Corporate Greed

When John Thain, former CEO of ill-fated Merrill Lynch, commissioned a $1.2 million refit of his offices in Lower Manhattan, it was just another illustration of the callous insensitivity that abounds in high-profile corporate life. Ranking CEOs in the troubled financial, insurance and automobile industries have an unfortunate tendency to see themselves as exempt from the financial exigencies that should have been applied to their organizations. When General Motors executives flew with the begging bowls to Washington in their corporate jets, one wonders how they could not have anticipated the fuss that such crass insensitivity would generate. Even more incredible was the stupidity of making a second trip using GM vehicles – a vacuous publicity exercise that fooled nobody and probably made their arrival somewhat uncertain. Scheduled flights (in coach) would have been so much more sensible and efficient!

Mr. Thain has offered to repay the exorbitant refurbishment costs out of the $10 million bonus he hopes to get, after depleting the value of the company by a reported 73 percent – well isn’t he special! There is, however, a much broader and more important issue present here that goes right to the very core of carrying out business in an honorable way.

These days, chief executive officers seldom own the businesses they direct and manage. Fundamentally, they are employees. Worse than that, they are temporary employees on a short to medium term contract. Even worse than that, all their senior company officials are employed under the same criteria. Worst of all though, this entire situation creates a self-perpetuating cartel of senior managers who have no vested interest in the long-term financial health of the organizations they run.

It is a fact that nobody looks after your things better than you do. The more control that someone has of what was once yours; the worse will be the condition when you eventually get it back. The owners these days are normally the shareholders; CEOs are the borrowers - transient workers putting in a couple of years’ labor between wives.

So, what is wrong in appointing high-caliber, high-performing professionals to manage blue-chip companies? In theory, absolutely nothing! The problems arise when these individuals are retained on contracts that will last only two or three years. Inevitably, because of the short-term nature of these contracts, huge value performance bonuses and/or golden parachutes are negotiated as part of the contract. Vulgar human avarice will then supersede any pretense of honorable business practice. Long term sustainable growth will be suffocated under a blanket of spectacular volume growth, powered by the fossil fools of creative accounting. By the time the laundry hits the fan that cools the can of worms, Mr. or Ms. CEO has moved on elsewhere.

As a subprime example, look at the high risk mortgages that were the first positive indicators of the coming melt-down. All the primary instigators of this savagely unethical practice would have known that these loans were not viable in the long-term, but, yet again, when things started to go wrong, they had all moved on to pastures new, leaving the mess for others to deal with.

Self-regulation and deregulation (and the SEC) mean just one thing – no regulation! Sir Edward Heath, a former Conservative prime minister of the UK, often talked about the unacceptable face of capitalism and this is the face that is staring at us now. The most bizarre aspect of this whole sorry affair is that those people responsible for this disaster are just going to walk freely away from that responsibility. They know, but do not care, about the heartache and despair they have caused – just so much grist to their particular mill. What say you Mr. Madoff?

As always, I’m just sayin’.