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Continental directors are fired

When Rear Admiral John Byng in 1756 failed to repel a French siege of the English naval outpost on Minorca, his superiors were at least partly to blame since they had given the officer an undersized fleet. Nonetheless, Byng was executed for neglect of duty, which prompted Voltaire to observe that among the British "it is good to kill an admiral from time to time to encourage the others."

A similar if considerably less severe strategy was used last week by U.S. banking regulators. Chicago's Continental Illinois announced that the Federal Deposit Insurance Corporation had fired nine of the bank's 16 directors. Two other directors resigned.*

The FDIC, which staged a $4.5 billion bailout of the failing institution last September, made the sweeping ouster at Continental partly to remind bank directors across the U.S. of their supervisory responsibilities. The FDIC dismissed all the directors elected to Continental's board before 1980 because it was during the late 1970s that the bank made most of the $3 billion in reckless loans that led to its near collapse. The agency contends that the directors should have monitored more carefully what was going on at Continental. Ideally, corporate directors are wise and prudent overseers of an institution's full-time staff. But many of the country's 15,000 banks get only minimal supervision from their boards. In a poll released last week by Egon Zehnder International, a consulting firm, 29% of bankers surveyed said their boards of directors fill roles that are only "passive" or "largely ceremonial."

While the FDIC thinks a fresh group of directors will be helpful to Continental, the sudden turnover could leave the bank with a leadership gap. Said ousted Director Bere: "A mass exodus of board members only complicates the problems the bank is facing." The FDIC originally wanted the directors to leave immediately, but Continental Chairman John Swearingen persuaded the agency to allow them to serve until April, when replacements can be elected at the company's annual meeting. Given Continental's troubles, the new slate of directors may have full-time jobs on their hands.

*The ousted directors: James Bere, chairman, Borg-Warner; the Rev. Raymond Baumhart, president, Loyola University of Chicago; William Johnson, chairman, 1C Industries; Jewel Lafontant, senior partner in the law firm of Vedder, Price, Kaufman & Kammholz; Robert Malott, chairman, FMC Corp.; Marvin Mitchell, former chairman, CBI Industries; Paul Rizzo, vice chairman, IBM; Thomas Roberts Jr., chairman, DeKalb AgResearch; Elaine Yarrington, former executive vice president, Standard Oil of Indiana. The resigning directors: Weston Christopherson, former chairman, Jewel Cos.; Vernon Loucks Jr., president, Baxter Travenol Laboratories.