The appointment of former politicians to large public companies’ boards is regularly called into question.
Just recently, following the scandal at Chesapeake Energy (NYSE: CHK) when CEO Aubrey McClendon made investments in drilling projects in which the company was involved, the issue was in the limelight again.
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Chesapeake, based in Oklahoma, has two powerful politicians on its board — former member of the Senate from Oklahoma, Don Nickles, and former Oklahoma Governor Frank Keating.
The company’s board members used the company’s private planes for travel — a perk most governance experts frown on. Perhaps the more salient question is why the two have stayed on the board under the current circumstances. It is equally reasonable to ask why politicians, with their backgrounds unrelated to running big companies, were even appointed to the board.
Many other politicians sit on the boards of America’s largest public companies, and some aspects of their services raise troubling issues. Some are successful lobbyists because of their Washington connections.
These firms could work for causes or companies that do not have identical interests to those of the corporations of the boards on which they sit. There are questions about the past ethical behavior of others of these board members. In most cases, the former politicians have no obvious backgrounds to be on public companies’ boards. A final problem is that some have done very well financially because they sit on several boards — another practice many corporate governance experts oppose.
The common thread among the directors on this list is that they have been paid very well in their roles. Most make over a quarter of a million dollars a year. Most also have stock ownerships or grants that add substantially to those payments and are usually in the millions of dollars.
24/7 Wall St. examined the boards of the largest 100 public companies in America based on sales to find politicians who are current and recently past members. To qualify, a person must be a former governor, Senator, or member of the House of Representatives. We scrutinized their past records in elected office, their current jobs, and their qualifications to be public company directors.
Research firm GMI Ratings was critical in supporting us with research for much of our analysis. Securities held by these board members at the corporations they serve include stock ownership, securities that can be acquired, exercisable options and deferred stock units. All data are from the most recent proxies.
This article should provide shareholders of public companies, both institutional and individual ones, with some guidance about why politicians are chosen for boards. It should also tell the extent to which these individuals are qualified, both ethically and in terms of work experience, to effectively do their jobs.
1. Chevron
Board member: Chuck Hagel
Board compensation: $301,199
Director since: 2010
Primary job: Distinguished Professor at Georgetown University and chairman of think-tank Atlantic Council
Common stock ownership: 3,046 shares
Government service: U.S. Senator from Nebraska (1997 to 2009)
From 1997 to 2009 Mr. Hagel served as a U.S. Senator from Nebraska. Hagel makes a strong addition to the Chevron (NYSE: CVX) board because of the time he spent on the Senate Energy and Natural Resources Committee. Hagel was often mentioned as a candidate for the presidency, vice-presidency and Secretary of State position. Hagel is currently on the board of Zurich’s Holding Company of America, the Advisory Boards of Corsair Capital, and the Advisory Board of Deutsche Bank America.
Read more: Politicians Go to These Companies to Get Rich - 24/7 Wall St.
2. General Electric
Board member: Sam Nunn
Board compensation: $312,793
Director since: 1997
Primary job: Co-chairman and chief executive officer, Nuclear Threat Initiative
Common stock ownership: GE stock-based (NYSE: GE): 273,878 shares
Government service: U.S. Senator from Georgia (1972 to 1997)
Elected member the U.S. Senate in 1972, Nunn served as the chairman and ranking member of the Senate Armed Services Committee and Senate Permanent Subcommittee on Investigations. Retiring from office in 1997, Nunn was rumored to be a potential running mate for both Barack Obama and John Kerry. One of the advantages he would have brought to an election is his considerable knowledge of the Defense Department, its inner workings and procurement methods. Nunn is one of several people who sits on multiple Fortune 500 boards. He has served as a director of the Coca-Cola Company (NYSE: KO), Chevron and Dell (NASDAQ: DELL). Some governance experts would argue this is far too many, given the workload of these jobs.
Read more: Politicians Go to These Companies to Get Rich - 24/7 Wall St.
3. Ford
Board member: Richard A. Gephardt
Board compensation: $224,455
Director since: 2009
Primary job: Gephardt Government Affairs
Common stock ownership: 32,346 shares
Government service: U.S. House of Representative from Missouri (1976 – Jan 2005)
Some governance experts do not think Washington lobbyists should also serve on public companies’ boards. In the U.S. House of Representatives from 1976 until January 2005, Gephardt is now one of the more visible lobbyists in DC. Gephardt’s Government Affairs’ tag line is “Strategy. Access. Results.” The “access” part would make some experts on the role of a board member uncomfortable. Gephardt was named a “top lobbyist” by a division of the Congressional Quarterly. He ran for president in 1988 and 2004.
Read more: Politicians Go to These Companies to Get Rich - 24/7 Wall St.
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