The year in governance: and what a year it was--full of crises and challenges. Our biggest ever month-by-month recap of the highlights and low points, the who's new and what's new, the successes and setbacks that shaped board oversight in 2009.

• Author: Kristie, James
• Position: YEAR IN REVIEW 2009 - Interview

JANUARY

Setting a tone for the coming year, President Barack Obama in his inaugural address says that the nation faces "gathering clouds and raging storms," and calls for a "new era of responsibility"--a theme that, as the editorial page of the Wall Street Journal (WSJ) opines, "is a useful message for Americans of all walks of life to hear--from Wall Street CEOs to unmarried fathers to AARP lobbyists in Washington."

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Those "gathering clouds": The Labor Department announces the unemployment rate has climbed to 7.2% and that the total number of jobs lost in 2008 was 2.5 million, the most since 1945. In the first week of the new year, Alcoa announces it will eliminate 15,000 jobs, among other cost-cutting measures, to cope with the Great Recession, as it is now becoming known. Other layoff announcements begin to gush forth, such as Cigna Corp. saying it will cut 4% of its workforce and Walgreen saying it will whack 9% of its corporate and field management positions. In one day (Jan. 26), major multinational companies announce what totals up to 75,000 layoffs.

Gathering clouds at Citigroup: Where to start? With CEO Vikram Pandit under fire, and the bank expected to announce billions in losses for its final quarter of 2008--during which it received a taxpayer capital infusion of $45 billion--the board in early January issues a statement of support for its chief executive. It is announced that lead director Richard Parsons, former CEO of Time Warner, will replace Sir Win Bischoff as Citigroup chairman, a long-rumored move. Robert Rubin, his reputation battered by the economic crisis and balance sheet troubles engulfing the bank (its fourth quarter losses do indeed tote up to a whopping $8 billion), announces his retirement from the board and as a senior counselor to the company. With the U.S. government now the banking firm's biggest shareholder (with an 8% stake), various skinnying-down schemes, floated both from internal management and external speculation, are daily grist for the financial press.

Mary L. Schapiro is appointed by President Obama and unanimously confirmed by the Senate as chairman of the Securities and Exchange Commission. She is the first woman to serve as the agency's permanent chairman. Among her stated priorities are "working to deepen the SEC's commitment to transparency, accountability, and disclosure while always keeping the needs and concerns of investors front and center."

Brouhaha at BofA: Kenneth Lewis, chairman and CEO of Bank of America (which got $25 billion in taxpayer aid in 2008) sets a statesmanlike tone early in the year by recommending to the board that he and his top officers get no bonus for 2008. Then all hooey breaks loose: Huge new losses on the Merrill Lynch acquisition are revealed; the bank tells the government it needs billions more in aid to close the acquisition; shareholders scream about not being told of the massive new fourth-quarter losses before approving the Merrill deal in December; Lewis's handling of the deal and his interactions with Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke are roundly second-guessed; and then ... Merrill CEO John Thain gets booted out of a top job at the combined company, after a reported 15-minute meeting with Lewis, just three weeks after completing the Merrill deal with BofA. (How about that $1.2 million Thain spent decorating his office while toxic assets were blowing up around him?) Can anyone say, "What a mess?" Yes, the business news website breakingviews.com says it this way: "Who needs the U.S. government to create a new 'bad bank' when it's got Bank of America? ... It has become clear that Lewis failed to properly protect the interests of shareholders [and presided over] one of the greatest destructions of shareholder value in the history of finance. Over the past year, the 84% decline in BofA's share price has cost shareholders some $250 billion."

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CEO turnover: A rash of chief executives join the ranks of the general unemployed as the year gets underway, including the CEOs of Tyson Foods, Borders Group, Seagate Technology, and several other companies. Observers (correctly, as it will turn out) put GM's Rick Wagoner, Sun Microsystems's Jonathan Schwartz, and BofA's Kenneth Lewis on the "watch list." The ousters are viewed as "harbingers of significantly more turmoil in executive suites this year" (WSJ).

Booz and Company comes out with a study that says 40% of senior managers doubt that their leadership has a credible plan to address the economic crisis, and, even more striking, one-third of all CEO respondents do not have confidence in their own crisis plans.

At the first Congressional hearing on the Bernard Madoff scandal, a massive Ponzi scheme that was revealed in December 2008, the House Financial Services Committee members attribute serious systemic problems at the SEC for the Commission's failure to detect the $50 billion fraud. Meanwhile, hedge fund investor Andrew Sole calls for the ouster of the entire board of Yeshiva University (on which Madoff had served) following the devastation the scheme wracked to the school's endowment fund.

Backing the say on pay bandwagon as it starts rolling for the year, incoming SEC Chairman Mary L. Schapiro expresses support for giving shareholders a non-binding vote on executive pay plans. "Executive compensation has been a concern of mine for some time now," she says during Senate confirmation testimony. "I believe that it's an appropriate measure to give shareholders an advisory vote on these matters." Also on the bandwagon is New York City Comptroller William Thompson: Calling for reform in executive pay, his office submits resolutions at a number of companies, including Home Depot (for the third time), Rite Aid, Ryland Group, and Charming Shoppes. "Stock options too often facilitate a disconnect between reward and long-term performance at many companies," he tells Reuters.

SEC spanked by Chuck Schumer: In further Madoff fallout, the New York Post (NYP) reports that the senator from New York railing that "SEC investigators and surveillance people should be yanked from their cozy and insular world of Washington, D.C., and packed off to New York to keep them on their toes. It makes no sense to have cops who are patrolling their beat from hundreds of miles away."

Risk consulting company Kroll Inc. expects the financial turbulence and threat of global recession to result in an increase in white-collar crime. "We saw a marked increase in the number of corporate fraud cases in the market downturns of 1987, 1991, and 2001," the firm warns.

Not so fast: The American Federation of State, County and Municipal Employees Pension Plan, worried about bonuses being paid out based on short-term results that may prove unsustainable, begins submitting stockholder proposals that include a provision for bonuses to be held in escrow for three years rather than paid out immediately, with one-third of the total being paid annually if performance objectives are reached; AFSCME also submits proposals that require executives to retain a large portion of their awarded stock for at least two years after they stop working for the company.

New leadership at CalPERS: Anne Stausboll takes over as CEO of the California Public Employees' Retirement System, the nation's largest public pension fund. She is the first female CEO to lead the pension fund in its 77-year history. In addition, she serves as the co-chair of the board of Ceres, the nation's largest coalition of investors, environmental groups, and nonprofit organizations working with companies to address sustainability challenges, such as global climate change. Joseph A. Dear is named chief investment officer. He also chairs the Council of Institutional Investors. And Anne Simpson, who has been serving as the first executive director of the International Corporate Governance Network, based in London, is named senior portfolio manager for corporate governance.

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Bring on the vote: Joining the bandwagon on the corporate side, Intel generates headlines by agreeing to a say on pay advisory vote at its annual meeting in May. "We are pleased that a leader in corporate governance like Intel has stepped forward and endorsed" such a vote, says Timothy Smith, senior vice president of Walden Asset Management. "Obtaining an advisory vote establishes a solid foundation for constructive dialogue with shareholders."

Richard F. Chambers becomes president of the Institute of Internal Auditors, bringing to his new post 33 years of internal audit, accounting, and financial management leadership. The IIA is the guidance-setting body of the audit profession and its chief advocate.

A federal appeals court upholds the conviction of former Enron CEO Jeffrey Skilling. The ruling on the appeal "is a victory for all those harmed by Jeff Skilling and his co-conspirators," states an assistant attorney general with the U.S. Justice Department.

The infamous "hormonal imbalance": Apple's board continues to be dogged by credibility issues related to revelations of CEO Steve Jobs' health situation. This month's announcement of what is causing his dramatic weight loss ramps up the criticism: Within two weeks of blaming it on a "hormonal imbalance," the company then says he will be taking a leave of absence until June because his condition is more "complex" than originally thought. Gary Lutin, who runs the Shareholder Forum corporate governance research and advocacy initiative, says to Barron's, "Either Jobs didn't know his condition, or he did know but didn't tell his company's board. Common sense also suggests only two possibilities for the board members: Either they didn't ask the questions they should have, or they did ask but didn't report what they learned to public investors."

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We started out a tumultuous month with President Obama and we finish up the month with the...