Visa USA and MasterCard International spent the spring revamping their boards with independent directors to deal with the hot-button issue of interchange. An attorney for merchants suing the associations, however, claims the new-look, merchant friendly boards will not insulate the associations from interchange lawsuits.
Visa, acting at its April annual meeting in Broomfield, Colo., approved the addition of four independent members. Visa's new board members comprise the "Independent Directors Commit-tee," which will oversee management's decisions concerning interchange issuers, says Visa President and CEO John Philip Coghlan.
Coghlan hailed the addition of independent directors. "This is a very important step in the process of transforming our board to include a majority of independent directors," he said in a statement.
Visa also added a board seat for a financial-institution member with less than $1 billion in annual Visa volume. Visa planned to have a total of 17 seats on its board, represented by eight independents, seven financial institutions and two Visa senior managers. The Visa-management directors are nonvoting positions.
In early May, MasterCard International named six new directors as part of the association's initial public offering. The $2.8 billion IPO was scheduled to be completed in May, at which time the independent directors were to join the board.
Gwenn B?zard, research director for Aite Group, says MasterCard is seating the independent directors on its board to help insulate the association from interchange lawsuits. B?zard bases his opinion on MasterCard executives' public statements.
The card associations generate about $25 billion annually from interchange, says Alex Pollock, resident fellow at the American Enterprise Institute. Merchants have filed more than 50 interchange lawsuits against Visa and MasterCard.
K. Craig Wildfang, one of the lead attorneys in the interchange cases, says the independent board members will not protect Visa and MasterCard from legal action under Section 1 of the Sherman Antitrust Act.
The Sherman Act concerns restraint of trade. It applies to organizations whose members are involved in the same enterprise and enact proposals to continue a monopoly.
"[Visa and MasterCard] are creating the illusion that independent directors are setting interchange rates," says Wildfang, an attorney with Robins, Kaplan, Miller & Ciresi LLP. "But [the independents] have been selected by bank members."
The independent members joining Visa's board were Philip D. DeFeo, managing partner at Lithos Capital Partners; Linda Baker Keene, a former board member of Scholastic Inc.; Jon C. Madonna, former chairman and CEO of KPMG Peat Martwick; and John A. Swanson, president and CEO of software firm CA Inc.
Joining MasterCard's board of directors were Manoel Amorim, managing director, Residential Business Unit Telefonica International; David R. Carlucci, chairman and CEO of IMS Health Inc.; Richard Haythornthwaite, managing partner Star Capital Partners; Marc Olivie, president and CEO Agfa-Gevaert Group; Mark Schwartz, former president and CEO Soros Fund Management LLC; and Edward Suning Tain, vice chairman and CEO China Netcom Group Company Ltd.
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