Geithner Holds Boards Accountable

If you serve on the board of a large financial institution or business and take TARP funds you will be held accountable by Uncle Sam. That is the message coming from Treasury Secretary Timothy Geithner.

Today’s Financial Times quotes Timothy Geithner saying he would oust board members at American banks as a condition for giving them “exceptional” assistance in the future. They are prepared to take such extreme measures to “ensure accountability”.

Rick Wagoner at General Motors found this to be the case last week when the Obama administration forced his departure in a shakeup designed to force changes that could save the company. These are aextraordinary actions for the the United States government.

Many boards of failed companies have come under fire in recent months for not taking action with management earlier to prevent large losses. AIG, Bank of America and Merrill Lynch are a few such companies. Boards are ultimately responsible to shareholders for the performance of the institution. If they let down on their job they fail a critical fiduciary duty.

I have been seeing talk about this subject in other articles. Boards of major companies are in the line of fire during this global financial crisis.

Directors are to be knowledgable guardians of shareholder interest. Gone are the days when board members rubber stamped the decisions of administration without adequate knowledge of the day to day workings of the company. Directors must understand the issues facing the company. They must invest the time and develop the expertise to understand all aspects of the business. If a director cannot devote the time necessary to do this then he or she must ask if they should serve. It is more than a title with free golf passes.

Boards who fail to learn this will be party to decline and will be held accountable.