Posted on 08/21/2006 9:14:09 AM PDT by Grampa Dave
Fat Cats' Friend?
By Jim McTague August 21, 2006
JAMES JOHNSON, A former chairman of Fannie Mae, just can't stay away from boardrooms. He sits on the boards of no fewer than six corporations, and is chairman of the compensation committees of five of them. That's a full plate for anyone in these times of increased scrutiny of boards' actions. Only 350 of the nation's 50,000 corporate directors sit on four boards, and most are content with one.
But that's not all that makes Johnson's board work stand out. When Johnson joins a board, executive compensation controversies often follow. The executive-pay practices of five of the companies where he serves have been criticized by two research groups on corporate governance, mostly for being insufficiently tied to performance. In other words, the presence of the legendary executive on a board may be shaping up as a warning sign for investors.
The companies, including such well-known ones as Gannett (GCI1), Goldman Sachs (GS2) and Temple Inland (TIN3), defend their compensation practices — and stand by Johnson. But it's hard to overlook the frequency of the criticisms. Even Johnson's tenure at Fannie Mae (FNM4) in the 1990s has come under fire this year, with the mortgage giant's regulator contending he contributed to the colossal accounting debacle that came to a head under his successor, Franklin D. Raines. Johnson, who declined to comment for this story, has mostly led a charmed career.
Now 62, he rose to prominence in politics, becoming a top adviser to former Vice President Walter Mondale. That was followed by a princely - at Fannie, from 1991 through 1998. He greatly expanded the quasi-governmental company, became one of the most prominent executives in America and collected $21 million a year. He still draws $1 million annually in pension payments and consulting fees from the company, according to a regulatory report.
Next came a few years at the helm of the prestigious Kennedy Center in Washington, D.C., a glamorous gig that cinched his election to the American Academy of Arts and Sciences. Now, in addition to his six boards, he is active in at least four major civic enterprises and serves as a vice chairman of the merchant bank Perseus Capital, also based in the nation's capital. Johnson's image took its first big hit earlier this year, as a result of disclosures of possible backdating of stock options awards at UnitedHealth Group (UNH5), where he has been a board member since 1993 and chairman of the compensation committee since 2004.
The Wall Street Journal reported in April that a board committee at UnitedHealth including Johnson was looking into possible backdating of $1.8 billion in options awarded to Chairman William McGuire from 1994 through 2002. The implication was that the board had acted only after being nudged by the SEC. The dating of the options awards in several cases coincided with lows for the stock during the period, meaning higher eventual gains for McGuire. The odds of randomly selecting the profitable grant dates in advance were thought to be about one in 200 million.
McGuire picked the dates for options awards himself, and the board later approved them. Shares of UnitedHealth Group plunged after the disclosures and now trade 24% below their 52-week high. Some big institutional investors have filed a class-action suit in federal court in Minnesota, alleging breech of fiduciary duty and other violations of law. The suit names Johnson and most other directors as defendants, since they voted to approve the options grants.
Minnesota's attorney general is also investigating the case. UnitedHealth Group has said it won't comment until Johnson's committee has finished its investigation.
In a less-publicized instance earlier this year, Institutional Shareholders Services, which researches corporate governance for big investors, recommended that its clients who own shares of KB Home (KBH) withhold their votes for Johnson, who is a compensation-committee member, because KB's bonus plans are too generous and lead to "runaway compensation." Bruce Karatz, chairman and CEO of the home builder, received $45 million in 2005. ISS says Karatz's compensation isn't linked directly to the relative performance of the company, but rather to the performance of the overall housing market. Thus, Karatz, whose company was only the fifth-best performer in its industry, received $32 million more than did Donald Tomnitz, CEO of D.R. Horton, the top-performing home builder in 2005.
Karatz, for his part, maintains the pay scheme is "totally performance-based," and he credits Johnson with "exceptional judgment." He adds that Johnson could not have dictated higher CEO remuneration by himself. "It's a committee action," Karatz says. "It was implemented many years ago, and it's a very mathematical, performance-based system." Rockville, Md.-based ISS, which covers some 3,500 companies worldwide, each year accuses only about 2% of them of paying compensation that's out of whack with performance. But Gannett and Temple Inland were among that group in 2005, and Johnson is the head of both companies' compensation committees. The two corporations' option and stock awards weren't tied closely enough to performance, ISS maintains. Shareholders ignored the warning and didn't support pay changes.
The Corporate Library, another top source of corporate-compensation data, has raised a similar objection about the pay at Goldman Sachs, where Johnson has been a board member since 1999 and chairs the compensation committee. Remuneration at Goldman rises and falls with the markets and doesn't track performance versus its peers, says Paul Hodgson, a senior research associate of the Corporate Library. Former CEO Henry Paulson was making about $42 million a year when he left to become U.S. Treasury Secretary. The median pay for his peer group is $11.5 million, says ISS.
A spokesman for the investment bank said only that Johnson is "a valued member of the Goldman Sachs board."
The sole Johnson company that hasn't come under fire from critics is Target (TGT6). Johnson has been a director of the retailer since 1996 and, yes, chairs its compensation committee.
The sheer volume of Johnson's board work is cause for concern in some quarters. "We start raising a red flag when we see a director on four boards," says Hodgson. The ISS sees the limit as seven. But since the implementation of the Sarbanes-Oxley law, which increases director workloads substantially, it has become increasingly rare for anyone to serve on more than two corporate boards, says ISS Executive Vice President Patrick McGurn.
But if the high number of boards Johnson serves on is an anomaly, his apparent taste for generous pay packages might not be. Academic research suggests that when highly compensated CEOs and former chief executives become board members, they favor generous pay packages for other CEOs.
Amir Barnea and Ilan Guedj, finance professors at the University of Texas' McCombs School of Business, examined data on the companies in the Standard & Poor's 1500. They found that directors who are, or were, highly paid chief executives and who know lots of other powerful, high-paid people tend to approve pay packages 10% to 13% richer than those at companies that appoint non-CEOs as directors.
The researchers also found — perhaps to no great surprise — that directors who approve generous pay packages at one company are likely to be awarded more directorships in the future.
The past, however, sometimes catches up with overly generous directors.
Two top research groups have criticized the executive-pay practices at several of the firms at which Johnson serves.
Though Fannie Mae's stock price soared by more than 700% during Johnson's seven-year tenure, federal regulators in May criticized him for allegedly creating a culture that had contributed to the company's subsequent fall from grace. After regulators uncovered accounting manipulations in 2004, Fannie Mae admitted to overstating income by $11 billion in past years. In a recent interview with Barron's, James Lockhart, executive director of the Office of Federal Housing Enterprise Oversight, Fannie Mae's regulator, said: "Cultures grow over time and, obviously, in my mind, Johnson was very much involved in starting a culture of arrogance at the organization, which eventually led to all of the problems they had and are still having."
That hardly sounds like a good candidate for a board. But don't be shocked if some needy CEO recommends the generous Mr. Johnson for a director's seat over the next few years.
Time to add a codicle to Grampa Dave's "Never invest in a corporation run by a left wing rat CEO and other VIPs. Now we need to add any corporation with Rats like Johnson as a board of director member.
GCI, the so called pretty boy of the Dinosaur Fishwraps is one of the companies where this rat is a board member.
Pinging the Dinosaur Mediot Watch group.
Johnson appears to be an interesting addition to the motley crews running the Dinosaur Fishwraps like GCI.
I believe Jamie Gorelick hogged several million dollars at Fannie Mae.
Great picture of Garfield.
They do take care of their own.
Big money for Johnson and Jamie Gorelick ...
Bubba must be under a rock somewhere close.
.
"I believe Jamie Gorelick hogged several million dollars at Fannie Mae."
http://www.9-11commission.gov/about/bio_gorelick.htm
Jamie S. Gorelick
Commissioner
Jamie Gorelick is a partner at Wilmer, Cutler, Pickering, Hale & Dorr . Prior to joining Wilmer, Cutler, Pickering, Hale & Dorr in July 2003, Gorelick was vice chair of Fannie Mae. As part of the four-person Office of the Chairman, she shared responsibility for overall management of the company, directed its efforts to reach underserved markets and oversaw Fannie Mae's external relationships, legal and regulatory affairs. Prior to joining Fannie Mae in May 1997, Gorelick was deputy attorney general of the United States, a position she assumed in March 1994. From May 1993 until she joined the Justice Department, Gorelick served as general counsel of the Department of Defense. From 1979 to 1980 she was assistant to the secretary and counselor to the deputy secretary of energy. In the private sector, from 1975 to 1979 and again from 1980 to 1993, Gorelick was a litigator in Washington, D.C., representing major U.S. companies on a broad range of legal and business matters. She served as president of the District of Columbia Bar from 1992 to 1993. Gorelick is a graduate of Harvard College and Harvard Law School. She also serves on several boards, including the Fannie Mae Foundation, United Technologies Corporation, Schlumberger, Limited, The John D. and Catherine T. MacArthur Foundation, the Harvard College Board of Overseers, America's Promise, the Washington Legal Clinic for the Homeless, the Carnegie Endowment for International Peace, the Local Initiatives Support Corporation, and The National Park Foundation. She is also a member of the Council on Foreign Relations and the American Law Institute. Gorelick co-chaired, with Senator Sam Nunn, the Advisory Committee of the President's Commission on Critical Infrastructure Protection, and currently serves on the Central Intelligence Agency's National Security Advisory Panel as well as the President's Review of Intelligence.
Bubba is basking in the sun in a chaise lounge on top of a big rock.
Bubba is doing very well financially since he left the White House.
Thanks for the kind words.
The older I get, the more I realize how dangerous the elite liberals are to us financially.
I don't want to invest in a company where the board members as well as the company's leaders are "grifters like James Johnson" as you noted.
Nor do I want to invest in any mutual fund which invests in liberal controlled or "boarded" companies.
WOW, I feel like they're in the room with me! Looks great even larger like that.
Great!
I'll have to dial up the numbers on the matching webpage
Yes, large would be very good on it.
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