It's Time to Rethink Board Director Choices In Finance

Last Updated Sep 18, 2008 9:07 PM EDT

What's been called the worst financial industry disaster since the Great Depression is bound to bring on a major appraisal of what went wrong.

One issue that's already coming forward concerns the quality of the boards of directors of some of the key player firms. The issue is whether some of the directors have been up to the challenges of dealing with essentially an entirely new system of finance that deregulation and the credit and mortgage binge have brought on.

One of the biggest challenges for the boards is understanding the incredibly complex system of derivatives, credit default swaps and other rocket science instruments that are fairly new in the industry.

Problem is, many directors are chosen for reasons other than their technical knowledge. They may bring diversity to a board or a unique experience. Or, they are considered such a marquee name in the rarified world of directordom that few question their abilities. In some cases, a headstrong CEO knows how to use big name directors to do his bidding without having to deal with much push-back.

A few examples:

At Fannie Mae, now under government supervision, the board included H. Patrick Swygert, 65, the former president of Howard University. I have interviewed Swygert personally and know he's done an outstanding job increasing the endowment at the the nation's most prestigious Historically Black University. But does that mean he knows much about complicated financial derivatives?

At Freddie Mac, likewise under government watch, Richard Syron, 64, was a techie who was executive chairman at ThermoElectron.
Bankrupt Lehman Brothers has one of the most questionable lists. Director Marsha Johnson Evans, 60, is a retired Navy rear admiral and former head of the American Red Cross. To be sure, that's formidable management experience, but is it enough to handle today's fast-changing and dangerous world of finance? Then there's director Roger S. Berlind, a 77-year-old theatrical producer. Enough said.

My point is not to denigrate these individuals who may be superior executives and wise overseers. But given the complexity of the matters they were handling and the extreme jeopardy of making mistakes, isn't it time for financial firms and other high-flying corporations to reassess how they pick their boards and who they choose?