Corporate Governance

Bear Sterns and a Sleeping Board?

By J. Robert Brown

The WSJ ran a story about the waning days of Bear Sterns and the concerns expressed within the investment banking firm in the days and months leading to its ultimate demise.  At one point, buried in the piece, the WSJ described the board as "12 men largely handpicked by Mr. Cayne."  We have more or less made this point before.  The board was not diverse and contained a large number of individuals who had served with Bear Stern's management for more than a decade.  And they were well paid. 

We don't know what happened inside the board room.  But serving for long periods of time with the same management can easily impair a director's independence.  Moreover, the lack of diversity on the board probably reduced the likelihood that management would hear alternative views.  What Bear Sterns (and the shareholders of Bear Sterns) needed was a board that could ask management tough questions.  The dynamics of this board suggest that this is not what they got.

Full post as published by The Race to the Bottom on May 28, 2008 (boomark / email).