Barney Frank is a Jackass, but He is Correct. And What America can Learn from Sweden.

I caught the last snippet of Barney Frank's interview on CNBC this morning.  I wanted to track it down and watch the whole thing, so I went to the CNBC website and dug it up, which you can watch here.  I would highly suggest you watch it. 

Frank acts like a jackass at the end of the interview.  Mark Haines was asking legitimate questions, and Frank responds like a petulant, teenage Prima Donna and storms off.  However, he is absolutely bang on in his argument, and is correct when he says that shareholders should have increased power over corporate boards.

The United States has serious issues at the board levels of corporations.  Too often, boards are like clubs, with directors being too close to the CEO, who is often also the Chairman of the Board (another serious problem since no CEO should be the Chairman of the Board).  There is not enough independence amongst directors, nor is there enough independence amongst the compensation committee.

The best model for corporate governance in the world is in Sweden. In Sweden, shareholders have far more rights to oversee what management is doing with their money, including

• The separation of the titles of Chairman and CEO
• Mergers must be approved by shareholders
• Shareholders of a certain size can call extraordinary meetings
• The nomination committee to the board must have shareholder representation
• It is much easier to remove management, CEOs and directors
• Compensation is approved at the AGM
• A plurality of votes, rather than a majority, is needed to pass resolutions and amendments.

Reforming board structure in America along the lines of governance structures in Sweden would go a long way towards eliminating the venality and agency/principal risk inherent in corporate America, which contributed to the debacle in the financial industry.

Comments

[dave]

I sent the following meassage to CNBC this morning afte the Frank incident.

"I am no political friend of Rep. Frank, but i applaud him because most of you arrogant people on CNBC interrupt your guests too much. Most CNBC viewers watch DESPITE your rudeness. We watch because of the guests not because of your on-camera 'talent'."

Many of my trading friends have stopped watching CNBC all together & listen to http://www.bloomberg.com/audioplayers/playr_owm.html?clipName=Bloomberg%20Live%20Radio&clip=http://www.bloomberg.com/streams/audio/radio_live.asx which tends to treat listeners as adults.

Have you ever noticed that many CNBC'ers are asking their next question & aren't even interested in the guests answers ?

[dave]

Even when i was a young stockbroker (which i no longer am) i wondered about who benefited the most in public companies.

I ironically concluded that of the three component groups: 1) ownership (shareholders); 2) management (top mgmt); 3) employees (incl. middle mgt), that it was management.

Fast forward to 2008/2009 & the financial crisis. Ownership/shareholders lost virtually everything. Tens of thousands of employees lost their jobs & much of their retirement savings despite not having much to do with the ruinous decisions.

Management whether still on the job or not (Ken Lewis/John Thain, etc) still makes $1 mln a month salaries & gets paid big bonuses despite ruining the companies that they have been EMPLOYED to manage.

Ownership/shareholders had all of the risk & ended up with little of the rewards. Management had little risk & ended up with the only rewards left.

Some companies threatened "We'll give back the TARP money" (so we can get paid whatever we want). IOW, management compensation is more important that saving their companies.

[Mark G.]

Just because a man likes having Jack in his ass,doesn't make him a jackass

[Peter]

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