro's close associates, SEC Commissioner Elisse B. Walter, has also spoken favorably about enhancing shareholders' influence. "To me, the fundamental question is: 'Should shareholders have a real say in determining who will oversee management of the companies that they own?' I believe strongly that the answer is yes," Walter said this week.
Earlier this month, the SEC rejected a request by Birmingham, Ala.-based Regions Financial to ban a shareholder proposal to set strict pay limits at the firm, according to RiskMetrics Group. Just months earlier, the SEC approved a request by SunTrust Banks to ban a similar shareholder proposal.
Some investors aren't convinced the shift is real. Money manager John Harrington tried to propose new board committees at Bank of America, Citigroup and Goldman Sachs that would ensure that the companies take steps to support U.S. economic interests.
Bank of America and Citigroup wrote letters to the SEC asking for permission to disallow the proposal. The SEC told Citigroup it had the authority to do so, Harrington said. "It's shameful that the SEC is still supporting corporate management right down the line," he said.