By Kenneth Davis
President, Economic Strategy Associates, Inc.
Mitt Romney’s role in Bain Capital’s leveraged buyouts (LBOs) isn’t just a case of one executive’s extreme ambitions running wild. His defenders say it was just the free enterprise system at work. Critics say: No, it was greed that unfairly ruined the lives of productive, trusting workers. Now he wants to be president. Wouldn’t his main tool still be his job cutting axe?
What’s the lesson here for CEOs? Answer: Workers are losing trust in their bosses as executive compensation reaches all-time highs when the U.S. economy is struggling. Like the LBO folks, many U.S. CEOs now choose the fastest ways to pad profits and their bonuses rather than adopting solid long term growth plans. Instead of investing in the huge American market, they cut U.S. hiring and move production abroad for quick profits and to avoid U.S. taxes.
I recently asked a top CEO: “With so much free cash, why aren’t you investing in our domestic industries?” His answer was abrupt: “We’re a global company now. We have no responsibility for American industry and jobs, or the U.S. trade deficit.” That CEO of a U.S. public company makes $12 million a year while working and living here! Look out, sir! Don’t you think your employees and shareholders are worried?
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Kenneth Davis is a former U.S. assistant secretary of commerce/international, IBM vice president and chief financial officer, and investment banker.
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One puts on football pageants. Another makes millions on a virtual farm. From Too Much, the Institute for Policy Studies inequality weekly, we present the year’s ten most avaricious. All ten remind us just how much needs to change, economically and politically, in 2012 and beyond.
The greediest among us in 2011 probably haven’t been any greedier, as a gang, than any greedy of the recent past. They just seem that way.
Why so? We have a whole new frame of reference. This fall’s sudden — and exhilarating — rise of the Occupy movement has helped us remember what we, as a society, had sadly forgotten: that decent, smart societies never let the few grab away rewards that ought to be shared among the many.
Who grabbed most greedily in 2011? We have no statistical yardstick to help us make that call. You don’t, after all, have to make a million to rate as an all-star greedster. You do have to be ruthless, self-absorbed, and grossly insensitive.
That description, we’ll admit, fits far more folks than our ten dis-honorees below. Maybe next year, we can hope, we’ll have a harder time filling out our top ten.
10/ Paul Hoolahan: Skimming the Sugar
Greed has never been a stranger to professional sports. But this year’s most avaricious sports character works for a nonprofit. Meet Paul Hoolahan, the chief exec at the Sugar Bowl, one of four annual college football postseason games that rotate hosting the national collegiate championship.
The Sugar Bowl enjoys tax-exempt status and regularly touts its contributions to good causes. But Hoolahan’s favorite good cause may be his own. He took home just under $600,000 in 2009, the latest year with figures available, almost quadruple his $160,500 paycheck for the same job 13 years earlier. (more…)
Considering what’s going on in Wisconsin, I heard a great description recently of the relationship among fat-cat CEOs, teabaggers and unionized public employees:
“A unionized public employee, a teabagger, and a CEO are sitting at a table. In the middle of the table is a plate with a dozen cookies on it. The CEO reaches across and takes 11 cookies, looks at the teabagger and says, ‘Watch out for that union guy. He wants a piece of your cookie.’”
I don’t know the source, but whoever it was, he got it right.
Donald White
West Rockhill Township, Pa.
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To submit a blog to Free Speech Zone, e-mail it to bstack@usw.org. Keep it to 250 words or fewer. You MUST include your full name, hometown, and state. You may attach a photograph of yourself. Please include a phone number. This WILL NOT be published. Posting any given blog is within the discretion of the USW. No blog using foul language (this is a family site), false information (we don’t want to get sued), or unnecessary personal attacks (again, we don’t want to get sued) will be used. Wait a reasonable period of time, then blog again! This is a Free Speech Zone.
Do CEOs make too much? On Main Street today, most Americans have already reached a conclusion. Most Americans believe, deep down in their gut, that corporate execs are walking off with far more moolah than they merit.
The defenders of that pay like to argue that some CEOs have such superior talent that they can personally and significantly enhance shareholder value. Given this reality, the argument goes, corporations will quite naturally — and rationally — bid up the market price for these “high performers.”
Academic executive pay critics, on the other hand, consider all this talk about market “rationality” just so much mumbo-jumbo. Top execs don’t take home the big bucks because they perform, the critique goes. They get those big bucks because they have power — over the corporate boards that set executive pay.
Excessive executive compensation, in this critical view, becomes a matter of “governance failure,” a sign that corporate boards are rubber stamping the CEOs they’re supposed to be governing.
But this critique has some problems. Corporate governance, most observers would agree, has been becoming more effective over recent decades. Yet executive pay continues to roll along at patently excessive levels.
This discrepancy, CEO pay apologists pronounce, proves that corporate boards are making executive pay decisions in “an open and functioning market for executive talent” — and not in corrupt power plays behind closed doors.
Into this debate we now have an interesting new perspective, just published in the American Journal of Sociology, from Columbia and Arizona State sociologists.
In “Compensation Benchmarking, Leapfrogs, and the Surge in Executive Pay,” available online in an earlier version, Thomas DiPrete, Greg Eirich, and Matthew Pittinsky essentially shift the debate over CEO pay from a focus on individual firms to the interaction between individual firms and the overall corporate pay environment.
That shift enables the three authors to explain, quite cleanly, how we can have — in the setting of executive pay — the worst of all possible worlds: A “rational” marketplace that keeps CEO pay ratcheting ever outrageously up even at firms where corporate boards and shareholders have their CEOs on leashes.
The mechanism behind this magical dynamic? Executive pay “benchmarking” that major U.S. corporations have used since the late 1970s.
Corporate boards “benchmark” executive pay by creating lists of companies similar to their own. To stay “competitive” in the executive pay marketplace, boards typically aim to offer their top execs at least as much as half of these similar companies are paying their top execs — and often end up offering at least what 75% of what those other firms offer.
A number of analysts, over the years, have shown how CEOs and their corporate board buddies can rig this benchmarking process by packing their benchmark list with firms that pay their top execs top dollar. DiPrete, Eirich, and Pittinsky go further. They demonstrate how benchmarking, even without funny business, can operate to push executive pay on a never-ending upward spiral.
Here’s what happens: In any given year, at a few firms, executive pay will almost always “leapfrog” up. Any number of factors can generate this leapfrogging, even sheer luck. An oil industry exec, for instance, might hit the jackpot when an international crisis drives up the price of oil.
Benchmarking “linkages among firms” then “guarantee” that this luck will reorient, upward, the overall executive going rate, the “market wage.”
Just a tiny number of leapfrogs — a “relatively small fraction of above normative jumps to the right tail of the benchmark distribution,” as DiPrete, Eirich, and Pittinsky put it — can over time “affect evolution of the entire distribution of executive compensation.”
Indeed, the three authors conclude, the leapfrogging dynamic likely accounts for half of the total U.S. increase in executive pay between 1992 and 2006.
The political implications of all this? DiPrete, Eirich, and Pittinsky have given us another reason to question the single-minded emphasis on “say of pay” for shareholders and other corporate governance reforms that currently dominates the congressional executive pay reform debate.
We don’t just have “governance failures” at individual firms. We have an executive pay environment with an artificial upward bias. If we’re going to end that upward tilt, we’re going to have to overhaul that entire environment.
By Leo Hindery Jr.
Chairman, U.S. Economy/Smart Globalization Initiative at the New America Foundation
The Financial Times just devoted a special section of the paper to “individuals and companies who have displayed courage and vision in the aftermath of the most wrenching financial crisis since the Great Depression.” This piece of journalism — and the awards that were granted — were especially designed “to recognize boldness on a global scale.”
A few years ago, in a book I titled It Takes a CEO: It’s Time to Lead With Integrity (Free Press, 2005), I tried to identify all of the traits — including boldness — that I believe characterize truly successful CEOs. It would have been a pleasure to collaborate with the FT’s editor and writers — they did a great job — however, when it came to matching specific companies and CEOs with leadership attributes, I think that in at least one instance they missed the “Integrity” trait.
Let me elaborate.
In its foreword, the FT said: “While recognizing the profit imperative, these awards have also paid due weight to the impact of a company on the wider community, whether through innovation, education or philanthropy.”
But there are a lot more things — and, especially, a lot more important things — than what flows from “innovation, education or philanthropy.” Specifically, it’s the impacts on employees, communities and nation which are transcendent, and given how extremely difficult this current economy is, we should be particularly interested in how these impacts significantly help strengthen the American economy and create jobs.
When the FT chose Sergio Marchionne, the CEO of Fiat and now also of Chrysler, for its Driver of Change Award, it picked a CEO who is responding admirably to these two economic challenges. And in Marchionne, the FT also found a recipient who evidences an abiding responsibility to others than just his shareholders, and who leads his life with grace.
For most of the last century, American industry’s successes were hallmarked by a commonly held belief among CEOs that they had equal responsibility to shareholders, employees, customers, communities and the nation — and the nation as a whole was the beneficiary. It wasn’t until the late ’80s, with the advent of ‘trickle down economics’ and wildly excessive executive compensation, that this sense of responsibility began to be noticeably and widely lost.
On the day that he became the CEO of Chrysler, Marchionne said, “No executive has the birthright to lead, and no company has the right to exist” — and ever since, in trying to fulfill his stated commitment to creating a ‘sustainably profitable company,’ he has shown great sensitivity to the communities in which Chrysler operates, to the nation — the United States — which gave him and Fiat the Chrysler opportunity, and, notably, to the employees of Chrysler who for two decades bore the brunt of the company’s really crappy senior management. Beyond owning a large piece of the company through their Union, the employees of Chrysler are now active at the Board level in its management and, when hard decisions need to be made, they have a major role in working them out fairly.
The other trait that is a sine qua non of a great CEO is grace, a fine old trait with religious roots that in today’s corporate and secular worlds denotes dignified, polite and decent behavior and, especially, the capacity to accommodate and forgive people. It’s living your life to earn and keep the respect of others — and while hard to describe, we all know grace when we see it, and we all miss it when we don’t.
Mr. Marchionne seems to live this way, and a telling example is the relative ease and fairness with which he reached agreement with Chrysler’s beleaguered employees and their primary union, the United Auto Workers. (Of course, no one gets it right all the time or in all ways, and I must note that Marchionne, who is definitely a tough guy in a very tough business, still has some important fence mending to do with the Teamsters, which he needs to get to.)
All in all, however, Sergio Marchionne was a great choice to receive the Driver of Change Award. Which is why the FT’s choice of Roger Agnelli and the company Vale to receive its Emerging Markets Award is so puzzling, as pretty clearly the FT failed to require each of its Award recipients to manifest both grace and broad stakeholder responsibility.
Vale is a 67-year old Brazilian company that many people still remember as Companhia Vale do Rio Doce or CVRD, and that until fairly recently operated essentially only in Brazil. It is now in 36 countries and the world’s largest producer and exporter of iron ore, and thus certainly worthy of a lot of recognition. And to its particular credit, much of Vale’s growth has been organic and achieved through steady investments in modernizing its mines and rail and port infrastructure, especially in South America and Africa which it sees as “the future of the world’s natural resources and of food production.”
But what really angers me is that all the while Vale has been executing of late on its grand global mission, it is, to quote the FT, “embroiled in a long-running dispute” with its workers here in North America, a dispute that I lay squarely at the feet of its CEO, Roger Agnelli, and that arises from nothing other than Vale’s greed and Agnelli’s obstinacy.
And all the while, Vale, under the leadership of Agnelli, is also a long way from being the world’s ‘most environmentally friendly’ mining company, and it has at best only a passing interest in seeing South America and Africa enjoy the important fruits of non-resources based development. It is critical that powerful nations and powerful multinational corporations never again treat with disregard countries, regions and continents as their storehouses, bread baskets, cheap labor sources, or environmental dumping grounds — yet this is precisely what Vale does every day, to one degree or another.
Now, here in North America we are seeing firsthand Vale’s insensitivity to its workers and their communities, as it tries to run away from fair wages and benefits that are the product of longtime collective bargaining.
When Vale purchased the large nickel mining company Inco in a high-value auction in late 2006, it promised not to reduce the workforce for three years. But the company, now called Vale Inco, broke that pledge in a big way in March 2009 when it laid off workers and shut down operations for two months. Immediately thereafter, the company demanded from its remaining workers, who are mostly represented by the United Steelworkers, harsh concessions while conditioning any bargaining on workers first accepting these concessions.
As unfair as they would be in good times, the cruelty of these demands in a recession is beyond the pale — and then to further drive home its power over its employees, Vale used the resulting — and ongoing — strike as the excuse to cut many of its ties with local services companies and to offshore that work and related jobs. Almost nothing in labor relations is more vile than ‘conditioned bargaining,’ yet Vale has made this approach the base of its demands — and just this past weekend, using this demand, it again cavalierly broke of all negotiations for the umpteenth time.
For all the accolades it is receiving from the financial community — heck, the company earned $5.3 billion in 2009! — Vale is obviously employing the global economic crisis to impose on Vale Inco its philosophy that corporations bear no duty to meaningfully share gains with or to accept long-term responsibilities to others than just shareholders. Vale’s concessionary demands clearly illustrate this intent — even if the concessions Vale is demanding saved the company $25 million in the first year, which is a fair estimate, they would change Vale’s cost of extracting nickel by only about 5 cents per pound, yet these demands, which have been accompanied by some of the most aggressive anti-union tactics since the Appalachia ‘coal wars’ in the 1930s, would economically devastate the company’s 3,500 union employees and their communities.
Politicians of all stripes are fond of saying that “our best days are still ahead of us,” or words to that effect. Part of me — my heart, I think — dearly wants to agree with this.
The problem, however, is that getting to these best days isn’t going to happen automatically. Whether as a person, a CEO, a company or a society, it’s going to take smarts, courage, vision, sacrifice and persistence — plus, for the CEO in that crowd, grace and a broad, unselfish sense of responsibility.
*** Leo Hindery Jr. is the author of “It Takes a CEO: It’s Time to Lead With Integrity” (Free Press, 2005). He is a member of the Council on Foreign Relations and serves on the Board of the Huffington Post Investigative Fund. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor, AT&T Broadband.
Americans are paying big time now for decades of buying into a hoax.
And it wasn’t sub-prime mortgages.
It was the conservative contention that government is evil and inept. Swallowing that absurd assertion resulted in relaxation and elimination of supposedly onerous and unnecessary government regulations – from the ones that prevented banks from growing too big to fail to those that protected union organizers from illegal corporate obstruction tactics.
Unfettered, Wall Street speculators went on a rampage of reckless wagering that ultimately knocked the wind out of the world economy’s bubble. With unrestrained corporate threats and interference, union membership declined to 12 percent, although 58 percent of non-managment workers surveyed said they’d like to join a union.
Now, that reviled institution – government – is the only one big and strong enough to rescue the economy that perpetration of the hoax devastated. How ironic. The government must also restore the ability of the American people to organize unions at their workplaces, if they so choose, by passing the Employee Free Choice Act.
President Barack Obama has said he wants to make government cool again. He stood on the steps of the Old State Capitol in Springfield, Ill. on the bicentennial of Abraham Lincoln’s birth and talked about why the 16th President supported the union and why concerted action is so effective. Speaking of the hoax, he said, “Such knee-jerk disdain for government – this constant rejection of any common endeavor – cannot rebuild our levees or our roads or our bridges.”
Common endeavor is the power of unions, whether they be unions of states or labor unions. That is why corporations across America so fear the Employee Free Choice Act. It would ease forming a labor union. It would allow workers – rather than CEOs – to decide whether to create a labor union by collecting signatures from a majority of workers or by a secret ballot election.
Big business is attempting to perpetrate a second hoax on America – that the Employee Free Choice Act is no good. They’ve been flying a bunch of anti-union lobbyists to Washington to pressure politicians to vote against it. Sounds a lot like CEOs jetting to D.C. in private planes for bailout money.
The bailout money will, of course, come from the pockets of working Americans who those very CEOs don’t want to unionize. And after decades when the policies of the government-is-evil-hoax meant wealth accrued to the very richest, it turns out that the economy would have been better served if wealth had been more evenly distributed.
More workers with more money to spend means more cars and houses and All-Clad pots and pans bought. Those purchases keep other workers employed, who spend more money.
When those workers are unionized, studies reveal two important statistics. One is that they earn 30 percent more than non-union workers. The other is that they are 59 percent more likely to be covered by employer-provided health insurance. So, in the end, unionization is good for the economy.
That effect was acknowledged in 1935 when the National Labor Relations Act was passed to encourage unionization and collective bargaining. It occurred in the midst of the Great Depression and followed decades rocked by lesser economic “panics” causing runs on banks.
The NLRA “Declaration of Policy” says this about this law: “The inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract, and employers who are organized in corporate or other forms of ownership association, substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners.”
Simply put, employers wield considerable strength, and workers must be able to unionize so wage and benefit negotiations occur on a more even playing field. There’s power in common endeavor.
In 1935, in the depth of the Great Depression, the government encouraged workers to use their power to obtain better wages. It did that because better wages to many would help end the depression for all.
Since then, corporations and CEOs – the perpetrators of the great government-is-evil hoax — have also chipped away at the NLRA. They’ve seized from workers the ability to determine how unions are formed.
And they increasingly harass workers trying to form unions. In 2007, employers illegally harassed or coerced 29,000 workers. In the 1950s, companies illegally punished fewer that 1,000 workers a year for union activity. Thirty-six percent of workers who voted against a union said they did so because of pressure from the employer, according to an NLRB survey of 400 election campaigns in 1998 and 1999.
Just like in 1935, workers now need unions to help them secure better wages, which will, in the end, be good for the country because it will improve the economy.
For that to happen, though, the Employee Free Choice Act must pass. Workers must have the right, once again, to choose how they want to form their own organizations.
In Obama’s speech in Springfield, in which he discussed the union of states, he quoted Lincoln on the purpose of government, saying, “The legitimate object of government is to do for the people what needs to be done, but which they can not, by individual effort, do at all, or do so well, by themselves.”
In this quote, labor unions could be substituted for government: “The legitimate object of unions is to do for the people what needs to be done, but which they can not, by individual effort, do at all, or do so well, by themselves.”
That is why workers must vanquish the new hoax being perpetrated by conservatives, greedy CEOs and other labor union-haters. Workers must win the freedom that they had in 1935 to choose how to form their unions. Labor unions give workers the ability to do what needs to be done but which cannot be accomplished by individuals. And that includes bargaining for the better wages that, when spent throughout the economy, will help end the current great recession.
In a perverse way, the media painted Republicans perfectly when it selected red for their states.
Reporters would never have guessed when they did it that the red party’s candidate would engage in red-baiting. But there was John McCain repeatedly doing it in the debate Wednesday night, trying to convert Barack Obama into a terrifying “spread-the-wealth-around” commie. And earlier this month, the Republican’s brother, Joe “McCarthy” McCain, called two Democratic-leaning Virginia counties “Communist Country.”
When it comes to spreading assets around, however, the royal red Republicans, led by King “I-am-a-capitalist-really” George, take the Triple Crown. Their upside down communism works like this: the middle class pays for the tax breaks awarded the nation’s rich and for the financial recklessness of Wall Street’s ultra-wealthy.
Trickle down
In the Republican world, in the view of John McCain and George W. Bush, it never, ever works the other way. A curse, they would say, on anyone who would dare suggest that the rich should be taxed so that government could “trickle down” a portion of their extraordinary wealth to benefit the majority.
They believe in “free markets,” that is, allowing financial markets to run unrestrained and unregulated, or as some have put it recently – amok. They believe government interferes in markets and therefore should be shrunken and impotent. They believe that when an elite few accumulate wealth in that system, some of it naturally will eventually “trickle down” into the empty porridge bowls of the nation’s vast unworthy masses.
A dreadful thing happened on the way to the fiscal crash, though. That philosophy failed.
The “small government” Bush and Republican Congress increased spending, thus replacing the budget surplus bequeathed them with deficits. And not just any deficits – the largest known to man — $455 billion this year, edging out the $413 billion record debt Bush set in 2004.
The rich won’t be paying for that. No, Bush gave them a tax break, and McCain swears he’ll make that break for the wealthy permanent. The middle class, and their children and grandchildren will be making payments on that debt — which, by the way, was caused in part by the revenue loss from Bush’s tax break for the rich.
That’s spreading the wealth around – from the pockets of middle class to trust funds of the rich.
Over the past eight years, middle class Americans have watched with shock and awe as corrupt and incompetent CEOs left their failing corporations with golden parachutes – like McCain’s top financial advisor Carly Fiorina, who exited Hewlett-Packard with $45 million in 2005 when the board dismissed her as CEO following the company’s stock dropping 50 percent and her furloughing 20,000 workers.
Bail out speculators
Now those same middle class Americans are incredulous as Bush — who had McCain’s support 90 percent of the time over the past eight years — is taking $700 billion of their tax dollars to nationalize banks. Their tax dollars will be used to bail out the Wall Street financiers who wouldn’t cut the middle class a break when they were late on mortgage payments, the speculators whose uninhibited risk-taking caused financial institutions to fail, lending to freeze, stocks to swoon.
Deregulation of the financial industry allowed banks and other sorts of financial institutions to merge and become “too big to fail” and engage in risky purchases without sufficient supporting capital. McCain, who until recently bragged about being “Mr. Deregulation,” endorsed this suspension of rules. Its chief champion served as his campaign co-chairman – former Texas Senator Phil Gramm.
Gramm successfully pressed for repeal of the depression-era Glass-Steagall Act, which was designed to prevent financial institutions from becoming too big to fail, and for passage of the Commodity Futures Modernization Act of 2000 that deregulated those now infamous credit default swaps that took down insurer AIG, costing taxpayers another $85 billion.
Gramm left the senate in 2002 for an executive position with the Swiss investment bank, UBS, the stock for which, by the way, has plummeted right along with that of American banks.
McCain’s mentor
Gramm still advises McCain, though he’s no longer campaign co-chair. He had to resign that position after he called the United States a nation of whiners during an interview in which he also denied the seriousness of the financial crisis. Here’s what McCain’s financial mentor said, “You’ve heard of mental depression; this is a mental recession.”
Sure, when the coins of the middle class are flowing up into your pockets, Mr. Gramm, it doesn’t feel like a recession at all. Spreading the wealth around – from the middle class to the wealthy Gramms and multi-millionaire McCains.
Really, Joe “McCarthy” McCain was right when he called the Virginia counties of Arlington and Alexandria Communist Country. John McCain owns a condo in Arlington, and that’s where he located his campaign’s national headquarters. They’re communist all right, McCain Republican-communist, under which middle class earnings are spread to the rich.
In the debate Wednesday night, McCain accused Barack Obama of conducting class warfare because the Democrat wants to end Bush’s tax breaks for the wealthy and instead cut the taxes of the middle class – 95 percent of American families.
What Obama proposes isn’t warfare; it’s fairness.
Class warfare is what the Republicans have done to the middle class over the past eight years, and what McCain pledges to continue. It’s a war the rich now are winning.
By Leo W. Gerard
International President Staking everything
Today, in Las Vegas, a town where jackpots are sought and fortunes are lost, Derek Simpson, general secretary of the UK-based international union, Unite the Union (Amicus Section) and I together staked everything on a worthy cause — working men and women world wide.
We signed an agreement at the USW convention in the Paris-Bally’s Conference Center joining our two great unions, creating the first global one. It is called Workers Uniting, the Global Union because we foresee industrial unions from other continents joining us to face off unregulated multinational corporations that exploit labor worldwide. (more…)
