Think about it. CEOs like Stan O'Neal and Chuck Prince were responsible for their companies' broad, long-term vision -- it was a vision that turned out to be ill-conceived. When they were pushed out of the executive suite, they received huge paydays. And yet the rank-and-file workers who were hired to carry out these ill-fated visions are being cut loose with little in the way of severance.
Sound unfair? The people who were responsible for the strategies that led to huge losses and the destruction of shareholder value got hundreds of millions. The people who worked in good faith to execute those strategies got shafted.
The Washington Post ruminates on this paradox:
The real frustration is that there's so little that can be done. Shareholders supposedly have access to the courts for a remedy, but they won't get far. A stockholder suit filed more than two years ago challenging the Morgan Stanley payoffs languishes in court. The CEO-and-director club knows that pro-business judges in the corporate haven of Delaware and elsewhere in the legal system will protect them. Shareholder suits against Time Warner's Levin got nothing back from him.
So what can you do? Probably not much. But as an investor, you should keep in mind a few things. Companies paying outrageous severance to failed leaders suffer from corporate governance problems. Would an effective board of directors grant packages like the one Robert Nardelli received?
Investors should hold stocks with poor governance practices at their own risk. They can often be a harbinger of deeper problems. It's easy to quantify the cost of overcompensation -- it hits the income statement. But the cost of poor governance can be much more serious, and is not so easily quantified.
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Reader Comments (Page 1 of 1)
11-12-2007 @ 6:44PM
hal c said...
There should be a new number added to the key statistics of all public companies.....the CEO's income as a percentage of annual profits.
11-12-2007 @ 7:27PM
Jane Goodie said...
The little guy always takes it on the chin, being vulnerable to getting laid off at a moment’s notice. I don’t think Stan O’Neal was guilty of malfeasance. However, it does seem like powerful people are no longer accountable. For example, you lose money on Wall Street as a big-time CEO and you get fired. This is ultimately why O’Neal lost his job. Merrill’s board members, whom the NewsVisual article http://www.newsvisual.com/newsvisual/2007/10/who-should-repl.html identifies, needed to replace O’Neal because he lost huge sums of money. Nevertheless, Mr. O’Neal still leaves as a wealthy man.
11-13-2007 @ 1:56AM
CRAIG said...
Doesn't surprise me a bit thats life in good old corporate america, it's been going on for years and if you don't like it and your looking for some serious cash go to www.earnyourrealworth.biz and get going with this simple automated system that works 24/7 for you and you won't have all the corporate pressures, and I'll see you on the beachs of the world with your laptop checking on your portfolio with a big grin !