Sunday July 6, 10:00 PM
Mittal move could raise questions [at Financial Times]
By Chris Hughes in London
Multibillion-dollar losses have left investment banks under pressure to refresh their boards and hire more directors with a financial background. But the debate has been complicated by Goldman Sachs (NYSE: GS
- news) ' decision to appoint Lakshmi Mittal, the mining magnate, as an independent director last week.Goldman may be the Wall Street bank under the least pressure to change its governance or management model, thanks to the relatively small writedowns it has suffered in comparison to rivals during the credit crunch. Moreover, its board recently lost the services of an industrialist in the form of Lord Browne, the former chief executive of BP (LSE: BP.L - news) , who stepped down last year after it emerged he had misled a British court about his personal life. But at a time when Goldman's rivals are trying to copy the formula of its success, its decision to put an industrialist rather than a banker on to its board could be influential. Mr Mittal founded Mittal Steel in 1976 and in 2006 pulled off the takeover of France's Arcelor (Paris: LU0140205948 - news) to create ArcelorMittal (Amsterdam: NSCNL0001MT7.AS - news) , the world's largest steelmaker, where he remains chief executive. His background sets him apart from the other 10 independent directors on the 13-strong Goldman board. Mr Mittal will be expected to attend five or six Goldman board meetings a year, each of which can span up to three days. Until Mr Mittal's appointment, the debate about bank board composition appeared to be going only one way. In April, Citigroup (ASFZ.PK - news) said it was looking to strengthen its board with directors with financial acumen. Meanwhile, Royal Bank of Scotland (LSE: 91ID.L - news) has come under pressure to hire independent directors from the banking community after launching Europe's biggest rights issue. Last week, UBS (Virt-X: UBSN.VX - news) , the Swiss bank, said four of its directors were leaving, including the former head of the Ciba speciality chemicals group and an entrepreneur-turned-politician, to make way for figures with world- class financial experience. However, there are practical limits to a bank's ability to recruit board members with recent banking experience, as conflicts of interest make it impossible to hire a serving chief executive from another bank. According to one Wall Street executive: "It's simply very difficult to get good people to sit on boards of public companies - especially financial services companies." A person familiar with the circumstances surrounding Mr Mittal's appointment says one of the steel tycoon's main attractions was that he is the type to challenge other board members. Moreover, experts in corporate governance say the contribution an industrialist can make to a bank is being overlooked, because the immediate problems facing institutions mired in the subprime crisis require technical expertise to fix. Indeed, the industrialist's lack of financial expertise is held by many to be a virtue in its own right, if the director also has the guts to ask simple, but fundamental, questions. "The industrialist can say: 'Explain to me in words of one syllable what a CDO is', or 'Why would you want to put subprime mortgages on your balance sheet?' " says Andrew Lowenthal, global head of the financial services team at Egon Zehnder, the headhunter. "Very often [industrialist board members] are clients and think like clients and customers." The chief executive of an industrial company can provide valuable support to a banking boss by empathising with their experience as the chief executive of a large company. And industrialists typically have broad global experience, which may be valuable to a bank in identifying strategies to penetrate new markets. "Bankers often see the world the same way. If a board is full of bankers, you may not get the diversity of thinking," says Mr Lowenthal. But others are sceptical. "As a former client, Mr Mittal is absolutely not independent," says another headhunter who has placed directors on banking boards. "You can see why Goldman hired him - he is an entrepreneurial and high-profile figure - but my gut feel is that he does not add particularly much." The key, says the headhunter, is to get the right balance.
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