WASHINGTON – Since leaving Indiana as a first lady, Susan Bayh has become a professional board member, earning more than $1 million a year in director fees for advice she gives to companies that make pharmaceuticals, operate radio stations, sell health insurance policies, offer online banking and distribute ingredients to fast-food restaurants.
In the past four years, Bayh collected more than $1.7 million in pre-tax income when she exercised stock options from two of the corporations. Her actual income from exercising stock options is higher, but the details of one transaction were not publicly reported.
During the same time, her husband, Sen. Evan Bayh, D-Ind., cast more than 3,000 votes, including some on issues of keen interest to the pharmaceutical, broadcast, insurance, food-distribution and finance industries.
Bayh said his wife’s business interests never influence how he votes, the bills he introduces or the positions he takes.
“I can honestly tell you that if my wife did not have a job, none, I can’t think of a single decision I’ve made that would be any different. I look at what’s best for our state and our country and my own conscience,” he said. “My integrity matters more to me than anything, so I always do what’s right for the people who put their trust in me.”
Susan Bayh declined to be interviewed for this story.
The intersection of the Bayhs’ professional lives illustrates the touchy ethical situation some couples face when one spouse is employed by the taxpayers to watch out for their interests and the other is duty-bound to work for the financial interests of only a small group of people – the shareholders of the companies they direct.
Sen. Bayh prohibits his staff from lobbying contact with his wife or representatives of any of the companies she helps direct. Bayh also follows that policy. Before 2003, staff members were permitted to meet with representatives of the Indiana-based companies Susan Bayh directs.
Banning lobbyists from Susan Bayh’s companies “is a very narrow restriction that doesn’t really deal with the problem,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington.
The senator might refuse to meet with the four pharmaceutical companies his wife helps direct, Sloan said, but “he’s not going to say I’m not going to see any pharmaceutical company or someone from PhRMA,” she said, referring to the Pharmaceutical Research and Manufacturers of America, which lobbies for pharmaceutical and biotechnology companies.
Sloan insists that there’s no way a married couple can truly wall off their professional lives from each other. Even though Senate rules do not prohibit a spouse from sitting on a corporate board, she said, “there is at least an appearance issue that a member (of Congress) may be making a decision beneficial to the corporation the spouse basically works for.”
Bayh said he and his wife don’t discuss her business interests, and he rarely talks about legislation the Senate is considering.
“The reality is I don’t even know the people who run the vast majority of her companies. I’ve never even spoken to them,” Bayh said. “The reality is, we don’t talk about stuff that she’s involved with.”
Sloan said it’s not plausible to think a lawmaker-board director couple never discuss their jobs, and it’s unrealistic to think Sen. Bayh could recuse himself from any vote that affected the bottom line of businesses in industries his wife receives payment from.
“Then suddenly the constituents of Indiana are out a vote, and that’s not fair, either,” she said.
In fact, there are examples of Sen. Bayh voting in a way that could hurt the financial interests of one of his wife’s boards.
Last year, the Senate unanimously passed legislation to dramatically increase the size of fines the Federal Communications Commission can impose for objectionable words used on the radio. A single “no” would have stalled action on the bill, which would increase the maximum fines from $32,500 to $325,000. Sen. Bayh took no action to derail the higher fines. Emmis Communications, which Susan Bayh has helped direct since 1994, paid $300,000 in fines three years ago because of indecent remarks by shock jocks on some of its radio stations.
But sometimes action by Congress has a powerful effect on the financial well-being of Susan Bayh’s business interests.
For instance, Susan Bayh was named to the board of Curis Inc. in October 2000, shortly after it was founded to explore how stem cells (although not specifically embryonic stem cells) could lead to treatment for diseases. Less than a year later, President Bush announced that federal money could be used for research only on embryonic stem cell lines already in existence. Twice – in 2006 and this year – the Senate voted to expand federal funding of embryonic stem cell research. Sen. Bayh voted for the expansion each time.
Bayh said he was guided by what he thinks honors life the most – using unwanted frozen embryos for research rather than throwing them away – not by whether Curis could benefit from decisions Congress made.
Last year, Susan Bayh served on the boards of six publicly traded and two privately held companies, putting her into a class described as “professional board member.”
For her work attending meetings and serving on board committees of six of the businesses in 2006, Bayh received $94,591 in cash payments and $816,436 in stock or stock options, the companies reported. A conscientious board member would have spent at least 32 weeks of full-time work on the business of serving on six publicly traded boards, according to an organization that trains directors and advocates for responsible boards.
Publicly traded companies must file annual reports with the Securities and Exchange Commission that disclose the compensation paid to board members. Privately held companies file no such publicly available reports.
Senators are required to file annual reports that list – in broad ranges – the financial holdings of themselves and their spouses. According to Sen. Bayh’s report for 2006, his wife’s stock and stock options in the eight companies were valued at $1.3 million to $2.7 million.
Susan Bayh’s income and assets from the boards are a major portion of the Bayh family’s net worth, according to her husband’s report. He said he and his wife have assets worth between $4.3 million and $15.1 million, not counting the couple’s $1 million Washington home, which is in Susan Bayh’s name.
Senators are paid $165,200 a year.
Susan Bayh’s position as a director for eight businesses puts her in the league of “professional directors,” a term used to refer to people who sit on multiple corporate boards and are not otherwise employed.
Whether professional directors benefit shareholders is debated among academics and others who study corporate boards.
“My view,” said Nell Minnow, president of The Corporate Library, which rates board performance, “is you can have just as many conflicts of interest. If you’re a professional director, the last thing you want to do is rock the boat.”
That’s a dangerous quality for a director, she said, because good directors are not reluctant to challenge the company’s CEO.
Minnow said one of the best qualities a director can have is a sense of independence. The National Association of Directors, which runs training programs for directors, also puts independence at the top of the list of important qualities.
Susan Bayh’s advice on how to direct businesses has been sought especially by pharmaceutical companies. She was a lawyer for Eli Lilly & Co., the Indianapolis-based pharmaceutical company, for five years while her husband was Indiana’s governor. Since 2000, she has served on the boards of eight companies that develop drugs.
She was first appointed to a public board seat in June 1994 when she was named to the Emmis Broadcasting board. Since then, she has been named to the boards of 14 businesses, primarily in the insurance or pharmaceutical industries. As of last year, she sat on the governing bodies of eight companies: Indianapolis-based Emmis Broadcasting and WellPoint Inc., the second-largest U.S. health insurance company; four pharmaceutical companies: Curis Inc., Dyax Corp., Nastech Pharmaceuticals and Dendreon Corp.; and privately held Golden State Foods of California and E-Trade Bank of Virginia.
Bayh previously served on the boards of Cubist Pharmaceuticals, Esperion Therapeutics, Novavax and LWWI Broadcasting.
In return for attending board and committee meetings several times a year – either in person or by phone – Bayh is paid in cash or in shares of stock. Her cash payments last year ranged from zero from Emmis, which pays directors in stock and options, to $74,306 from WellPoint.
In addition, each company gives its directors stock and offers them the chance to buy stock in the future at a fixed price. If the price of the stock rises in the meantime, Bayh will pocket the difference. Last year, the value of the stock and options she received from the six companies ranged from $23,923 to $253,498.
Bayh’s 2006 stock and cash compensation from WellPoint – $324,250 – is well above the median amount paid to directors of the largest U.S. corporations. The Corporate Library, a corporate governance research firm in Maine, found that median director pay at the nation’s 250 largest companies was $192,400. (The median is the middle number in a series of numbers.)
This year, Bayh has collected $248,700 from options she received from WellPoint and exercised when the stock prices were high. In two days in January and May, she bought 6,667 shares at $44.18 a share; she sold them for $78 to $84.98 a share.
In the past four years, she has exercised options for WellPoint and Curis stock, netting more than $1.7 million. In addition, in 2006, she exercised options of E-Trade Bank stock for a transaction worth between $500,000 and $1 million, according to the financial disclosure report her husband filed with the Senate. But because E-Trade Bank shares are not publicly traded, the amount she paid for the stock and the sale price are not publicly reported. In addition, senators’ financial disclosure forms list values of assets, shares and outside income for themselves and their spouses in broad categories, not specific amounts.
Morningstar evaluates the boards of publicly traded companies based on how well they husband investors’ money, giving grades ranging from A (“excellent”) to F (“very poor.”)
In Morningstar’s most recent stewardship evaluations, WellPoint was rated C (“fair”); Emmis deserved a D (“poor”). Morningstar did not evaluate the other companies Bayh helps direct.
Its criticism of WellPoint is that the board pays company executives too much.
The Emmis board was criticized for not adequately protecting shareholders’ financial interests.
The Corporate Library, which also rates corporate governance, said Emmis’ board deserved a “C” for accelerating vesting options and WellPoint a “D” for overpaying its CEO.
Minnow said overly high compensation packages for a company’s top executive is used as a measurement of a board’s independence because “it’s an indicator of the ability of the board to say ‘no.’ ”
The other boards Bayh serves on received middle or high marks from Minnow’s organization.
Bayh’s appointment to six publicly traded boards is at the extreme end of what the National Association of Boards of Directors considers reasonable. The organization recommends that a professional with a full-time job serve on no more than three boards and that a retired or unemployed person limit directorships to five.
Peter Gleason, chief operating officer and director of research for the organization, said that’s because serving on a board takes a lot of time. His group estimates 210 hours a year, based on surveys of directors. The Corporate Library estimates the average director spends 240 hours a year on attending meetings and preparing to attend them.
Under those formulas, Bayh’s director duties would take 32 to 36 weeks of full-time work to fulfill.
While directors were once considered “the parsley on the fish,” Minnow said, “that changed very dramatically as a matter of law and a matter of culture” after scandals involving Enron and other corportations.
Sen. Bayh said he couldn’t estimate the number of hours his wife works on board business, but it is sizable, involving travel to board meetings, lengthy conference calls and poring over thick packets of material that arrive at their home daily.