CSC has issued its Proxy Statement for the year to March 2012. The full document, about 100 pages, can be found on CSC’s website.
Some observations on the contents:
· The Directors state that the current Board Leadership structure “provides effective oversight of management”. The structure may be satisfactory, but there can only be effective oversight of management if the non-Executive directors have the courage to act on behalf of the shareholders they are supposed to represent. Despite all the warning signs over the years, CSC’s Board of Directors allowed Michael W Laphen to come close to destroying the company before they finally acted to replace him. What is their excuse for not having acted earlier? Did they lack a “Board Leadership structure” because they had foolishly invested all power in Laphen whom they had named to the posts of President, CEO and Chairman? Was it fear that they might be removed from the Board? Was it simply so they could continue to enjoy the quiet life, going along with all the wishes and excuses of a non-performing CEO while collect their US$ 250,000 annual fees for a few meetings? Or was it a lack of courage in face of a CEO who did not tolerate any disagreement or questioning?
· The Board says it oversees and maintains the Company’s governance and compliance processes and procedures to promote “the highest standards of responsibility, ethics and integrity”. Why then does CSC refuse to pledge zero tolerance for torture, as requested by Reprieve as described in our blog entry of 19 June 2012? How do they reconcile involvement in flights of rendition and ultimately in some cases torture, with “the highest standards of ethics”?
· The Directors say they have satisfied themselves that the executive compensation structure , being the mix of base salaries, variable pay elements, incentives, bonuses, stock options etc “does not encourage or create unnecessary risk taking”. So if the “intentional errors” recently disclosed in the NHS project were not driven by the compensation structure, what exactly did drive the employees to make these “intentional errors”? What exactly made employees deliberately create accounting irregularities in Nordic and elsewhere? If it was not the compensation structure, then what was it? Could it have been top management behavior and pressure or their bullying the staff? Could it have been an inappropriate “tone” at the top of CSC?
· Improvements are promised to the compensation structure, including changes to the composition of the AMIP cash bonuses. No longer will executives be able to pocket large sums of money while missing revenue targets by 20% and putting the company into a loss. But the changes do not go far enough. The lowest paid of the FY2012 Named Executives Officers, (Messrs Laphen, Mancuso, Cook, Schaeffer, Hains and Owen), collected almost US$2million each while Laphen collected almost US$21million. This is too much. A cap of US$1,000,000 on the total remuneration of each Named Executive would have been appropriate in view of the executive team’s collective failure FY2012. But it is naïve to expect any such behavior from CSC executives.
· There will be new blood amongst the non-executive Directors after the retirements of Messrs McFarlan and Patrick. The Board is proposing that 69 year-old Laurence Zimmerman join them. It would be interesting to know what criteria were used to select Mr Zimmerman for what will be a rubber-stamp approval process. He has a CFO background, which may be useful given the deterioration of CSC’s finance function over the past years and given the many intentional accounting irregularities it failed to prevent. Time will tell if Mr Zimmerman is a good choice. CSC seems to follow the practice of many US corporations regarding non-executive director nominations. A suggested name just appears from nowhere and we wonder whether it is because the person will add value, or because he or she can be relied upon not to create any waves in the Board nor to seriously question or challenge the CEO’s running of the company. .
In its presentation and content, the Proxy Statement tries to give an impression of a new approach, of much-needed major change at the top of CSC. We shall see if changes happen, or whether the Proxy Statement is another exercise in CSC Corporate waffle.