Abstract

Our government has invested more than $50 billion in General Motors and is now the majority stakeholder in the company. This is one of the largest investments that the Treasury has recently made in private industry, but hardly the only one. The Troubled Asset Relief Program has infused hundreds of billions of dollars into the nation’s biggest banks. And taxpayers have given $83 billion to American International Group, the world’s largest insurer. Like it or not, the government is now the controlling investor in some of America’s largest companies.

As a result, it is taking a more direct role in their management. In March, the White House summarily dismissed G.M.’s chief executive, Rick Wagoner, and signaled its intention to help replace most of the company’s directors. The Treasury is reported to have directed G.M. to appoint a search firm to identify new board members. It has also actively encouraged the replacement of corporate directors for Citigroup and Bank of America, the two biggest banks. And government-appointed trustees for A.I.G. recently nominated six new directors.

But do Treasury officials know how to choose candidates for the boards of banks and other big companies? Lacking a tradition of direct investment in private companies, our government has no experience in selecting corporate directors.

It is not an easy job, no matter who does it. Corporations often look for board members among the ranks of sitting chief executives at other publicly held companies. But chief executives have very few extra hours to devote to other companies’ boards; their day jobs are more than full time. Also, they may lack the psychological distance that board members must have in order to assess the work of chief executives. The scandals of Enron, WorldCom and Adelphia several years ago revealed the kinds of corrupt behavior that can happen when boards fail to monitor corporations effectively.