Is the Countrywide Board Voting With Its Feet?

Former U.S. Secretary of Housing and Urban Development Henry Cisneros resigned from the board of the embattled Countrywide Financial Corp. this week, the third director to leave the board this year. Cisneros said he was leaving to spend more time as chairman of a firm that provides financing to U.S. homebuilders "to adjust to the demands of the period ahead." Whatever that means.

It sounds an awful lot like the old saw about a high-level executive leaving to "spend more time with his family." In other words, it doesn't have the ring of complete disclosure, particularly since the company reported a $1.2 billion loss a day after Cisneros made his announcement. The board had to have known that the big loss was coming because the audit committee has to sign off on financial statements.

Could it be that directors realize that Countrywide is about to be put through the wringer and they want to evacuate the premises before it happens? Cisneros was in a particularly uncomfortable position as head of the board's compensation committee, which had overview responsibilities for the controversial practice of Chief Executive Officer Angelo Mozilo stepping up the pace of his sales of Countrywide stock options even at the same time that hundreds of thousands of Americans are losing their homes because of predatory mortgages. New York Times columnist Gretchen Morgenson has been on a crusade to nail Mozilo for that practice, no doubt compounding the agony for Cisneros.

Cisneros' departure reduces the number of independent directors to seven. The presence of Mozilo and Countrywide executive David Sambol mean it is now a board of only nine people and there doesn't appear to be any real counterbalance to Mozilo. The board, even at its full strength, was thoroughly co-opted because board members could secure quick approval of Countrywide mortgages for their friends and associates.

In short, it's a classic case of a toothless board who can see the train wreck ahead, almost certainly involving the end of Mozilo's tenure and many more losses. Think of all the class action lawsuits that will be filed. Directors will be worried that their Directors and Officers insurance won't protect them from personal liability. Is that what Cisneros was thinking about?