Five days before New York investment bank Bear Stearns struck an emergency deal to save itself from collapse, NU President Henry Bienen told a Dow Jones Newswires reporter through a spokesman he would not run for re-election to the bank’s board of directors.
The bank’s sale to JPMorgan Chase & Co. for a bargain price of $2 a share – later increased to $10 – came amid a series of setbacks for Bear Stearns, which had heavy investments in subprime mortgages. Only 15 months ago, Bear Stearns stock traded at a peak of $171 a share. JPMorgan’s proposal caused a controversy among some Bear Stearns shareholders and executives who believed the original bid was too low.
Bienen, who has been a member of the Bear Stearns Board of Directors since 2004, will not comment on his relationship with the bank, said Alan Cubbage, Northwestern’s vice president for university relations. Representatives for Bear Stearns, the fifth-largest investment bank in the nation, did not return calls or e-mails seeking comment.
Bienen is still a member of the Board of Directors, and according to a press release on Bear Stearns’ Web site, “all of the members of the Bear Stearns Board of Directors have indicated that they intend to vote their shares … in favor of the merger.”
Bienen is a non-management member on the board and a member of the Audit Committee, which oversees the firm’s financial statements and chooses its auditors.
In 2006, he received a total compensation package of $215,000, according to proxy statements filed by Bear Stearns with the Securities and Exchange Commission.
Members of the board who are not full-time Bear Stearns employees, such as Bienen, do not take spots on corporate boards only for the money, said Nell Minow, editor and co-founder of The Corporate Library, a research firm based in Maine that monitors the performance of corporate executives.
“It’s very interesting work, very prestigious and has great contacts,” she said.
Academics like Bienen are brought in to help corporate boards look “independent” and “as democratic and diversified as possible,” said Jed Horowitz, the Newswires reporter who first reported Bienen’s departure from the board. But, Horowitz said, the board at Bear Stearns “is one of the oldest, all-white, all-male boards in the country.”
Despite extensive corporate reforms enacted by the government after the scandal involving energy company Enron, Horowitz said the selection of board members nationwide “is still perceived as ‘cronyistic.'”
The Board of Directors at Bear Stearns has come under fire in the last year for its management of the company.
Subprime borrowers usually have low credit scores and are therefore viewed by lenders as clients with higher risk, according to National Public Radio. The majority of subprime borrowers receive adjustable-rate mortgages, which have an interest rate that increases after an introductory period at the start of the mortgage.
With a downturn in the national real estate market, more people with subprime loans are missing payments or defaulting on their mortgages. That trend has hurt firms with investments backed by subprime mortgages, including Bear Stearns.
The bankruptcy of two large hedge funds controlled by Bear Stearns in August 2007 was followed by the first quarterly loss in the bank’s 85-year history, reported in December 2007. In January, CEO James Cayne resigned from the company.
JPMorgan agreed to purchase Bear Stearns as the bank neared collapse. The Federal Reserve oversaw talks between both companies and agreed to guarantee up to $30 billion of Bear Stearns’ assets to assuage investors, according to The New York Times.
“I think every member of that board should be embarrassed,” Horowitz said. “The place imploded.”
Though Bienen declined to comment on his departure from Bear Stearns, his reasons for leaving are open to interpretation, Horowitz said.
“I wonder if he was frustrated with the way the firm was being run … or if he was getting out while the getting was good,” he said.
Even though Bienen is leaving, he may still be held responsible in potential lawsuits brought by investors, Minow said.
“He will have to answer a lot of questions about the steps the Audit Committee followed,” she said. “Who they talked to, what questions they asked, what numbers they looked at; in other words, the process that they took.”
