April 6, 2008

Ben Stein's Money

Okay, not really, I was just trying to get your attention.

Ben Stein, noted conservative (and I use that in the old-fashioned sense, not the rightwing-nuttery sense it has today), has a terrific article in the New York Times discussing CEO pay and the boardroom buddy system.

To be a member of the board of a large company is a little example of paradise. You get good pay for just sitting in a meeting and listening to summary presentations. You get insurance and a pension. You can go to luxurious resorts and play golf. What the heck are security lines? You fly in private jets.

Sometimes, you get stock options, and these can be meaningful.

In other words, it’s nice to be the director of a public company. How do you keep your job? You are really nice to the person who put you in that job. You don’t know the little stockholder in Muncie who might have 500 shares. But you do know the guy who repeatedly reappoints you for your post at the directors’ table. The little stockholder cannot do a thing for you, but the boss can.

When it comes to compensation, you want him to be really happy. It doesn’t matter how well he’s doing, unless he’s wreaking havoc and you may be sued. It doesn’t matter if the stock price has languished. You want what’s best for No. 1, and that means what’s best for Mr. Big.
This isn't the first time I've heard Stein talk like this. In January 2006 he took on United Airlines.
So here it is in a nutshell: employees are goaded into investing a big chunk of their wages and benefits in UAL stock. They lose that. Then they lose big parts of their pay and pensions. They become peons of UAL. Management gets $480 million, more or less. "Creative destruction?" Or looting?

Wait, Mr. Tilton and Mr. Bankruptcy Judge. The employees were the owners of UAL. They were the trustors, and Mr. Tilton and his pals were trustees for them. How were the trustors wiped out while the trustees, the fiduciaries, became fantastically rich? Is this the way capitalism is supposed to work? Trustors save up, and their agents just take their savings away from them?

If the company is worth so much that management has hundreds of millions coming to them, shouldn't the employee-owners get a taste? Does capitalism mean anything if the owners of the capital can be wiped out while their agents grow wealthy? Is this a way to encourage savings and the ownership society? Or is this a matter of to him who hath shall be given?
And Delphi
Now, I am a lawyer by training, and it seems to me, dope that I am, that this money belongs to us stockholders, the owners of Delphi, and not to the managers and executives. Mr. Miller's fiduciary duty runs to us exclusively, not to his colleagues. If he has a nine-figure sum lying around, it belongs to us stockholders first and foremost. I hope the bankruptcy court judge notices this.

However, despite my losses on Delphi, I still have a solidly comfortable life - at least for today. I don't desperately need my infinitesimal share of that $510 million (or whatever nine-figure sum it may be). But the workers on the assembly line and in the restocking room who make an hourly wage - they do need it. They need it badly. How on earth did the idea come into the head of someone as smart as Mr. Miller that he could get away with enriching those who already have high pay (or higher pay) and simultaneously demand that his workers accept poverty or lose their jobs?
My gosh, he sounds like a "liberal." No, he's just a decent guy. In the same article he goes after Edward S. Lampert of KMart and Carl C. Icahn of Time-Warner:
But if the poor pre-bankruptcy Kmart was so loaded with valuable real estate that it has made investors in the post-bankruptcy Kmart rich, didn't that real estate belong to the stockholders of Kmart? Why was it not liquidated for the benefit of existing stockholders? Why was it turned over to the new stockholders while the old stockholders walked off with nearly nothing? Where was the management of the old Kmart? Asleep?

And what about Mr. Lampert's plan to lay off Sears employees, which he inevitably must do if he sells off the stores in which they worked? What about the severe cuts in retirees' medical benefits that Mr. Lampert has announced? How can he square these with decency to the employees? They are hard-working, modestly paid men and women who probably expected to be with Sears for a lifetime. Mr. Lampert is already fantastically rich. Does he really have to fire people in small-town America or cut their health care to become even richer? How many yachts can he sail on? How many meals can he eat a day? How many homes does he need to own?

Then there is Carl C. Icahn, badgering the brass at Time Warner to make the stock go up so he can make money on his multibillion-dollar stake. One way he is suggesting that Time Warner can do this is by slashing what he says is its "bloated bureaucracy" - meaning, no doubt, laying off thousands of people in New York.

I KNOW some of these people from my many visits to CNN. They work hard. They are not paid a lot. Is it really necessary for Mr. Icahn to demand that they be fired, just before Christmas or at any other time, so he can make more on top of the billions he already has?

I'm a small Time Warner stockholder, and I would love to see the stock recover from the beating it took when tech crashed. But at the expense of firing a makeup artist or a secretary supporting her children? I don't think so. I don't need the money that badly. If I don't, how can Mr. Icahn need it so badly? I calculate that he has roughly 200 times what I have, maybe a lot more.

Alas, there are other examples, but I'll say it again: This is a country at war. For men who are already billionaires to look for more billions by firing hard-working middle-class employees or demanding they take a pay cut is not the kind of thing that unites a nation. I'm a devout capitalist, but this is just plain ugly.

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