To find the "whodunnit" of our current economic crisis, look no further than the corporate boardroom. Far from serving as checks-and-balances, today's corporate directors are under thumbs of the CEOs who selected them. With unquestioned power and ever increasing arrogance, CEOs can take unnecessary risks, hide details of bad investments, and pay out excessive bonuses to themselves and top executives regardless of their job performance.
That's how subprime mortgages and credit default swaps were hatched. That's how Bank of America's Ken Lewis kept details of Merrill Lynch's poor health and plans of multi-billion dollar bonuses from shareholders. That's how the initial nine banks that got TARP money could pay out $32.6 billion in bonuses last year despite getting a $175 billion dollar bailout from taxpayers. While shareholders, and now taxpayers, pay the bills for the corporate elite, they have little real power to punish recklessness and corruption. Our undemocratic system of corporate board elections ensures that even when a majority of shareholders votes for change, oftentimes CEOs and their hand-picked directors can ignore the results and keep the status quo.
And that's just the way US Chamber of Commerce President Tom Donohue wants to keep it. As Americans continue to face furloughs, layoffs, and dwindling savings, as millions find themselves unable to afford the homes that banks enticed them to buy with tricky mortgages, and as states and cities cut services as a result of declining tax revenue, CEOs and the Chamber remain unrepentant, unremorseful, and if they get their way, unregulated. They're against President Obama's plan to protect consumers from harmful or predatory mortgages, credit cards, and other financial products. They've fought hard for years to keep the SEC weak, underfunded, and unable to protect investors from the Bernie Madoff's of Wall Street. And now they're fighting tooth and nail to stop shareholder democracy and keep corporate boards unaccountable. Tom Donohue's service as a board member for companies plagued by accounting scandals, insider trading investigations, and massive shareholder losses makes it clear why he and the Chamber should fear the change America needs: At Qwest, Donohue's committee approved a $12 million severance package in 2002 for former Qwest Chairman and CEO Joseph Nacchio at a time when the company's stock price was at an all-time low, its bonds had been downgraded to "junk" status, and its accounting practices were under investigation by the SEC. Nacchio is currently serving a six year prison sentence for insider trading at Qwest, a conviction the Chamber is seeking to overturn in a brief filed with the U.S. Supreme Court.
After Mr. Nacchio's unceremonious departure, the Qwest board approved a "golden handshake" for his successor, Richard Notebaert, who received an option grant worth an estimated $16 million before serving a single day in office. During Donohue's four years on Qwest's board, shareholders lost $62 billion. And at Sunrise Senior Living, where shareholders have seen their shares tumble almost 94% in just over three years, the company reports that it is discussing resolution of a two-year SEC investigation into improper accounting, improbably timed stock options granted by Donohue's committee, and fortuitously timed insider stock sales by Sunrise officers and directors. The company recently paid $13.5 million to settle parallel shareholder litigation alleging that Donohue himself was among those who received backdated options and engaged in insider trading.
In this era of unbridled CEO rule, union-sponsored pension funds have stood up and made headway against the odds: they've helped rein in runaway executive pay and they've forced corporate boards to be more independent and accountable. The SEIU Master Trust, a consortium of pension funds, originally raised concerns about those suspiciously timed option grants and stock sales, and filed a suit which resulted in Sunrise shareholders getting the right to vote on whether directors have to stand for election each year. The Master Trust's proposal to vote on directors yearly passed overwhelmingly. Earlier this year, in one of the most contentious annual meetings in Bank of America's history, the SEIU Master Trust led a successful shareholder campaign to force CEO Ken Lewis to resign as Chairman of the Board. This was the first time ever that shareholders made a binding change to the by-laws of an S&P 500 company through a democratic election. Real shareholder democracy and effective public regulation must become the rule, and not the exception, if we're going to rebuild a stable economy for the long term. After all, if there are truly some companies and banks that are "too big to fail," where taxpayers must bail them out after their reckless behavior endangers their survival and our prosperity, then isn't that all the more reason to insist shareholders and taxpayers can hold the corporate elite directly accountable? Tom Donohue and his CEO allies might not think so, but America can't afford their reckless and selfish behavior any longer. We need Congress to reform our financial system, fund strict enforcement of the rules, and give long term shareholders the power they need to reign in the out-of-control corporate elite. Let's stop this cycle before more jobs are lost, more homes are foreclosed, and more retirement accounts are wiped out. Let's stop Tom Donohue and his CEO friends before they wreck our economy again.