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MMC Update

The New York Times has an update on the MMC saga that references a recent 8-K filing by the company. (By the way, is there a single class at Williams that assigns even one 10-K, 10-Q or 8-K in its reading list?)

The Marsh & McLennan Companies, the world’s largest insurance broker, said yesterday that the Securities and Exchange Commission had begun a formal investigation into investments by its executives and directors in partnerships set up by the company.

Marsh, which was accused of bid-rigging and steering of business in a lawsuit filed by the New York attorney general in October, said that the commission had requested documents and other information about “related-party transactions” in which directors, executives, or large Marsh shareholders acquired a material interest. The transactions included dealings with the company’s Trident funds, the filing says.

We covered this story back in October. I’ll stick with my prediction from then. Although several then-members of the board of directors of MMC should be very worried about this development, Morty is extremely unlikely to be one of them. He is way too smart to have gotten involved with this.

For those who care, MMC (the stock) has bounced back significantly from its October lows. Once the new management settles with Spitzer, the scandal should fade away.

One of the last remaining questions concerns what the non-executive members of the board, like Morty, will or should do once a settlement is complete. By all accounts, the board, as a group, has done a pathetic job over the last 4 years. Other boards (e.g., Worldcom, NYSE, Enron) involved in similar scandals did the honorable thing by first, saving the organization by bringing on new management and, second, resigning as a group so that an untainted board could then take over.

Whether or not the board of MMC will or should resign is an open question.


More Record on Morty/Marsh

The Record has a strangely titled update on the Morty/Marsh saga — a better name for which we still need. Although the title is “Schapiro speaks in defense of his role in Marsh & McLennan,” it isn’t obvious to me that this is descriptive of the author’s (Mark Hobel ’05) main point.

Anyway, there is a lot of good stuff here, but, alas again, the key questions are not pursued.

Read more


Record on Morty/Marsh

The Record provides a sloppy update on Morty’s role on the board of Marsh. Highlights:

Because the company remains under investigation, Schapiro declined to comment on the details of the Board’s role. In an e-mail to the Record, Schapiro wrote, “It has been challenging times for MMC since before I joined the board, but I continue to have confidence that the company can work its way out of its difficulties while being faithful to both its shareholders and to its 55,000 employees.”

This is appropriate. There is no way that Schapiro (or any member of the board) can or should answer questions, from the Record or the New York Times, about the business of the board. Once you agree to be on a board, you need to play by the rules. However, there are a lot of questions that Morty should answer but which the Record seems not to have asked. See below.

Schapiro also indicated that his obligations to MMC will not detract from his time commitments to the College. “Given that I am already there [in Manhattan] several times a month on Williams business, it has been easy for me to schedule Williams events when I am in New York anyway,” he wrote.

Huh? Does this mean that Morty gets told that the Marsh board is meeting on day X and, so knowing that he needs to be New York City on day X, schedules some event at the Williams Club? If there were no board meeting, he wouldn’t have had the Williams event? That seems vaguely suspect. When Morty goes to NYC for both Williams and Marsh events, who pays for the travel?

“It’s a broader exposure for the person in that job — that is, it broadens that person’s perspective,” said Paul Neely ’68, a member of the College’s Board of Trustees.

Great! So why is Morty only on one corporate board? Why not 2 or 3 or 6? I guess that my question about board service is the same as my question about salary. Assume that the status quo is fine. At what point should I start to worry? Tell me now where the problems would begin.

Again, I feel less strongly about board memberships for senior administrators than I do about salaries. If the College amended the faculty handbook appropriately, I would have few grounds for complaint.

“[Schapiro’s positions] also projects Williams more broadly. I find that in the various boards I serve on, I become better in primary roles because of my breadth of experience in secondary roles,” he said.

Projecting Williams “more broadly” is fine and dandy, I guess, but who is Neely kidding? How many people knew, 2 weeks ago, that Morty served on Marsh’s board? Answer: virtually no one. Of course, there is a sense that, the more that Morty hangs out in the boardrooms of power, the more “broadly” Williams is projected, but this seems a thin reed.

You don’t have to be a leftist to think that the elite of every society has a tendency to view the perks of power as more than perks, as norms that make everyone better off. If Morty served on no boards, he would do an X good job as president of Williams. I am ready to believe that board service does not materially impede his performance. X is still X.

I find it much harder to believe that Morty does an X + 10% good job because Marsh pays hime $100,000+ per year ($500 or so per hour) to worry about its problems. Board membership may not hurt, but could it possibly help?

When asked whether Schapiro’s obligations to MMC risk distracting him from the College, Neely chuckled, “He works so hard and with so much energy that even if MMC takes him away for four days in the span of three weeks, you wouldn’t even notice.”

He chuckled? Again, I stand second to none is my praise of Morty’s energy and performance, but this is a bit much.

My main complaint with the article is that it (seemingly) fails to ask the important questions, of both Morty and others. (To be fair, perhaps the author did try to do all of the below, but didn’t get anywhere.)

Questions for Morty:

1) How much time have you spent in 2004 on MMC business?

2) What is your total annual compensation from MMC?

3) How many days did you meet on MMC business outside of Williamstown (including days on which you also had Williams business in that location)?

4) Would you describe your involvement with Marsh as “modest”?

Questions for Neely (or some other trustee)

1) Would it be OK if Morty served on 2 or 3 or 6 corporate boards?

2) What do you say to your fellow alumni who think that the President of Williams ought to devote his full (paid) energies to the betterment of Williams?

3) Do you think that the provisions of the faculty handbook proscribing more than “modest involvement” in outside paying actitivities apply to Morty?

But the key problem with the article was the failure to quote/find any critics of the whole situation. You can bet that there are alumni (and even faculty members) who think that the whole situation stinks. (I am not one of those, but they are out there.) Why didn’t the Record talk to them?



Having established my bonifides as chief publicist of the Morty Schapiro fan club, I feel comfortable highlighting this commentary from a concerned alum.

I am troubled by the fact that Morty is on the board of Marsh. This company has shown an incredible lack of ethics and principles and is an another of example of business ethics taking a backseat to greed. My biggest concern today is the lack of respect for principle and values that the young people have in the way they conduct their lives. If we are not living our lives by principles and values then we can only by driven by our selfish interests which is a recipe for disaster in this country.

I am deeply concerned that the president of Willams, who represents our college, is on a board of directors for a company that egregiously violated business ethics. As a small business owner, I disdain the fact that powerful companies feel they are above the law and principles that capitalism is based on. Marsh and McLennan is an example of a big company using paybacks, bribes and threats to line their pockets at the expense of unsuspecting small businesses.

Morty needs to tell the Williams College community, and especially the current students, if he was aware of these busines practices. If his lawyers advise him not to talk he should tell us that. How he handles this situation with the Williams community should determine his future at Williams. If he doesn’t practice what he preaches on the subject of ethics then his future comments will fall on deaf ears.

I have closed off the comments on the end of the previous thread (and corrected two typos in the above). My thoughts:

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Weekend at Morty’s

For those wondering how Morty’s weekend went, the New York Times has details.

Jeffrey Greenberg will almost certainly be gone. But his company, Marsh & McLennan, has a good chance of surviving as long as its outside directors understand that Mr. Greenberg’s resignation is not the last, but the first change they will have to make.

The independent directors of Marsh are now running the company and deciding its legal strategies.

But they are waiting to announce Mr. Greenberg’s departure until they have both decided on his successor and can present a package of reforms to show Mr. Spitzer that they are serious about changing the company’s culture.

And here I thought that Morty was busy “running” Williams. He’s even smarter than I thought!

So far, the directors have not finalized their decisions, according to the people close to the case. But directors continued to meet and discuss the situation over the weekend, and the board is expected to take action within days.

I wonder if the directors are all in New York or are meeting over the phone.

Again, I have been somewhat tough on Morty — a patient and inspired teacher to me 17 years ago — but the more you respect someone, the higher a standard you hold them too. As best I can tell, Morty and the other directors are doing what should be done, what needs to be done, to fulfill their fiduciary duties to the shareholders of Marsh. Whether or not those directors have done a very poor job over the prior 4 years is a more difficult question.

Again, the issue is not whether or not Morty is the world’s best or the world’s worst board member. (He is probably pretty darn good.) The issue is that the rules in the faculty handbook must apply to all the faculty at Williams, from the highest official to the most junior assistant professor.

Whatver else may be said about how Morty has spent his time over the last 10 days, “modest” does not begin to describe the efforts that he has devoted to Marsh and its shareholders.


Modest Involvement

At the end of a previous thread, fellow EphBlogger David Nickerson ’97 asks:

Factual question: How much time does it take to serve on a corporate board? Don’t they just rubber stamp the actions of the CEO and CFO? Isn’t the inactivity of corporate boards part of the problem in corporate governance and oversight?

Asking how much time it takes to serve on a corporate board is like asking how much time it takes to study for classes in college. It varies. The more serious the school and the more responsible the student, the more time it takes. The same applies to corporate boards. If you are on the board of a serious company (large, publically traded) and are a diligent director it will take a fair amount of time. This is even more true if you serve on the company’s audit committee.

Professor Stephen M. Wallenstein claims (page 17) that “a large public board requires 200 to 250 hours a year of service.” Neil Minnow, co-founder and editor of the Corporate Library, says “18 days per year”.

That seems about right to me, although when disaster strikes (as it has for Marsh this month) these become dramatic underestimates.

Assume for a second that Schapiro and Roseman spend 200 hours a year on their board service. Given that each of them is compensated more than $100,000 per year, this would work out to a wage rate of more than $500 per hour. Nice work, if you can get it.

How can we square this with the faculty handbook’s requirement that:

Modest involvement in outside consulting and other similar remunerated activity is also permitted. Whenever such activity requires that the faculty member be absent from campus for the equivalent of more than eight weekdays per semester, permission of the Dean of the Faculty must be obtained.

I don’t think that we can. Whatever else may be said a job that requires 200 hours per year at a rate of $500 per hour, it can hardly be termed “modest involvement.”

Either the faculty handbook should be revised (perhaps just by removing the word “modest”) or Schapiro/Roseman should resign their board memberships. I am not sure which of these options I prefer, but I can’t see any other alternative. Rules are rules. They apply as much to the President and to the Dean as they do to the youngest assistant professor.

Those interested in more background reading about academics on corporate boards might try here or here.



The Wall Street Journal provides this update ($ req.) on the scandal at Marsh. Eph readers will be most interested in these sections.

The company’s 10 outside directors met on and off yesterday about aspects of the crisis, including Mr. Greenberg’s fate, people familiar with the matter said. The meetings followed the talks between some outside directors and New York Attorney General Eliot Spitzer, who sued Marsh last week and signaled his desire for Mr. Greenberg’s ouster. At the time, Mr. Spitzer publicly said Marsh directors “should think long and hard, very long and hard, about the leadership of your company.”

And here I thought that Morty was thinking long and hard about how to make Williams better. Silly me.

Several of Marsh’s outside directors have impressive credentials. The board includes Zachary Carter, a white-collar-crime defense attorney who was U.S. attorney in Brooklyn, N.Y., during the Clinton administration; Robert F. Erburu, former chairman of Times Mirror Co.; Lord Lang of Monkton, a former member of the British Parliament; and Morton O. Schapiro, president of Williams College.

Nice to see Morty included in this list. Again, I suspect that Erburu was the person who got Morty the job. Of course, whoever got Morty the job did not care at all that Morty has no background in business nor any expertise in any of the businesses that Marsh operates in (insurance, investment management and consulting). So, why did they pick Morty? I don’t know. Where is the Record when we need it?

The Marsh board gets low marks from corporate watchdogs who track board governance. Corporate Library grades the Marsh board a “D” on a scale of A to F, meaning it ranks below 80% of the roughly 2,000 boards that Corporate Library studies. Institutional Shareholder Services ranks the Marsh board in the bottom 2% of the companies in the Standard & Poor’s 500. Governance Metrics International also gives Marsh’s board a below-average rating.

Note that Morty is on the Directors & Governance subcommittee of the board. In other words, to the extent that you think that the Marsh board is weak, you should assign Morty a fair portion of the blame. I am not sure how much faith to put in these sorts of measures.

I am still thinking through how I feel about board jobs for Williams faculty members like Schapiro and Roseman. But, there can be no denying the fact that Morty is spending a ton of time on this right now. Fortunately(!), he is well-compensated for it.


Double Dipping

You, loyal Eph reader, might think that President Schapiro is having a busy week, what with the on-going Nigaleian controversy and the up-coming Family Days week-end.

Turns out that you don’t know the half of it.

Although you might be concerned about Morty’s salary being a bit excessive, you are glad that such largess at least allows him to concentrate his full attentions on the welfare of Williams.

Alas, you are misinformed.

You might be pleased that Eliot Spitzer, attorney general of New York and scourge of corporate miscreants everywhere, isn’t talking about any Ephs when he says

Let me be very blunt about it. Either they’re ignorant, in which case they shouldn’t be managing the company, something that is so central to the way they’ve been doing business; they’re participating, in which case they clearly shouldn’t be there; or they’re not bright enough to ask the right questions.

Unfortunately, this may not be so.

It turns out that Morty serves on the board of directors of MMC, also known as Marsh & McLennan. MMC is at the epicenter of the insurance bid-riggings scandal making headlines today, just a year after having dramatic problems at its Putnam subsidiary during the mutual fund timing controversy. To be fair, it is not clear if Spitzer means to include the board of directors of MMC (rather than just the operating executives) in his comments above, but, if I were Morty, I would be in no rush to find out.

The Wall Street Journal reports ($ req.) today that “The board has been working nonstop since the crisis erupted Thursday, people familiar with their actions say.”

And here you thought that Morty was spending time on Williams this week. Silly you.

Questions for Discussion:

1) How did Morty get this fun-filled gig? My guess is via fellow director Robert Erburu, who has a connection with USC.

2) How much does Morty get paid for this job? I am having trouble making sense of the public filings on his compensation, but my guess is that he makes more doing this part time job than assistant professors at Williams make for their full time jobs.

3) Is being President of Williams College a full time job?


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