The Tyco CEO and CFO are in the news right now after a mistrial (story). Allegedly they looted $600 million from the company. This sounds bad but if you look at this profile of Tyco, the $600 mil is less than the most recent quarter’s income of $720 million and only about 1% of the company’s market value of $58 billion. Let’s compare that to some other looters in the news:
- Richard Grasso took $200 million or so that he took from the New York Stock Exchange, a non-profit org. Grasso’s haul is roughly comparable to ten years of profits for the NYSE. Grasso got his looting approved by his friends on the Board and therefore won’t face criminal prosecution though the NY State attorney general is trying to force him to repay some of his booty.
- Jack Welch, in his autobiography, talks about having transferred 30 percent of General Electric from the investors into the hands of “employees” (the lions share to himself and a few other top guys presumably).
- William T. Esrey and Ronald LeMay looted $311 million in one year alone from Sprint, about half of the company’s profits in a good year. They were not prosecuted for their looting but the IRS became upset with their scheme to avoid paying any taxes on this income.
From the very fact of their prosecution we can infer that the Tyco guys did not dot their i’s and cross their t’s as effectively as the average corporate looter but is there any evidence that their looting was above average?
And if all the other corporate execs jumped off of a cliff, would you want your own ceo to jump off of a cliff also?
Philip, you wrote once that” Republicans = a lottery ticket”. Poor people vote Republican because Republicans promise to remove regulations and oversight that prevent people from becoming rich.
This is why there is no popular outcry. Rich CEOs are the heroes, the role models. They are rich beyond all dreams, and only in America could they do this. It is right and to be aspired to.
Philip, I think I see your point and I agree 100%. Most people are materialistic in kind of sane, human way. They want food for their children, maybe to visit Mexico in January, but they are also proud to make electric motors or bury the optical fiber so others can have internet service.
By our morbid fascination with hierarchies, we raise the most greedy and oversimplifying clowns to the top, devaluing the moderate materialists.
Lottery tickets… Lottery tickets?!
Lottery tickets are nothing more than a tax on stupid people. They encourage the poor to pour their money into a losing bet that has a one in a hundred million (or less) chance of paying off.
The belief that letting the rich get richer will let my faint dreams of joining the club of the super-wealthy come true is no less of a losing bet. Even the recent spate of dot.com millionaires was no lottery win. Most if not all of these folks made their money by being on the cusp of a new technological era. They got there through education and hard work, not by toadiying up to some wealthy republican with their votes.
And as far as those poor Tyco bastards getting hauled in front of a jury… It is no different than the one in a million chance of getting sued by the record industry for downloading files. If catching and persecuting one criminal out of a thousand keeps public order, then that works just fine for me. For each Ken Lay that gets brought down, a hundred corporate executives pause before letting their accountants rape the law.
It works just fine for me.
I think Jack Welch should be in jail too…
For Jack Welch, the 30% figure is about the employees owning the stock through the savings (401K) plan. It’s not just stock options for the upper management.
I find it interesting that Phil should continue to rail against CEOs getting the lion’s share of the profit. After all, wasn’t Phil the CEO of his own company a few years ago, and that’s why he’s able to retire at 40 and live the life of the multi-millionaire? I’m just curious about why he feels the need to fight for us little people when he’s obviously one of the elites.
Philip is agitated that he has to fly a 200K single prop airplane instead of the Gulfstream he would be flying if he were a real corporate looter.
PatW, you might just find it interetsting the Warren Buffet (aka the us’s second richest man) is one of the most vocal proponents of corporate governance and constraints on executive compensation.
Just because somebody is succesful does not mean that they are a corporate looter.
I don’t recall stating that Phil or Warren Buffet’s a corporate looter. It’s obvious that you don’t need to be a corporate looter in order to reap the lion’s share of corporate profits and benefits. I find it interesting that Phil would continue to rail against a system that’s made him wealthy.
PatW,
Let me make my points clear.
You made the point that it was ‘interesting’ that Philip was commenting on executive compensation, since he was once an executive and seems to be living a comfortable lifestyle.
Furthermore, you commented that you were ‘curious’ why an ‘elite’ would fight for the little guys.
My post was meant to point out that even the richest among us, Warren Buffet, demonstrates a strong conviction for equity in pay as well as standing against corporate greed:
http://www.timesonline.co.uk/article/0,,5-669779,00.html
I think that my point is that success does not always equal greed and you seemed to be lumping everybody with no need for social security in to the same category.
I do believe that far too many corporate execs in america ARE looting the companies that they are running. I believe that the acid test in executive compensation has to measure the benefit that an executive has brought the company compared to the rewards that they receive.
In the case of Philip, I believe that the company that he, apparently, benfitted from would not have existed without his efforts and insight. That level of involvement SHOULD be rewarded at a greater level than the efforts of some shark that mis-manages an existing company into backruptcy while attempting to enter the billionaires boys club.
Buffett has interesting ideas about corporate management and governance, far more developed than the typical “looting is bad, m’kay” sentiments that most commentary amounts to. Read the shareholder letters at http://www.berkshirehathaway.com/. Highly recommended.
I’ll second the suggestion to read Buffett’s comments. You can find them in the 2003 report.
OTOH, let’s keep in my mind that the worst you can say about these CEO’s (except in cases of outright fraude) is that they did what the shareholder’s simply allowed them to do. Those companies belong to the shareholders and not their employees. If the shareholders allow themselves to get screwed it’s nobody’s business but their own.
If a CEO is making a salary that you consider to be too high, simply don’t buy shares in that company. It’s not your money they’re taking.
I had an interesting conversation with my CFO while we were on a fact-finding-mission regarding budgeting software. We were talking about companies like enron and the current ‘best practices’ that industry follows (okay, mebbe I was using the term ‘bean counters’ and doin some finger pointing also). The CFO made the suprisingly good point that if he does not pursue every avenue to ‘enhance shareholder value’ then he may be sued by the shareholders for not doing his job…
Funny world, eh.
Couple of axioms:
1) Nobody is ever paid what they are “worth”. Everyone is either paid too much or too little. Period.
2) People like Skilling and Welch become what they are, good or bad, because they have taken to heart point 1 above.
So these current cadres of “Captains of Industry” play a little numbers game and suddenly everyone lines up at the trough wanting a piece of the pie. The cadre gets a couple of backslaps and pretty soon they realize that streching the truth is what they are being paid to do.
When the stuff in the trough turns out to be poison, the cadre is crucified. Everyone is all fine and dandy with their own moral imparity until they notice someone else’s.
Is it getting worse? I think it is. Corporate Executive Compensation is totally out of line with earnings still, the numbers being reported in the annual reports do not reflect what is being reported to the IRS and market valuation of stock is much higher than it should be compared to earnings. Those are the three top indicators of cooked books, and you’re buying it.
Folks here seem to be admiring me for having been a corporate looter myself. It is true that I was once CEO of a company. It is also true that I no longer need to work for a living. Sadly, however, I was not CEO of a public company nor a hired-in CEO who was able to look from investors of an established company. My wealth, such as it is, comes from having sold a company that I built with my own cash. I.e., I invested in a high-risk enterprise. Characteristic of high-risk investments is that they will either go totally bust or they will return several hundred percent. Oftentimes people fall into the trap of believing that they are smart because their investments did better than the S&P 500. It may be that they simply took more risk and got lucky. That’s me!
A corporate looter, however, takes no risk. He shows up for work and draws a paycheck of, say, $50 million on the shareholders’ checking account. He risks no money of his own in order to earn this $50 million and in fact may do nothing different than a manager who gets paid $200,000/year. All that he really needs to do is nominate friends to the Board instead of strangers. And who doesn’t enjoy working with friends?
So for sure I wish I’d been a corporate looter but it was never an option because I’m an engineer and not a professional manager.
Back to the point of the entry, however, the Tyco guys really didn’t loot very much at all it seems to me. Compared to the value of the company and its profits they took what must be regarded in 21st century America as a normal share.
Back to your point…
“Tyco guys really didn’t loot very much at all it seems to me. Compared to the value of the company and its profits they took what must be regarded in 21st century America as a normal share.”
Did they loot? – yes
Is ‘looting’ a crime? – probably not… yet
Did other people loot more? oh yeah!
Is it time to ‘make an example’ out of somebody? Definately
Should it by the TYCO execs? Good as any!
I am reminded of the Savings and loan fiascos of the late ’80’s. Some guys with money realized that the combination of a financial institution with liberal reporting rules (savings and loans) and a metropolitan area with expansive growth and farm land at it outskirts (phoenix, austin, denver, etc…) would make for a cash-generating-machine. Basic idea, one guy buys land dirt cheap, has it assessed for higher value, next guy buys land from first, has land assessed at higher value. This goes on ad-infinitum, or until the shareholders in the s&l (usually pensioners and that lot) catch on to the hoo-haa, call their congressmen, and somebody gets scapegoated (charlie keating)…
In the end we get re-evaluated land values and stricter S&L reporting rules.
So, what we really need is some public outrage, scared congressmen and federal oversight of executive compensation…
Oh yeah, I’m gonna hold my breath ’til that happens…
Philip: What you did not tell us is probably some gut wrenching lessons you had learnt (having AD folded): cede power and made impotent.
However, VCs have a ‘greater’ goal when they took over your benign business model. It is their goal to kill off ventures like AD. You see AD’s openess would’ve given anyone (who’s smart coupled with a bit of hardwork) a fair chance to succeed emulating your model, and that is not right in the business world, which is really not much but you say the word – looting.
JC: The audio interview referenced earlier this week has me talking a bit about the mournful ArsDigita episode. My VCs weren’t necessarily evil or motivated by a larger goal as far as I could tell. Most of what they did can be explained, in my opinion, by their lack of experience operating a business and (false) assumption that what is conventional for established monopolists such as IBM is ipso facto profitable for obscure startups.
nice
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