Corporate boards stocked with marquee names can still succumb to the seductions of a charismatic CEO, said Jeffrey Sonnenfeld, professor at the Yale University School of Management and a CNBC contributor.
That’s the lesson for investors from the continuing controversies at Yahooand Chesapeake Energy, Sonnenfeld said — and for the upcoming Facebook IPO.
Responding to the latest twists in the Yahoo and Chesapeake dustups on CNBC’s "Squawk Box" on Friday, Sonnenfeld relocated blame for the companies’ bad press from misbehaving CEOs to inattentive board members.
“This is a board that is not on top of its business,” he said of Chesapeake’s overseers, who apparently gave chief executive Aubrey McClendon a free pass to trade natural gas derivatives through a hedge fundon his own account and to take loans against personal stakes in Chesapeake wells.
On Thursday, the Wall St. Journal reported that under McClendon’s leadership, Chesapeake cut debt deals known as VPPs with Wall Street banks, under which the company exchanged immediate cash for long-term obligations to deliver specified amounts of oil and gas.
“We have a star-studded marquee board, with public officials, former governors, even university presidents, that were clearly not doing their homework,” said Sonnenfeld. “They knew the industry. It’s people just not doing the job.”
At Yahoo, CEO Scott Thompson has been accused of padding his resume with a computer science degree he never earned. Since the discrepancy was exposed last week by Dan Loeb, chief of Third Point Partners, which has a large position in Yahoo, the company’s board has promised an investigation but has not taken direct action against Thompson.
Yahoo’s board, he said, “should stop circling the wagons.” However much the board members may resent Loeb’s shareholder activism, they need to change their own composition and “get an authentic interim in there. This board is operating on emotions instead of rationality,” he added.
Corporations have usually run into trouble when their boards bow to powerful CEOs, Sonnenfeld notes, but there’s little evidence that today’s boards are learning from history.
“You look at Walmart , News Corp , and of course recently MF Global," he said. "Here it's almost a dozen years ago since we had the Enron and Worldcom meltdowns, and we should be past this. Yet we're seeing the same problems.”
“We need independent investigations,” he continued. “At Chesapeake, we clearly still need an independent voice and they're being held hostage by a charismatic entrepreneur.”
That phrase put Sonnenfeld in mind of another board that has appeared to be a step behind the hard-charging entrepreneur at the helm. Yahoo and Chesapeake are “a harbinger of what we have to worry about with Facebook,” Sonnenfeld says.
Facebook’s proposed acquisition of the photo-sharing service Instagram, now the subject of an anti-trust probe, was ordered by Facebook founder Mark Zuckerberg just weeks before the social network’s IPO, apparently without input from a Facebook board crowded with major political and media world players.
That deal sets a precedent that could lead to Facebook led by a Zuckerberg unbound. Says Sonnenfeld, “People get so caught up with the entrepreneur.”