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Time for Real Ethics Clauses in CEO and Board Contracts

NEW YORK ( TheStreet) -- Some Boards do a lousy job at vetting CEOs. Those behind HP's (HPQ) Leo Apotheker, General Motor's (GM) Ed Whitacre and Yahoo!'s (YHOO) Scott Thompson come to mind.

Even more do an even lousier job at writing contracts that grant bad-character CEOs incredibly golden severance packages. I'm thinking about the board backing Best Buy's (BBY - Get Report) Brian Dunn.
Recent crises as companies such as Best Buy have some feeling investors should no longer allow company boards to ignore enforcing real integrity guidelines in CEOs.

As Dunn's prior administration oversaw employee layoffs, the closing of 50 stores, and blight left on communities around the country, Best Buy's board revealed the findings of their investigation of Dunn's improprieties.

Taken from the company press release, Key findings include:

The CEO violated company policy by engaging in an extremely close personal relationship with a female employee that negatively impacted the work environment ... the CEO's relationship with the female employee demonstrated extremely poor judgment and a lack of professionalism.

In spite of this, Dunn got a severance package of more than $6.6 million.

Best Buy's board chairman, Richard Schulze, steps down June 21; the investigation revealed he acted inappropriately when he failed to bring the matter of Dunn to the audit committee of the board of directors in December, when the allegations were first raised. In spite of his lax conduct, Schulze assumes the title of founder and chairman emeritus, an honorary position, and will serve out the remainder of his term as director through June 2013. Translation: He also gets paid big time.

Recently disgraced Yahoo CEO Scott Thompson and the subsequently embarrassed Yahoo board at least had in their contract that Thompson could be fired "with cause" if found to be "engaging in unprofessional, unethical or other intentional acts that materially discredit the company."

But as Thompson departs, he'll keep a multimillion-dollar signing bonus and his $375,000 in salary.

My question is, "Why?"

It's time to have and enforce ethics clauses in CEO and board contracts.

Expanding on another column, "Don't Reward Stupid, Lazy or Bad,", here's my take on CEO/board accountability and consequences:

As a chosen leader with this company, if you violate:
  • standards of decency,
  • company and/or professional codes of conduct,
  • local, state or federal laws,
  • industry regulations or accepted standards,
  • or use judgment contributing to the detriment of the company's employees, customers, or investors, you're done!

There will be no "resignation to pursue other interests"; you will be fired
with cause, having violated the ethics clause.

And we will actively assist law enforcement to pursue the strongest legal action.

Also, every dollar of compensation given during the range of time you committed violations will be clawed back within 30 days. If funds are not available, proceedings to confiscate your current assets and/or garnish future earnings as repayment will be pursued.

Further, any benefits coming will be terminated. We reward those who contribute to this company, not jeopardize it."

I'm not a lawyer giving legal advice, simply a business owner/adviser extending a little common sense to prevent multimillion-dollar payouts for bad deeds.

Until we say enough is enough, liars, cheats and thieves disguised as leaders will continue.

As investors, as citizens, we can no longer allow gutless company boards to ignore enforcing real integrity guidelines in CEOs entrusted to grow and protect a company.

America's definitely in trouble when disgraced corporate CEOs, disgraced congress members, illegal aliens and other lousy members of our society are granted money and/or benefits in spite of their unethical and/or illegal acts.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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