Goldman Sachs Group, Inc. (GS), Chesapeake Energy Corporation (CHK): “Destructive” Changes That Could Help Your Investments

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There are many reasons corporations deteriorate over the long haul, taking shareholder value and stakeholder well-being down with them. When it comes to true business health and fixing structural problems, many issues could be alleviated by focusing on a factor that is too often overlooked or underestimated: shaking up boards of directors.

Goldman Sachs Group, Inc. (NYSE:GS)

Great work if you can get it
The spotlight’s seldom focused squarely on directors’ role in business decisions, from CEO pay to business-killing initiatives and short-term thinking. Let’s change that.

Exactly who these people are and what they’re doing should be of utmost concern to investors. Too often, boards are manned by long-standing directors who happen to be highly paid CEOs of other companies. Just for starters, those who head up compensation committees easily have a conflict of interest, since using peer groups tends to float all CEO compensation boats higher.

In recent years, directors have rarely taken a stand against managements’ decisions. They have little incentive to do so, given the benefits and even psychology of remaining friendly. Who wants to fight all the time, after all? It’s a hard road to walk, even if it’s the right thing to do.

The tragedy is that these directors have been charged to look out for shareholder interests; in essence, that’s what we shareholders are paying them for.

Take a New York Times piece earlier this week. Wall Street companies have conducted some pay cuts and layoffs that have made headlines, but big banks’ boards of directors are still doing quite well.

The Times used Goldman Sachs Group, Inc. (NYSE:GS) as a particular example, citing it as topping data firm Equilar’s list of well-compensated boards. The annual average pay for its directors was an astounding $488,709 in 2011. Several directors’ compensation for the job exceeded a half million dollars.

To give a little context, the median U.S. household income near the end of 2011 was between $49,434 and $51,413. That’s for entire households, not for one part-time job that isn’t usually even the individual’s core, most pressing career responsibility.

Think outside the check box
Do directors even have to fit into the current definition of a board member? These “highly qualified” individuals often boast Ivy League, “impressive” educations on their resumes, not to mention CEO jobs at other public companies or major positions in the government sector, but think about it. Most are white, male, older, wealthy — in other words, many of them probably don’t walk in the real world with most of us Americans.

From an investing and business standpoint, we face a very real risk of lacking diverse thinkers with robust insight and perspective. That’s a major disservice to long-term stockholdings and company strength.

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