Last week, The Men’s Wearhouse, Inc. (NYSE:MW) founder and chairman George Zimmer was terminated by the company’s board of directors. According to him, they did so because the board is choosing “to silence my concerns.”
It’s still too early to determine just who is at fault here. But it brings up an oft-overlooked issue: the sometimes hostile, sometimes too-close relationship between a public company’s board of directors and the company’s executives.
There are a lot of companies whose boards lean toward the “too-close” side of the spectrum, lavishing directors with cushy perks and benefits — often at shareholders’ expense. We’ll take a closer look at five in particular in just a moment.
But first let’s answer a very important question…
What exactly is a board of directors supposed to do?
A board of directors is the primary governing force of a company. It is tasked with the duty to protect shareholders’ money and ensure their investment continues to grow.
Members are charged with hiring and approving compensation for a company’s CEO, approving major expenses, and overseeing major business decisions such as initial public offers, mergers, buyouts, and acquisitions.
A board usually consists of businessmen and women (but still mostly men, these days) who bring to the table a unique set of skills and experience that should help guide the company’s direction. And for this experience and the time they spend working with the company, they get paid.
It’s a sweet gig if you can get it
Polish up your resume, because according to MBA Online, “being on a board of directors is one of the most lucrative career options available.”
The average director for an S&P 500 company earned $242,385 in pay and other benefits in 2012, according to Bloomberg BusinessWeek. All this for attending roughly eight meetings a year.
And therein lies the problem for shareholders.
Obviously, such a cushy gig is difficult to walk away from — and the numbers back this up. Sixty-four percent of directors at S&P 500 companies have served on the board for 10 to 15 years; another 5% have served for more than 15 years, according to executive recruiter Spencer Stuart.
And as time goes on, a director faces an internal dilemma: Do I question a company’s decisions and direction at the risk of losing this lucrative source of income? Or do I largely remain silent and continue to collect my annual checks?
Unfortunately, most tend to choose the latter.