Back in the day when Merrill Lynch (MER) was minting money and the stock was at $98, it had made a run from $35 in early 2003. That was just this last January. CEO Stan O’Neal was a hero, and his board was taking him out for tequila shots and high fives.

While Merrill does not have a stellar board for a company its size, it is not a bunch of numbskulls. John Finnegan is the head of Chubb (CB). Charles Rossotti has been head of the IRS. Alberto Cribiore was co-president of Clayton, Dubilier & Rice. Ann Reese, the head of the audit committee, used to be CFO of ITT Corp.

The Merrill board knows how the market works. When there is a big wave of earnings from investment banking, underwriting, and trading profits, a trough follows. Managing the downside is always tougher than overseeing the run-up. Risks tend to sneak up on companies. Managing risks may seem mundane, but it is the place where big financial firms have to put their geniuses. Big investing mistakes can take a firm down. Big rewards can only help the stock price and the CEO’s pay package.

Over at Citi (C), the board situation is worse because they have some world class business people sitting around the table. Alain J.P. Belda, the CEO of Alcoa (AA). George David, the head of United Technologies (UTX). Andrew N. Liveris, the head of Dow Chemical (DOW).

Reading the charter for the audit and risk management committee of the board at Citi is an interesting exercise. One of their obligations is to set "policy standards and guidelines for risk assessment and risk management."  They may want to send a copy of that around to the members again.

When Chuck Prince gets handed his massive pay package every year, it is not unfair for investors to ask why the board does not question what happens when the ride is over? Who is watching for the bad news?  Are we better prepared to lose money than we have been to make it?

The fact that the boards at these companies appear to have done too little to get the CEOs to look ahead and prepare for the lean times looks bad. It is bad. The CEOs will be the ones who "retire", or fire the people below them to save themselves. But, the boards are there to keep an eye on things for the shareholders.

At least that is what their mission statements says.

Douglas A. McIntyre

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