I contend that Robert Benmosche, CEO of AIG, had an incorrect understanding of corporate governance when he told Harvey Golub, then-chairman of the board, on July 14, 2010, “One of us should stay and one of us should go.” He should have, “Please let me know if the board would like me to go.” Put bluntly, the CEO works for the board, not vice versa. The previous May, Benmosche told Golub, “We can’t work together. I need a partner who I can bounce ideas off and give me advice.” However,a CEO and a chairman do not work together as partners. Rather, the chairman—and the board more generally—act on behalf of the stockholders to oversee the management, which the board has hired. In other words, a CEO is an employee whereas a chairman is not. Benmosche’s comment is actually rather presumptuous.
Benmosche’s upside-down approach to corporate governance is evident from the way he went about trying to sell AIG’s biggest overseas life insurer, AIA, to Prudential. Rather than being surprised that Golub did not support the sale, he should have taken note of Golub’s surprise that he had not informed the board earlier. As another example, rather than being annoyed that the board didn’t push Treasury’s pay czar harder to sign off on his $10 million pay package, Benmosche might have asked the board if they supported the proposed compensation.
One of the principal jobs of a corporate board is to assess the CEO (and hence the management) and to fire him or her if the board decides it would be in the stockholders’ interest. The CEO works for the board, not vice versa. It is not a partnership arrangement. It is the CEO’s responsibility to act within the support of the board, rather than to threaten its chair for not playing ball. Benmosche illustrates the arrogance that come occur when an employee is over-compensated and spoiled. Benmosche should have been grateful to the AIG board for having agreed to a compensation package of $10 million rather than critizicing them for not essentially working for him in pressuring the Treasury.
From this case, we can extract the following lesson. A CEO should not chair the board whose task it is to assess him or her. Such duality is a contradiction in terms—effectively attempting to interiorize within the CEO accountability that is external (i.e., interpersonal). As Benmosche had already turned to Robert Miller, who replaced Golub, for advice and found him to be supportive, AIG may have essentially installed a puppet—hence compromising the board’s role in overseeing the CEO.
I once asked Armstrong when he was both CEO and chairman of ATT whether he saw any conflict of interest in his chairing of the body tasked with assessing him. He replied that the buck stopped with him—that he needed the authority to integrate cable, computer and telephone technologies into broad-band. However, in hiring him, the board should have signed off on his strategy, hence giving him all the authority he needed to implement it. In effect, Armstrong was over-reaching in claiming that such authority was not sufficient. When his strategy failed, the external accountability function of the board was compromised.
In general terms, CEOs are too powerful with respect to “their” boards. In being an enabling partner rather than a parent, too many boards are unwittingly undercutting their raison d’etre. To the extent that the managements of banks contributed to the crisis in September, 2008, corporate governance with real accountability can be seen as critical not only to our financial system, but to the economy itself. We can ill-afford too many spoiled adult-children.
Source: Joann S. Lubin and Serena Ng, “Battle at AIG Board: You Go, or I Do.” The Wall Street Journal (July 16, 2010), pp. C1, C4.
