How Long Should Countrywide Back Mozilo?

At the end of last week, William Patterson, executive director of CtW Investment Group, the investment arm of labor federation Change to Win, called for Mozilo, Countrywide's CEO to resign or be fired. CtW's unions' pension funds own something close to 3.5 million Countrywide shares. To this point, the Countrywide Board has been silent on the issue, as has Mozilo himself.

There are lots of reasons for Boards to "stand by their men", even when investors become belligerent. Oftentimes, downturns in financial results can't be directly linked to the CEO's leadership or decisions; they come about because of unexpected market changes, unforeseen events or even in the midst of strategic turnaround. After all, altering the course of a huge organization away from proverbial icebergs is very much like turning a huge, slow-moving ship. Sometimes the results suffer along the way. GM's CEO, Wagoner, is in the midst of such a change. And while it hasn't yet been reflected in stock price or other lag indicators, the recent union agreement will likely create a real potential for positive change at GM. Changing leadership at that point would be foolhardy.

There are also cases where the Board needs to jump on the problem. "Chainsaw" Al Dunlop should have been axed prior to his complete evisceration of Sunbeam. The Board waited too long and paid the price.

But one place where it is not all that ambiguous is in the case of Mozilo. The decisions that have led Countrywide to its current state of decline were predictable. It didn't require a crystal ball to know that the ARM's that made up most of the company's product line, once they were adjusted, would be painful for a great many of the less-than-credit-perfect lenders. Even if the housing market had remained strong, those homeowners would have faced untenable increases in payments with no commensurate increase in their own earnings. After all, the stagnation in salaries and hourly wages is not a new phenomenon. Wages have risen at a rate far below consumer prices, and certainly way below the rates of increase in property prices(until recently).

This turn of events at Countrywide could have been averted in any number of ways had the leadership been thinking clearly about the future while strategizing: A different mix of products, more disclosure to lenders about the likely ramifications of their rate adjustments, a willingness to grow somewhat less quickly by having marginally higher standards for lenders so that the overall credit-worthiness of customers was higher on average. Any of these decisions could have made a significant difference in todays results.

To have done that though, there needed to be firm principles in place that would have dictated red flags as the strategy was created. If the organization or its leaders had been operating with even the most skeletal of core values, both strategic values (those necessary to deliver the company's value proposition) and ethical principles, the strategy would have been different. But those core values were missing at Countrywide, and so the only principle determining action was a commitment to short-term profiteering. The consequences are far worse for the nearly 12,000 employees who are being laid off than they will EVER be for Mozilo. Too bad. It would be nice if just once those who caused the pain had to suffer it too.