Company Execs Should Be Elected, Not Selected

The non-relationship between outside board directors’ stock holdings and the company’s stock performance was very well illustrated by Graef Crystal’s “Paying Directors in Company Stock Doesn’t Boost Performance” (March 12).

Unfortunately Crystal doesn’t propose any other effective motivation for outside directors to improve company profitability. He does stumble upon a key failure when he mentions that directors are selected (not elected).

Directors are selected by the board’s own nominating committee, which looks for persons who will be compliant with whatever the current board wants. There’s no serious attempt at bringing in any fresh, diverse, or contrary opinions.

There will be no hope for stock owners to get truly representative directors so long as elections to the board remain a farce, i.e. with only one candidate. Fortunately, the stock owners of AT&T; will get to decide on changing this at their annual meeting.

Stock owner Richard A. Dee of New York City has introduced a resolution requiring there actually be at least two candidates for each directorship, and thus a real election held. Refreshingly revolutionary. But, of course, AT&T;’s current board abhors the thought of real elections and opposes the resolution. What do they really fear when it’s their turn to justify their reelection?

CARL OLSON

Chairman, Fund for Stockowners Rights

Washington, D.C.

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The suggestion by Robert B. Stobaugh, professor at the Harvard Business school, that outside directors receive stock options instead of cash compensation doesn’t, in most all cases, make good common business sense. Directors are selected for their special skills, integrity and the value they add to a particular company. Should I suggest that the good professor receive only room and board at Harvard and a cash compensation based on the salary or success level of his students when they enter the business world? How about liabilities and wrongdoings of his students?

A more practical approach would be to include a blend of (but not limited to) the following: retainer, cash compensation, stock options, change-in-control and health and retirement benefits. Other issues (that would affect compensation might be) shareholders interest, the committee’s charter, how active the board is and the mix and type of board. Also, whether the company is a Fortune 500 and whether it’s a new, restructured or recapitalized company.

As chairman of the Stock Option/Compensation Committee of Fidelity Federal Bank, my committee and I just completed a compensation package for both executives and outside directors. The directors’ plan was based on good sound business judgment, shareholders interest and a strong focus on competitive factors such as attraction and retention.

One of my mother’s Chinese sayings was “To know, but to be as though not knowing, is the height of wisdom.” So why am I writing to you? My mother would probably say: “Too much Americanize.”

LILLY V. LEE

Los Angeles