Last Thursday, a long-awaited 2,652-page report on Fannie Mae spearheaded by former New Hampshire Sen. Warren Rudman concluded that the mortgage giant has already disclosed the accounting problems that caused its nearly $11 billion accounting scandal and former officers bear much of the blame.

The report also said that needed improvements have been made or are underway and none of Fannie’s current management knowingly participated in improper behavior.

While this is good news – and Fannie’s stock jumped in the wake of the report – some independent consultants consulted by USA Today say Fannie Mae directors were let off too easily.

“In today’s world, it’s very, very hard to comprehend that the board didn’t know anything, that they felt misled,” Frank Glassner, CEO of Compensation Design Group in New York, told USA Today.

Greg Taxin, CEO of the Glass-Lewis corporate-governance research firm in San Francisco, contends the directors are guilty of “tolerating a corporate culture and an organizational structure” that harmed investors, USA Today reported.

“The first responsibility of a board is to protect shareholder capital,” Taxin wrote in an e-mail to USA Today Thursday. “This board, in my view, failed to do that adequately.”

While the report praises the Fannie Mae board, there might have been conflicts and close ties among directors and corporate officers that “blinded the board from what was going on,” Charles Elson, head of the University of Delaware’s Weinberg Center for Corporate Governance, told USA Today.

Well-run companies require strong directors, fully independent audit committees and outside auditors who aren’t afraid to ask tough questions of management, Elson said, according to reports.

The report said Fannie Mae was dominated by a corporate culture of arrogance, according to the Rudman report. Strong executives, including former CEO Franklin Raines and former chief financial officer Timothy Howard, led it. Both executives also sat on Fannie Mae’s 13-member board, with Raines serving as chairman.

“The big question is: “Was this a failure of internal controls, or a failure of the board itself?” Elson said, according to USA Today. “How did something this large escape their notice?”

***

Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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