America’s Worst Boards

1. Coca-Cola
> 2-yr. stock change: +46%
> No. board seats: 17
> No. independent directors: 14
> Combined CEO/chairman?: Yes
> Board attendance rate: 98%

Several non-independent directors serve on Coca-Cola’s (NYSE: KO) board. In addition to CEO Muhtar Kent, Donald Keough, the company’s former president and chief operating officer, serves on the board. Keough is currently the non-executive chairman of boutique investment firm Allen & Co., and Allen & Co.’s chief  Herbert Allen also serves on Coke’s board. Allen & Co. has served as a major financial advisor for Coca-Cola for more than 30 years, according to the company’s most recent proxy.

The board of directors of the largest beverage company in the world is rife with more interconnectedness. Keough serves on the board of Berkshire Hathaway, where the son of Berkshire Hathaway CEO Warren Buffett (NYSE: BRK-A), Howard also serves. Howard Buffett serves not only on Coke’s board, he also serves on IAC/InterActiveCorp.’s board. And IAC’s (NASDAQ: IACI) CEO and board member, Barry Diller, also serves as a member of Coke’s board. Many Coke board members have served for a long period of time. Six of the 17 have served for more than 20 years.

2. JPMorgan Chase 
> 2-yr. stock change: -10%
> No. board seats: 12
> No. independent directors: 10
> Combined CEO/chairman?: Yes
> Board attendance rate: Not listed

Along with the lax oversight of the board’s risk committee with regard to a set of trades that cost the bank several billion, the JPMorgan board effectively isolated itself from shareholders. In the last proxy, the board recommended that several shareholder proposals be rejected. Among these were that the chairman and CEO jobs be separated — powerful chief executive Jamie Dimon holds both now. In opposing the proposal the company said, “Implementing the proposal is unnecessary because the Firm’s board leadership structure already provides the independent leadership and oversight of management sought by the proponent” Yet, a number of directors have served since the 1990s, and most of these board members served before on boards of other banks that since merged together to create current company. These predecessor banks were run by Dimon.

3. PNC 
> 2-yr. stock change: -1%
> No. board seats: 15
> No. independent directors: 14
> Combined CEO/chairman?: Yes
> Board attendance rate: 75%

The board of PNC (NYSE: PNC) has a fair share of interconnectedness. Charles Bunch and Thomas Usher serve on the boards of both H.J. Heinz and PPG. Meanwhile, Richard Kelson and Anthony Massaro both serve on the board of Commercial Metals Company.

Furthermore, a large number of the financial firm’s board members have served for multiple decades. Richard Berndt was a member of the board of Mercantile Bankshares Corporation, which was bought by PNC. Between the two boards, he has served since 1978. Donald Shepard served on the board of Mercantile Bankshares since 1992. CEO James E. Rohr has been a member of the board since 1990. Based on a strict definition of “independent board” members, all of these men would qualify except Rohr. However, the links among members don’t make them truly independent. Despite the stock price remaining flat in the past two years the board has treated Rohr extremely well. Over the three years from 2009 to 2011 he made over $50 million.

Also Read: America’s Sickest Housing Markets

4. Bed Bath & Beyond
> 2-yr. stock change: +60%
> No. board seats: 9
> No. independent directors: 6
> Combined CEO/chairman?: No
> Board attendance rate: 100%

The board of Bed Bath & Beyond (NASDAQ: BBBY) is barely an independent majority. Current co-chairmen Warren Eisenberg and Leonard Feinstein both serve on the board, along with current CEO Steven Temares. Eisenberg and Feinstein founded the bedding and bath retailer in 1971. Each has been a board member since with Temares joining in 1999. The CEO and chairman roles may be separated, but the three men have been together for 13 years. While all three each now hold less than 2% of the shares of the company, together they have one third of the board seats. Both Eisenberg and Feinstein were paid more than $3 million in 2011, while Temares was paid almost $14 million. Eisenberg and Feinstein may elect to become consultants and be paid $400,000 a year.

In addition, lead independent director Klaus Eppler, who has served on the board since 1992, may not truly be independent, despite the company calling him that. He is a pensioned partner at law firm Proskauer Rose, which provides legal services to Bed Bath & Beyond. Eppler, despite his firm’s connection to the company management, serves on the compensation committee, which determines the pay of top executives.