Some companies allow officers and directors to use the corporate aircraft for personal travel.  For a post in Dealbook on this, go here.  Companies report the amount of personal use as part of the "total" compensation paid to executives in the proxy statement.

As a matter of corporate law, directors must act in the best interests of shareholders.  How does allowing for personal use of the aircraft (and the accompanying expense to the company) support the interests of shareholders?  As the DealBook article points out (and we have mentioned on this Blog), boards justify the position by asserting that its necessary to protect the security of the CEO.  Presumably this means the desire to protect the CEO from terrorist attacks or other types of physical assaults.

This is not without some justification.  A vacation spent in some dangerous location may require companies to take unusual steps to protect the CEO.  Of course, boards could, in those circumstances, prohibit the trip, much the way athletes are prohibited from engaging in dangerous activities, rather than have the company absorb the travel expenses.

But, in fact, corporate use of the aircraft ensure security of the CEO on trips to Hawaii or anywhere else in the United States.   As Steve Davidoff pointed out on the DealBook, the board at Ford requires the CEO to "fly on a private jet whether he is going to Washington for business or Hawaii for vacation."  He notes that in contrast, "Justice Ginsburg flies commercial with all its attendant hassles."  As he asks and answers:  "Are corporate chieftains really in that much danger?  The answer has to be no in most cases."

So what's going on? Delaware allows boards, for the most part, to do anything they want in the executive compensation area as long as they employ proper process.  So legally, directors can easily allow the practice. 

Just because they can, however, does not mean they must and, in fact, most public companies do not provide the benefit.  Why then do some boards (and their independent directors) approve the practice in circumstances where security of the CEO does not seem to be a real issue? 

It may be that the board is full of the friends of the CEO (this is discussed in  Essay: Neutralizing the Board of Directors and the Impact on Diversity) or it may be that the board has been captured by the CEO.  Jon Macey discusses capture in his book on Corporate Governance.  But even more directly, directors who antagonize the CEO risk the possibility of not being renominated and, as a result, losing a well paid sinecure on the board.  Total compensation for independent directors can exceed $1 million.  In other words, even where some directors have qualms about the practice, they are loathe to stick their neck out and object to a practice by the CEO.

Is there a solution?  If the board had a couple of directors nominated by shareholders (and therefore not screened by management), these directors could be the ones to "stick their neck out" since they would not be worried about the threat of no renomination by the CEO.  If some directors did this, others would likely go along.  In short, the process for approving CEO use of the corporate aircraft for personal reasons would suddenly become more rigorous.  

How do we get shareholder nominees on the board?  Shareholder access.  Dodd-Frank allowed for it, the DC Circuit did not, but eventually there will be the appropriate rules in place.  Until then, the approval process for personal use of the corporate aircraft will be less rigorous and, as a result, provide less confidence that the decision was appropriate.