Mr. Dimma is particularly tough on compensation consultants. Employing them is almost always a bad idea, he writes, because of their inherent conflicts of interest: They negotiate with the board for CEO pay and perks, but stand to make much more money by providing consulting services on em-ployee benefit plans. Plus, says the author, they’re not doing much good for anyone — company, CEO, or employees. “It would be churlish of me to note any connection between the work of such firms and the children of Garrison Keillor’s Lake Wobegon, all of whom were ‘above average,’” he writes.
Stock options — an incentive that has been abused lately — also receive a fair amount of criticism, with three chapters devoted to improving the way they’re wielded. Mr. Dimma’s take is that executives often get tied up trying to maximize their paper profits and don’t spend enough time focusing on running the company. His bottom line is that companies should tread warily; stock options, he says, corrupt, and more stock options corrupt absolutely.
I have quibbles with this book, most of which relate to oddities of structure and approach. The obligatory chapter on how to avoid future Enrons, for example, offers suggestions that appear to come from people other than Mr. Dimma, though those contributors are never named. Instead, he takes the Talmudic approach, providing (in parentheses for some odd reason) his comments on these suggestions. I also found it jarring that three chapters written by guest authors are plopped into the middle of the book; they probably would have made more sense as an appendix. Although these chapters deal with specific board committees (auditing, compensation, and corporate governance) and the authors writing them are clearly experts, I’d much rather read Mr. Dimma’s views, based on his own vast experience.
Another concern is that Mr. Dimma’s frame of reference is Canadian companies, which, though similar to publicly traded American companies, are not an exact match. Mr. Dimma devotes a four-page chapter to some of the key differences and argues convincingly that the Canadian structure is more effective in preventing abuses, Conrad Black notwithstanding. As evidence, Mr. Dimma points to the fact that two-thirds of the largest Canadian companies separate the roles of chairman and CEO, whereas four-fifths of the largest American companies combine the roles.
Although Mr. Dimma, who is approaching his 80th birthday, insists that he has not yet entered his golden years, his book comes across as a swan song, one that is biting without being bitter. Many companies have long had mandatory retirement ages for their board members, so it’s not hard to imagine him having to step down from his directorships sometime soon. Because Mr. Dimma’s authority and insight elevate his work above the clamor of today’s corporate scolds, his Tougher Boards for Tougher Times is our choice for the best governance book of 2006.
People-Powered Investment Research
When a relatively unknown (albeit wealthy) businessman named Ned Lamont defeated three-term incumbent Senator Joseph Lieberman in the Connecticut Democratic primary last August, political pundits chattered incessantly about people-powered campaigns. Although it’s true that bloggers played a key role in Connecticut’s race for the U.S. Senate, it was hardly the first example of people banding together online to brainstorm and share their opinions on political races or other matters. Indeed, people have been pooling their investing knowledge for much of the past decade on stock message boards. In his first book, Going South: An Inside Look at Corruption and Greed, and the Power of the HealthSouth Message Board, William Cast takes us inside that world as it relates to one company: HealthSouth, a former Wall Street darling that imploded in 2003, eight months after Sarbanes-Oxley was signed into law. This timing made its executives the first to be charged with violating SOX. (Former CEO Richard Scrushy was acquitted of all charges related to the matter.)