Fannie Mae dominoes
Three more senior Fannie Mae executives have stepped down:
Moving into unspecified advisory roles were senior vice presidents Jonathan Boyles, who oversaw accounting policy and tax; Janet L. Pennewell, who oversaw financial reporting; and Sam Rajappa, who oversaw internal auditing, company spokesman Charles V. Greener said.
The staff changes follow on OFHEO allegations of what sound like textbook examples of conflict of interest:
OFHEO said there was an inherent conflict in Pennewell’s role because she had the ability to affect the company’s reported profit to achieve results forecast by her group.
The regulators alleged that, under Rajappa, the company’s internal audit unit showed a “lack of diligence” in examining accounting concerns raised by a former Fannie manager. The agency … said Rajappa, a former controller of the company, was given authority to audit his own work, “a major conflict of interest.”
Actually, it was four departures:
In addition, Fannie Mae announced Friday night that principal accounting officer Leanne G. Spencer, senior vice president and controller, was moving into an advisory role and will stay on the payroll for a year unless she resigns or is fired.
That news also follows another tidbit dropped last Friday night:
Fannie Mae’s top 43 executives will not be awarded bonuses for 2004, the company said last night. In addition, potentially lucrative stock awards for the group will be postponed until Fannie Mae sorts out its books.
That change accompanied a move to strengthen internal governance:
With the ouster of Raines, Fannie Mae named real estate executive and longtime board member Stephen B. Ashley to the new position of non-executive chairman. Fannie Mae said yesterday that it will pay Ashley an annual fee of $500,000. The company also amended its bylaws to eliminate a requirement that its chairman and chief executive be the same person.
Many corporate governance specialists have advocated a separation of powers to provide greater checks and balances, but under Raines, Fannie Mae had opposed any such requirement.
Next stop in the hit parade is likely to be Fannie Mae’s board, where, as Gretchen Morgenson of the New York Times wrote (subscription required) a month back:
Here’s the question: Just how independent are Fannie Mae’s independent directors?
There are supposed to be eighteen, but right now there are only eleven, and although they are governed by a rigorous code of ethics, Ms. Morgenson (perhaps unfairly) characterizes their actions as questionable:
The board’s reluctance to defenestrate Mr. Raines and Mr. Howard, who appear to have misstated their company’s financial statements to the tune of around $9 billion, fed suspicions that Fannie Mae’s directors were loyal to management first, and shareholders second.
Looking for targets? One might speculate on the audit committee and the compliance committee.
