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Friday, February 24, 2012

Who are the One Percent, continued

Listening to "Money for Nothing" by David Zweig and John Gillespie.  It's about the cozy relationships between Boards and CEOs that have led to ill-advised corporate takeovers (80% of takeovers turn out badly) as well as insanely lucrative CEO pay, pension, and golden parachute packages.  And of course the Board members are making tons of money too -- often hundreds of thousands of dollars a year for attending a few board meetings.  And since the same people sit on multiple boards, this means that many Board members are making millions of dollars a year from Board income, by only "working" a few days a year.

It's almost too benign to call many of these people "skimmers."  Really, many of them are more like "looters" -- paying themselves and their cronies disproportionate sums for mediocre work out of shareholder money.

I'll provide a more detailed summary when I get my hands on a  hard copy of the book, but for now, here are some things I remember:

1.  CEOs look at their salaries as validation of their skills, in comparison with the competition (other CEOs).   

2.  CEOs take credit for things that happen in good times, and this leads them to assume that everything they do will turn out right.

3.  There is often a huge financial incentive for CEOs to engage in takeover activity.  They are not investing their own money, but if things go well, the returns can be enormous.  But things rarely go well -- typically, the CEOs end up overbidding for takeover targets that they are in any event not suited to run.  Add to this the financial incentives that investment bankers, lawyers, and board members have in seeing mergers through, and you have a recipe for mergers that ends up sending shareholder assets up the chimney.

4.  CEOs rarely lose, no matter how badly they perform.  Often they are hired for millions of dollars a year, and if they don't work out, they are given millions more just for leaving.

5.  Lance Armstrong was a member of a board one year and never showed up for meetings (nothing against Lance -- someone ought to double check if he was undergoing cancer treatment or something that year; but still, he should have resigned sooner).

6.  Board members who attempt to be independent are often shunned and marginalized. 

Part of the problem might well be that all of these people get to keep so much of what they make.  What would be wrong with taxing them just a bit more?  Although the book is mostly anecdotal, it does underscore the fact that CEOs (and Board members) are at best "merely human" and are often more self-confident (and therefore reckless) than other people.  They are not necessarily uniquely qualified to run companies (in fact, their risk-taking personalities makes many of them unsuited), and there would be no shortage of people who would step in to run companies competently if the CEO class simply refused to do so for less pay.

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