It is common sense to believe that the CEO of any large company must concentrate all of his waking days on his job. Most of them are paid huge sums of money to ensure that the company operates efficiently and profitably for shareholders. He also must ensure that other stakeholders, be they business partners, employees and or consumers, etc, are satisfied with the products and services of the company.
Is it acceptable that such a CEO can join the board of another big company? The question to be asked by the CEO’s board is should be relatively simple – “Does the CEO have time and the capacity to handle another major slice of his time for a post that has no bearing on his present job.”
CEO’s are expected to be on call 24/7 and no man or woman can be expected to stretch the number of working hours in a day. They are expected to plan and execute strategy with the board and the members of the executive management, to travel, to meet with clients, to ensure that the company is run smoothly and efficiently, to ensure that the financials results are in line with expectations, to meet with suppliers, financiers, shareholders, and the media, etc, etc… Most of them also have families, which is no light tax on their time…
It is common sense that even the most industrious CEOs have limits to their capacity to deal with two demanding jobs concurrently, thus having one outside independent board membership should be off limits for all CEOs.
The news this last week is that the CEO of Finland’s large semi-public pension insurance body, Varma, has agreed to become a board member of Nordea, the largest bank in the Nordic countries. That should give shareholders and stakeholders of both bodies cause for concern.
Naturally, is probably great to be invited to join the board of a big bank and rub shoulders with the other chosen beings, but that is not a reason to take on a task that is challenging to handle correctly with very limited time…
Nordea as the largest Nordic bank is subject to European Central Bank scrutiny because it represents a systemic risk for the Nordic countries. It is too big to fail and extremely demanding to manage. The financial and credit risks taken by the bank are deep and complex. Even the regulators are challenged by the complexity of the credit risks of their financial assets, their financial trading in cash instruments, bonds, equities and derivatives, and their fund management business.
Your correspondent knows from years of experience in banking that most board members are not that well informed about such matters, no matter how great the reporting. You only need to look at the performance of a selection of big banking shares in Europe and America to understand that risk taking has taken all and sundry by surprise.
A quick “back of the cigarette box” calculation of shareholder returns for the last 20 years tells you that big bank performance has been plagued with many problems and big losses. Even regulators should be concerned about such appointments.
The uncomfortable truth is that the CEOs and traders have made a lot more than shareholders!
