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Former Merrill Lynch CEO John Thain's decision to spend $1.22 million to redecorate his office will probably put the issue of executive compensation limits back in play for the U.S. Congress, most likely for only bailout fund recipient companies, but quite possibly for other business arrangements, as well. The compensation issue was considered politically dead for this year, but Thain's audaciousness could serve as the type of catalyst necessary to get a controversial bill through a review process that's designed to defeat or delay legislation. Thain was put in charge of Merrill's trading, investment banking, and brokerage operations after the Bank of America (NYSE: BAC) acquired Merrill.
Further, Thain's $1.22 million splurge of the company's money is the type of action voters will notice, prompting them to place pressure on U.S. Representatives and U.S. Senators to act. Thain's gratuitous redecorating has surfaced alongside Merrill's distribution of bonuses despite massive losses at the former investment banking and brokerage giant.
Board of directors oversight?
Some will argue that executive and employee compensation is a matter for a corporation's board of directors, not the U.S. Congress. Economist Peter Dawson said that's precisely the reason Congress should intervene.
"Where was the board of directors' oversight in Thain's case? Did Thain or the board of directors represent the shareholder's interest with their decisions on bonuses and office redecorating?" Dawson said. "Thain's decision-making and judgment were horrible, and if he cries he 'had his board's approval' or 'tactic consent,' then it's another example showing how the board of directors oversight system has been successfully co-opted and seriously compromised."
Corporate/Federal Regulatory Analysis: Thain's actions serve as another example of an executive generation that is utterly out of touch with the typical person's daily life, and displaying fewer and fewer values held by shareholders, let alone by the broader U.S. society. For Thain, there's apparently nothing wrong with spending money on lavish office decorations when your company's business model is failing.
Further, the disconnect between the values of certain executives and economic conditions couldn't be more stark: Americans are losing their jobs in record numbers, belt-tightening is the norm in most households, meanwhile some executives don't see a problem with high compensation and decorating excesses amid corporate underperformance.
The Obama administration may choose to not expend any political capital on the executive compensation issue -- the new administration has enough weighty issues on it hands -- but Thain's actions have certainly given reform advocates in Congress a poster child for their cause.
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Reader Comments (Page 1 of 1)
1-22-2009 @ 8:27PM
shelleyxjr22 said...
Yep give these banks billions in tax payer bailout funding. I'm so happy this money was able to help redecorate John Thain's office for $1.2 Million. Not to mention buying
Merill for several billion more, a very bad investment, if you ask me. No wonder BOA is raising their credit card holder's APR rates to 19% and above. I wonder what else needs redecorating and or, a bonus.
1-22-2009 @ 10:01PM
tpcowfish said...
And all these people complaining about union wages
1-22-2009 @ 10:15PM
BHarrison said...
To me, what is even more disconcerting about this article is that there is no mention of the questionable reported $4 BILLION in BONUSES that Thain passed out just prior to BOA's completion of their purchase of Merril Lynch, with, in essence, the use of tax payer bailout monies . . . Thain's actions are WORSE than OBSCENE and IRRESPONSIBLE.
Thain was obviously trying to be some type of "hero" to corporate management at the expense of the stock holders and tax payers.
If John Thain were an attorney he should be disbarred for life . . . So, what is the equivalent for an INCOMPETENT, MISGUIDED, and/or CORRUPT CEO type?
One travesty of it all is that John Thain was, and is, probably totally "ignorant" of the extent of what he has done . . . the man is unequivocally too "disconnected" from the reality of real-world daily life and "standards" that he probably doesn't understand or appreciate the utter lack of ethics or morality of what he has done. I would liken him to someone who might have been born without a conscious understanding of moral and ethaicl values.
Perhaps he is similar to Greenspan in being an "intellectual idiot". The "bottom line" appears to be that practically everyone agrees that the man is an idiot and a blatant FAILURE. He has become a poster boy for all that is wrong with corporate America.
The utter stupidity of John Thain's audacious arrogance is overwhelmingly unforgiveable. He is like a man who, during a famine, throws a lavish feast with desperately hungry and starving people in his yard . . . and he is callously "oblivious" to it all.
Hopefully, John Thain has sealed his corporate future to being exiled and banished to never return. If possible, THAIN should be investigated, indicted, and then prosecuted for FRAUD IF he had ANY particiaption in the orchestration and perpetuaton of any pyramid or Ponzi schemes, or any other types of business FRAUD. John Thain belongs in a category with the Madoff types who have been the source of the irresponsible damage to stock holders, the American people and our nation. This corporate Board of Directors is unquestionably complict in all of this.
It is past time to have a MASSIVE purge of corporate America.
1-22-2009 @ 10:22PM
ivan putin said...
I zeroed my credit card balance with boa today. congress has given them my tax dollars. They will no longer get interest on my credit card too!
1-22-2009 @ 11:46PM
Virtuous said...
The Wall Street bailout is the biggest pork barrel program ever!
1-23-2009 @ 9:34AM
paul s said...
There were no strings attached to any of the bailout money, so why the surprise? He didn't break any law. Because something is legal to do(i.e. the selling of cigarettes) doesn't make it moral. Because something is illegal(i.e. the selling of marijuana) doesn't make it immoral. Stop making value judgements about "stupid vs. smart" business decisions and judge those decisions for what they are. Mr. Thain has demonstrated his "stupidity" for the last time and that is why he is now unemployed.
1-23-2009 @ 10:43AM
ceh9876 said...
I doubt he'll be unemployed very long. One of his corporate cronies will give him a position or he'll get put on a few BoD's and all will be well for his future.
I think the only thing that can possibly be done by 'common folk' is to keep track of the hotshots excesses and refuse to invest in ANY outfit they are associated with.
Charlie
1-24-2009 @ 1:54PM
Richard Mobley said...
The government should demand repayment of monies loaned to the bank for letting people on their payroll to continue bad business practices and poor management decisions. This is what banks do to businesses and poor people; they call the bank note in and if you can't pay or get a new loan, you go bankrupt. They should receive what they give to the cosumers. It is time for someone to step up to these big shots and show them there will be action for bad or poor business practices.