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What role did board governance play in the financial meltdown of 2008? According to John Gillespie and David Zweig, co-authors of a new book called "

Money for Nothing

," it was a major one.

Gillespie, a former Lehman banker, a co-founder of, maintain that boards were asleep at the switch or simply failed to act to protect some of our largest companies to fail or inadequately protect themselves. Some 57 million American households own stock in public companies. Their interests are supposed to be protected by boards. Instead, their holdings plummeted in value, and then, as taxpayers, they were forced to bail out many of these same companies. I spoke to the authors last week, and excerpts of the interview follow.



What do you think of Mary Schapiro's performance as head of the SEC



: The expectations for her were really low. I've been pleasantly surprised. She's increased disclosure requirements, beefed up enforcement and instituted an Investor Accountability Office. She's also throwing out non-broker votes counting in favor of a vote for management starting this proxy season.


: I've been disappointed in her delaying a decision about giving investors a right to nominate directors to boards (the proxy access rule). The longer she waits, the more investors' money is being used by companies' management and lawyers to fight shareholders' interests on this rule.


How do you beef up enforcement at the SEC?

Gillespie: It's really tough. A career person at the


makes 180K in annual salary but they have to be as good as the top person at Wachtell.

Zweig: Who else is going to do enforcement if not the SEC? The ratings firms? Accounting firms? I don't think so. We'd like to see a small transaction tax on all stock trades go toward beefing up of SEC enforcement.


You interviewed ex-Tyco (TYC) CEO Dennis Kozlowski for this book. Did he do anything worse than Dick Fuld, Angelo Mozilo or Stan O'Neal?

Gillespie: He was convicted of not getting permission for looting the company, but it's interesting that he ran a real company that still exists today and is doing well. The same can't be said for those other three companies. In both cases, the boards didn't protect shareholders.

TheStreet: Why haven't there been any convictions or new legislation like Sarbanes-Oxley since 2008?

Gillespie: We're still focused on keeping the system afloat. There's been no willingness to fix things yet. Also, when you changing the way boards operate, you have to change a culture, and that's difficult to regulate.

Zweig: I think there's something else. When they came up with Sarbanes, it was a solution for an accounting scandal. It was easy to pin the blame on the accountants. But this financial collapse implicated everyone -- bankers, ratings agencies, consumers, politicians and regulators. You couldn't just pin it on one group and slap a solution together. It's always tough to look in the mirror and change yourself.

Gillespie: And the old players like Bernanke, Geithner and Summers are still in power. Real change won't happen until they leave.


You make a number of recommendations at the end of the book about improving boards. What's most important?

Gillespie: 1. Don't let the CEOs be chairmen. The power imbalance is still too high. Sixty-one percent of our boards in America have combined CEOs/chairs. Another 18% have former chairs on the boards.

2. Allow extraordinary general meetings to be called by 5% of shareholders to oust directors -- as is the case in most Western countries.

3. There should be qualifications to be a public company director with relevant experience and term limits. We think the people who serve as directors should make it their career. Don't let active CEOs serve on other boards. Train these public directors through a consortium of top business schools including topics like group dynamics so they learn to speak up and avoid groupthink.


Should directors disclose their past relationships with the CEOs to shareholders?

Gillespie: Absolutely it should be disclosed. Having someone who is "independent" on a board but who is clearly buddies with the CEO going on 30 years makes no sense.


Why haven't regulators received any blame since the meltdown? We're only focused on Wall Street bankers.

Gillespie: Rich bankers are an easier target. Regulators should be in focus. Many people are still in charge at these regulatory agencies who set up poor policies in the first place or didn't enforce them. The public needs to understand who's in charge of the regulators, which agency is to enforce which actions, and what their past choices have been. They need to be accountable. CEOs just can't be the whipping boys.


Is "corporate governance" too esoteric a topic to be changed?

Gillespie: It's definitely eye-glazingly technical, which loses interest of most people immediately. Yet, people need to wake up and see that that's by design by those in power in order to preserve the status quo. We get layers of jargon and legalese to dissuade change. We wrote this book to get people outraged. Think of what poor governance has cost our country and taxpayers in the last three years. We're optimistic that change can happen, but media, government and the public need to act. Our big fear is that companies now are so big and market swings are so large that the next crisis -- if badly handled -- could set us back 100 years.

Zweig: I think corporate governance needs a new name to encourage change, maybe corporate democracy.


Finally, America thinks of itself as the most democratic country in the world and yet we're so elitist when it comes to overseeing our companies. Why?

Gillespie: It's an interesting paradox, isn't it? Big corporations are now more powerful than the government or the church. Yet they don't get the attention they should. We're optimistic that the crisis will force us to fix the imbalances that exist in the system today.

Zweig: The truth is that, when the


goes up, we forget about the 2008 crisis. Because of this, I'm actually hoping for a W-shaped recovery. In the long run, if things go bad again, we'll smoke out the impetus for real change that's needed to fix the system.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. You can follow Jackson on Twitter at or @ericjackson