By Eve Tahmincioglu
Last week two major company boards flexed their accountability muscles.
Yahoo’s board cut the pay of its CEO Marissa Mayer because of cyber security breaches, and Wells Fargo slashed pay for eight of its top executives as part of an ongoing fraud investigation.
Yahoo’s board disclosed the pay reduction in an SEC filing, where it also announced the resignation of the organization’s general counsel:
In response to the Independent Committee’s findings related to the 2014 Security Incident, the Board determined not to award to the Chief Executive Officer a cash bonus for 2016 that was otherwise expected to be paid to her. In addition, in discussions with the Board, the Chief Executive Officer offered to forgo any 2017 annual equity award given that the 2014 Security Incident occurred during her tenure and the Board accepted her offer.
Wells Fargo Chairman Stephen Sanger stressed in a statement that the pay cuts weren’t related to “any findings of improper behavior,” but “part of the Board’s ongoing efforts to promote accountability and ensure Wells Fargo puts customer interests first. As we seek to regain trust, the Board is taking decisive actions. We will continue to work to make right what went wrong and remain focused on providing the accountability and oversight that our customers, employees, and investors expect and deserve.”
Do these actions signal a sea change in how boards deal with management failings?
“We don’t have data that suggests it’s truer now than it has been, but given the combination of more disclosure, greater oversight and regulatory rigor today, that has dialed up the heat on many companies, and as a result we’re seeing more checks and balances,” explains David Wise, senior client partner, Korn Ferry Hay Group.
Financial incentives exist, he adds, to reward performance but to achieve that performance in the right way.
In addition, a more diverse group of shareholders, including activist investors, are looking for these kinds of breaches and missteps to “gain leverage and drive their agendas,” Wise notes. “These incidences are highly visible and become lightening rods for the investor community so there has to be public accountability.”
Moves to sanction executives may also be director driven.
Ted Bililies, managing director at AlixPartners, says, “Boards are not being patient when there is an apparent failure to follow protocol, as has been made abundantly clear over the past few days at Wells Fargo and Yahoo!, where executives have lost bonuses and equity awards."
“Directors are demanding personal accountability by executives, with the expectation that CEOs will in turn hold their management teams to impeccable standards,” he says.
Bililies believes boards are going public with such decisions for a reason.
“Trust is rapidly eroded when there are perceptions of behavior inconsistent with customer interests or an inadequate response to a crisis. These issues are not simply matters of compliance – they put a mark on the very values on which companies are founded,” he explains. “The resulting challenges to brand identity and customer loyalty can have a direct and immediate impact on revenue.”
Moves by boards to cut top brass compensation, he continues, “are a public statement of corporate values.”
Indeed, even Yahoo’s Mayer made a point to address the reduction in her paycheck publicly. Here's a post on her Tumblr page from last week: