Is countrywide a governance train wreck? Governance gurus weigh in on boardroom brouhaha at the troubled mortgage lender.

Just four years ago, Countrywide, and its cofounding CEO, Angelo Mozilo, seemed positively prescient. Quickly seizing on the popularity of adjustable rate mortgages in 2004, the firm came up with a smorgasbord of new alternative loan products, diving into the subprime market and quickly grabbing share from competitors. Countrywide leapt out in front as the nation's No. 1 mortgage originator that year, revenue soared, and Mozilo won numerous accolades and awards for his savvy strategy and execution.

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Since then, of course, the picture has drastically changed. In the wake of the mortgage market collapse, Countrywide's previously lauded practices have been recast as at best overzealous and, at worst, criminal. The company has been the target of numerous lawsuits across the country that accuse the lender of predatory lending, among other sins. In March, the Justice Department and the FBI opened a criminal investigation into possible securities fraud, and the United States Trustee filed its second lawsuit against the lender, accusing it of abusing the bankruptcy process.

Mozilo, staunchly unapologetic, has come under fire personally for presiding over Countrywide's subprime mess, poorly managing risk and for selling off stock worth $129 million from 2006 to 2007; those stock sales have been under SEC investigation since last year. Countrywide's board, meanwhile, fended off shareholder demands for a change at the top and stood by both its CEO and his enormous pay. (It defended, for example, its decision to hire a second compensation consultant for Mozilo when the CEO refused board attempts to rein in his pay in 2006.)

Governance experts say a closer look at the Countrywide spiral reveals a board that either did not understand the business or that could not stand up to the founder when it mattered. Though Bank of America's pending purchase of the troubled lender ultimately will put Countrywide's governance woes on the agenda of a new board, there may be some governance lessons to learn from the debacle. To unearth them, Chief Executive asked 10 governance critics and visionaries to weigh in on Countrywide's governance performance as it related to compensation, business strategy and change in leadership.

John F. Sandy Smith, partner, Morris, Manning & Martin, and advisor to boards on corporate governance

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Yes, [it is a train wreck]. The fact that they hired a second consultant shows that the collegiality of this board is over-coming the structure of corporate governance. Rather than fight this guy, it's, "Lets go hire him another consultant." You would think that by hiring another consultant, you're meeting your fiduciary duties, you're covered as the audit committee. But to me it says they couldn't stand up to Mozilo. It just shows a fear of the founder by the board. It doesn't show the independence that you look to see. That they would do this also shows the board has a real tin ear for what's going on in the world since last August. On the other hand, they're not the first ones. When [former New York Stock Exchange CEO Richard J Grasso was negotiating his exit after the dot com meltdown, the board gave him a big exit as well. The amazing thing is that nobody seems to learn from all this. This is not the "left-wing press hammering on boards," as Mozilo says. This whole industry is bring ing the whole economy down and nobody should get a gold star. If the coach has a losing season you don't give him a goodbye kiss.

Nell Minow, editor and cofounder of the Corporate Library, a pro-investor research firm

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If the board's No. 1 job is risk management, it's fair to say they've failed miserably. They could have done a much better job of tying pay to performance. This company has been high risk from our perspective for a long time and the reason is the pay-performance link has been completely out of whack. Over and over again our data show that companies where there is the greatest disparity between pay and performance are most likely to get into one or another kind of trouble. And in general, CEOs should not be allowed to hire competing consultants on the shareholder's dime when they do not agree with what the comp committee's consultant recommends. Any committee that permitted that--and any committee that agreed to that appalling compensation--by definition was a failure.

Josh Weston, retired chairman and CEO of ADP and member of the advisory board for the International Corporate Governance & Accountability

Josh Weston, retired chairman and CEO of ADP and member of the advisory board for the Institute for International Corporate Governance & Accountability

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Let's put it this way--there are a fairly large number of companies, including Countrywide, that have very serious problems. Everyone in that industry, including Country wide, was being very sloppy and greedy in looking at the creditworthiness of whom they were lending to, in a big hurry to close in on deals. As regards their CEO, it's the board's responsibility to oversee the veracity and risk aspects of whatever the CEO is doing. I have to believe the audit committee at Countrywide didn't do their job. And if they did their job, they should have reported it to the whole board. And if they reported it to the board, with due appreciation to any founder, if a founder is off the deep end in the risk-reward balance, first the board should rein him in and if they don't know how, they should get a different CEO.

Let's put it this way--there are a fairly large number of companies, including Countrywide, that have very serious Problems. Everyone in that industry, including Country--wide, was being very sloppy and greedy in looking at the creditworthiness of whom they were lending to, in a big hurry to close in on deals. As regards their CEO, it,s the board's responsibility to oversee the veracity and risk aspects of whatever the CEO is doing. I have to believe the audit committee at Countrywide didn't do their job. And if they did their job, they should have reported it to the whole board. And if they reported it to the board, with due appreciation to any founder, if a founder is off the deep end in the risk-reward balance, first the board should rein him in and if they don't know how, they should get a different CEO.

Larry Mitchell, founding director of the Institute for International Corporate Governance and Accountability at George Washington Law School

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Under the circumstances, the board ought to have at least seriously considered removing the CEO. But you don't necessarily have to can the guy. You can suspend him If it's a question of whether or not his managerial decisions are right, you can't rush to can someone unless it's very obvious that they're leading you down the tubes. But if we're dealing with questions of integrity, as long as there are questions or the accusations have some credibility, then the board has a responsibility to conduct an internal investigation and to suspend the CEO while that is going on. Probably when you have a founding CEO, other senior executives tend to go along, but it dies become more complicated than simply, "Things are going badly, let's fire the CEO." That's an easy solution, but not always the required solution. So a lot depends on what they knew and when they knew it. If dishonesty is a suspected factor, then that changes everything.

Eric Pan, assistant professor of law and director of The Samuel and Ronnie Heyman Center on Corporate Governance at the Cardozo School of Law

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The board did not distinguish itself. That's clear. There is a real question as to whether stock options as incentive compensation are really doing their job and whether we should be structuring compensation a different way. But that said, stock options were given to [Mozilo] and he had the right to claim them.

The consultant issue is a big problem. Boards spend too much time deferring certain decisions to outside consultants. Rule No. 1 for the board is to ensure that if they're going to get outside advice, that it's independent outside advice. Finally, if the company is being led down the wrong path, to what extent are we going to expect the board to be responsible for that? That's the really tough question. On the one hand we don't want boards to be overly intrusive. We don't want them to be running the companies. That's not what they're there for. They're there to monitor what the CEO is doing, to ensure the CEO is doing the best he or she can, but not to micromanage.

On the other hand, a board that has serious disagreements with where the CEO is leading the company should say something. The directors would be remiss in their duty to the shareholders if they stayed silent.

Bruce Ellig, author of the expanded and updated The Complete Guide to Executive Compensation

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There are two major players in the subprime issue: one is top executives and the other is the boards. The top executives are looking to increase their bonuses and the boards are looking to get better earnings that hopefully translate into better share prices and happy shareholders. So when the subprime opportunity came around, the executives saw a great opportunity to increase their bonuses and the board saw an opportunity to increase earnings and no one really identified the degree of risk.