Michael Jeffries’s penchant for having the male crew on Abercrombie & Fitch’s corporate jet wear the retailer’s boxer briefs, flip-flops, and cologne certainly hasn’t hurt the chief executive officer’s standing with his board. Directors awarded Jeffries total compensation of $48 million in 2011. Jeffries was paid $8.2 million for 2012, a year in which some shoppers grew tired of its trendy fashions and the company’s shares fell as much as 41 percent to a closing low on Aug. 2. That’s not exactly the slap one might think. Under the terms of the CEO’s pay package, the board wasn’t allowed to give him lucrative stock options because shareholder value had decreased. Yet the directors increased all other aspects of his compensation where they had discretion to act. Plus, the board, including four outside directors who are 68 or older and have served for close to a decade or longer, agreed to pay Jeffries $107 million should it decide to replace him.
Investment advisory company GMI Ratings says Abercrombie’s nine-member board—which has ignored repeated advisory votes by a majority of its investors against its pay policies—is so entrenched that it treats Jeffries more like a king than a CEO. Yet the retailer is hardly the only company with long-tenured directors who appear closely aligned with top managers. At companies in the Standard & Poor’s 500-stock index, 64 percent of directors have served 10 to 15 years, and an additional 5 percent have served more than 15 years, according to executive recruiter Spencer Stuart. “What you want from directors is for them to really push the CEO for answers and, just by human nature, that gets harder the longer they’re on a board,” says GMI founder Nell Minow. “For every argument you can make about continuity and depth of understanding, you can argue that entrenched boards make companies sclerotic and averse to change.”