America's Worst Board Members: Henry McKinnell of Moody's

Henry A. McKinnell, Jr, has been a board member at Moody’s (NYSE: MCO) since 1997. He serves as the head of the governance and compensation committee and is the firm’s lead director. The former CEO of Pfizer Inc.  (NYSE:PFE) should be the most powerful director on the board.

Raymond W. McDaniel, Jr. was appointed Moody’s CEO in April 2005. McKinnell played a key role in that decision. McDaniel has been able to keep his job, oddly enough, as Moody’s have gone from scandal to scandal about its ratings policies. Congress and federal regulators have investigated Moody’s over whether its opinions of mortgage backed securities were entirely independent.

The SEC finally decided not to seek civil charges against Moody’s. The agency added it had declined to do so based to some extent on its lack of jurisdiction over Moody’s operations abroad. Moody’s has changed some of its credit rating policies. That probably reflects the fact that it wants to have its ratings viewed as unbiased after accusations about its opinions on mortgage derivatives. But, its reputation is still in tatters. Arthur Levitt, the former head of the SEC, said that “the credit-rating agencies suffer from a conflict of interest — perceived and apparent — that may have distorted their judgment, especially when it came to complex structured financial products.”

Even if McDaniel had not run Moody’s during a time when its fortunes were so badly damaged, he has been CEO while Moody’s shares have dropped by about 60% over the last five years. This probably has something to do with the perception that Moody’s has compromised the core of its business operations.

Moody’s had a pristine reputation for more than a century. The damage done to that may take years to repair. Somehow McDaniel has survives all of these problems along with his company’s plummeting stock price. McKinnell has not done anything about that. But, he did make $230,000 as a Moody’s director last year.

The current management of Moody’s is still in place and shareholders have taken a bath. McKinnell is still the lead director.

Douglas A. McIntyre