It rather neatly illustrates the farce that CEO pay has largely become when Lehman Brothers chief Richard S. Fuld, Jr. announces that he will decline a bonus this year. The board compensation committee has not yet met to determine if one would even be offered to him. But that probably is just a formality because it is Mr. Fuld who is really calling the shots here in his various capacities as CEO, chairman of the board and head of the executive committee.
Of course, eschewing a bonus in a company that just posted a staggering $2.8 billion dollars loss for the second quarter is a little like the customer who breaks a Limoges vase at Tiffany and tells the clerk not to worry about the gift wrapping service. It’s hard to see why any credit is due in making such a statement. A more meaningful gesture would be to give back some of last year’s $40 million bonus that was awarded when many of Lehman’s flawed, and horrifically costly, decisions were being made. But because it would actually carry some actual sacrifice, and show genuine leadership that is sorely missing from Wall Street in recent years, Mr. Fuld will not offer to do that.
It is another example of where CEOs have gotten so far offside both reality and perception. It is that reality and perception that is today, perhaps more than Mr. Fuld, shaping the future and direction of Lehman Brothers.
In Burma, where bloated corpses still line the banks of swollen rivers and the cries of orphaned children for food go unheeded, the efforts of the civilized community to bring relief on an organized basis to a cyclone ravaged people continue to be rebuffed by that country’s paranoid military regime. U.N. Secretary General Ban Ki-moon has mustered all the leadership skills of Michael (you’re doing a heck of a job) Brown during his feeble response to Hurricane Katrina. Only France, at this point, seems to have shown the courage to say that humanitarian duties trump national sovereignty when it comes to dealing with the corrupt powers at Nay Pyi Taw.
When the West, or any larger community of nations that aspires to call itself civilized, fails to act to relieve the suffering of people made worse by a corrupt junta, it is an indictment that history and human conscience cannot ignore. The major nations of the world have shown themselves to be unwilling to deal with this humanitarian emergency and confront the rulers of Burma, even though that country continues to be a member in good standing of the United Nations. It is an assault on moral standards that offends humanity.
It is our choice for the Outrage of the Week.
There is an unseemly amount of gloating on Wall Street in the wake of the stunning disclosure yesterday that New York Governor Eliot Spitzer was a client of a major prostitution ring. Disgust is called for. Delight is not.
What he did as Attorney General to clean up abuses and improprieties in the mutual fund and investment industries, to name just two areas, was long overdue and entirely justified. The ordinary shareholder, who tends to view Wall Street as a playing field that is too often tilted toward the big teams, is better off as a result. Can anyone, with the possible exception of its former CEO Dick Grasso and one-time board member Ken Langone, seriously suggest that the governance of the New York Stock Exchange was not improved by the reforms in which Eliot Spitzer played a leading role?
Clearly, there is a temptation to rewrite history. Whatever Governor Spitzer has done in his personal life should not be taken as a vindication by companies and individuals of the wrongdoing and shortcomings he exposed as Attorney General. One wonders if Wall Street senses in this scandal the feeling that some of the ethical pressure will dissipate and allow it to get back to business as usual.
Spitzer’s actions, on a personal basis, were shameful and almost too bizarre to believe. But we have seen before how bright lawyers from Harvard and Yale have done inexplicably stupid things. Many it seems begin to believe their own press clippings and the flashy magazine profiles about their apparently superhuman qualities. President Bill Clinton’s reckless affair with a White House intern, and his lying about it to the world, ranks high in that category. And a British lord, also considered brilliant by all accounts and trained in the law as well, is currently sitting in a U.S. prison in Florida because he thought he was above the law.
The governor’s resignation is but days, if not hours, away. The sooner the better. The title governor and the description “client – 9” are incompatible, to put it mildly. And he may well face criminal charges. But Wall Street faces a crisis itself. And questions are being raised about the multi-billion dollar judgments of some of its top players. Now is not the time to rejoice in the personal failing of someone who at least had the courage to make sure the rules were being followed at a time when Wall Street itself was not exactly behaving as a paragon of virtue.
Never in modern business has so much been given to so few for such colossally failed results.
In just five years, these three CEOs made more than $460 million while leading their companies into the greatest losses in their history. One of them, Charles O. Prince of Citigroup, even got a bonus of $10 million, despite presiding over more than $20 billion in losses and write-downs. Stanley O’Neal left with $161 million after Merrill Lynch chalked up its largest losses ever. And Countrywide Financial‘s Angelo Mozilo, one of the highest compensated CEOs in America, has pocketed more than $400 million since 1999. The company has lost four times that amount over the past six months. Never in modern business has so much been given to so few for such colossally failed results.
To the average working person, who rarely receives a bonus even for doing an exemplary job, much less a bad one, this performance must have seemed like something of an out-of-body experience. Pay and accomplishment seldom have seemed more disconnected.
But to the past and current CEOs who testified before the House Committee on Oversight and Government Reform this week, there is no disconnect at all. The universe, for them, unfolded exactly as it should. It was about as we expected.
They, and the heads of the board compensation committees which approved these deals, all offered the usual bromides: The amounts were fully approved; the money was earned; the market is king; high pay is needed to attract and keep the best talent. How it is that CEOs who preside over record losses represent the best talent was never quite explained. One claimed only to want to help homeowners live out the American dream. Another cited his grandfather being born a slave. A third trumpeted his company’s ethics and corporate governance reforms. Mr. Mozilo ventured that the subprime meltdown had a notable culprit: “There was a lot of fraud there.” he told lawmakers. Many will agree, but they might not be thinking about the garden variety mortgage applicants to which Mr. Mozilo was referring. What role more lofty figures had in pushing out subprime loans, and who benefited from the resulting torrent of fees and record bonuses, will be something regulators and legislators should be looking at more closely.
The group of CEOs and directors who appeared before the comittee managed to slice and dice their compensaton decisions so much that they looked like they came out of a boardroom Veg-O-Matic: the pay wasn’t for this year, it was for last; it wasn’t severance, it was deferred compensation; it wasn’t a bonus for this year, it was payment for previous excellent performance. They said they actually lost a lot of money when the stock went down, just like all the other shareholders. Except most other shareholders did not head the company and make the wrong decisions. Most did not run up record losses and most did not receive tens or hundreds of millions in stock options and bonuses and salaries bigger than the state of Texas. One more thing: the process, they testified, is all fully in accord with the Business Roundtable guidelines on CEO compensation. Now that’s a really high bar. The Roundtable is made up of America’s top and best-paid CEOs. The ranking Republican on the Committee, Rep. Tom Davis (R-Va.), called the Business Roundtable guidelines the “gold standard” for corporate compensation. Is that because it makes sure the CEOs get all the gold?
Astonishing even for this group, when asked by Rep. Paul Kanjorski (D-Pa.) if there was any amount they would consider to be too much, there was silence, punctuated by self-serving proclamations of satisfaction with the way things are. All reassured the committee that they were not underpaid, however, and thus a sigh of relief was heard across the country.
America is experiencing one of the worst economic downturns since the Great Depression. The brokerage and mortgage lending industries played the central role in creating this contagion. But if high CEO pay is truly linked to performance and is good for the economy, people will want to know why it is, during a period that has seen the largest transfer of wealth from investors to the boardroom in history, the result is now one of falling stock values, shrinking economic growth, galloping home foreclosures and mounting job losses.
The hearing this week gave a rare opportunity for business leaders to admit that CEO compensation has gotten out of control and that it’s time for a new reality show in the boardroom. What began with the attendance of prominent CEOs and boardroom luminaries ended with the spectacle of men twisted like pretzels, having engaged in every type of contortion to show that these compensation arrangements were reasonable and had nothing to do with decisions to pump out more fee-generating subprime loans and structured investment vehicles. They also sent a veiled warning: any change to or reduction in the way CEOs are compensated, and capitalism as we know it may not survive. Here’s a bulletin for the boardroom: capitalism may not survive the kind of leadership that permits an ever increasing gap between CEO pay and everyone else’s, rewards failure with multi-million dollar bonuses and severance, and sees CEOs spinning off with a king’s ransom while leaving everybody else in the dust.
This was an opportunity for real leaders to admit that there are serious problems between the leadership class of capitalism and those who depend upon it for their well-being. To stand up and acknowledge the trend toward excess, to take the lead in stepping back and not being the first in the lifeboat when disaster strikes, to show some meaningful sacrifice at a time when so many are hurting instead of flashing five figure watches, five thousand dollar suits and a tan direct from the winter mansion at Palm Beach (or Palm Springs) -this would have been the kind of leadership that CEOs showed during two great wars and other times that tested America. This group showed none of that. One suspects they are, regrettably, an accurate reflection of the pool of CEOs and directors of which they are a part.
Excessive CEO pay has become synonymous with what is worst about American business: crony boards where one back scratches the other; compliant compensation committees made up of past and current CEOs; and an ethical value system enabling displays of greed and over indulgence that is not something parents generally want to impart to their children. It has been associated with every scandal from Enron and WorldCom to Nortel and Hollinger and countless failures in between. It is now a contributing factor to the recession that is unraveling the world’s credit markets and crippling economic well-being for millions.
What was obvious, too, from the testimony is that none of these CEOs and business leaders is possessed of superhuman ability. All seemed rather ordinary in the insights they offered and in the information they imparted, despite being recipients of extraordinary compensation and a corporate publicity machine that makes superman look like a slacker.
Despite the number of experienced CEOs and directors who appeared before Congress this week, one voice was distinguished by its absence: that was the voice of genuine leadership. America is entitled at a time of crisis to more than the spectacle of hugely paid, decidedly self-satisfied CEOs who feel that the system is working as it should. It needs leaders who recognize there is a need to restore public confidence in capitalism and the ethics of those who steer it. And that requires shared sacrifice and an understanding that, even in the great American boardroom, there are limits to what rational people both need and deserve.
Capitalism, like any household, should be governed by values, and not just who can get the most as quickly as they can. And so the actions of the CEOs and directors who appeared before Congress this week, and the failures of their boards that produced these results, is our choice for the Outrage of the Week.
How strange it is that success can be such an impostor and only a warm-up for the main act of self-inflicted tragedy yet to arrive.
When Lord Kylsant of Carmarthen lost all hope of appeal in 1931, the wealthy titan was taken off and spent the next year in London’s bleak Wormwood Scrubs prison. Until Conrad Black, he was the only member of the British House of Lords ever to be convicted of fraud in the management of a publicly traded company. While prison was a stunning downturn for this Napoleon of the seas, as he was called for the formidable shipping empire he created, he had a private cell and was permitted to have his meals brought in from a first-class caterer.
Conrad Black, the first British peer to be incarcerated in the history of the United States, will not be so fortunate. There will be no privacy in his lodgings at the federal correctional complex at Coleman, Florida, and his meals are unlikely to be catered by his favorite Palm Beach restaurants.
He will doubtless persist in proclaiming his innocence on all charges and maintain that full acquittal on appeal is a virtual certainty. In reality, the man who often sounds like some character out of Charles Dickens, and not one of his more sympathetic protagonists at that, stands a greater chance of stringing all his prodigious and weighty words together and scaling down from his prison window past the unsuspecting eyes of his less than erudite guards.
There would have been many steps that could have been taken along the way to avoid the hard thud of the prison gates that swung closed behind him today and will remain so for most of the next 78 months. Much less brilliant men might have taken those other paths. One of the many mysteries that masks Conrad Black is why he did not.
He has spent considerable time over the past few years describing his role as a “freedom fighter” and threatening to take on the cause of prosecutorial overreaching. His friends claim that becoming an anti-corporate governance zealot remains a distinct possibility for this man of many talents. Whether anything will come from his newfound role as the Rubin “Hurricane” Carter of wrongly convicted corporate felons is yet to be seen. A predicate for such interest in the abuses of the criminal justice system or the plight of the less fortunate has never figured prominently in Conrad Black’s writings or those of the high profile friends that now rail at his injustice, for that matter. And it is a hard case to make that a man who has been able to spend tens of millions mounting the best legal defense possible -tens of millions of other people’s money via the shareholders of the former Hollinger International- was disadvantaged or the victim of abuse by the legal process.
A case can be made, however, that there was a greater transgression at work here than the one for which Conrad Black was convicted. For many years, hundreds of millions in fees and payments were siphoned from Hollinger and paid to Ravelston, the private holding company run by Black and Radler, which itself turned out to be a corporate felon. The outrage is that those payments were fully approved by Hollinger’s board without batting an eye. Yet most directors, according to company documents, didn’t understand why the payments were being made or even the purpose of Ravelston. Corporate governance at Hollinger was little more than a social club where directors partied and ate fine lunches and in the end seemed to have little energy left to do anything more than lift their Conrad Black-supplied rubber stamp with the word YES emblazoned on it in baronial font.
There were also the injustices of the $20 million bill that the internal investigation of Hollinger chalked up under Richard Breeden, and the subsequent corporate welfare program that the Hollinger group became for lawyers, management and directors who always had their hands outstretched for another check while in effect presiding over the disintegration of the company. The fact that no laws were broken by these actors in no way lessons the outrage their actions represent.
The greatest “crime”, however, is reserved for the man at the top. In that category, one looks not at a breach of securities laws or federal codes but at the larger offense of a person who squandered the rare opportunity to influence the course of events and make the world a better place for it. Law breaking by men and women whose lives were stacked against them from the start, while never excusable, is perhaps easier to understand. When all you have known is crime and criminal influences from an early age, the ability to find a better path is strewn with obstacles. But when there is the gift of affluence and privilege from birth and great wealth, fame and power amassed along the way, as there was for Lord Black of Crossharbour, the road taken to crime offends the senses of civilized men and women to the core.
So disconnected from the facts that led him to this latest step in a progressive march downward, Mr. Black writes in today’s National Post:
We have a Toronto court to thank for the massive and misleading exposure that the grainy security film that caused me to appear furtive, has caused. We have the same court to thank for a number of other unjust decisions.
So now it is the “graininess” of the security film that caught him removing the boxes from his Toronto Street office that is the culprit, along with a string of other players from investors to prosecutors. It is they who are responsible for his fate. Not him. Never him.
I am well aware of the capacity of courts, agencies and commissions to act incorrectly when it comes to the rights of individuals. Often it is out of a lack of competence. Sometimes it is the result of malice. I have strongly condemned such conduct in the past. I wish we had heard from Mr. Black and his newspapers on this subject in the past. It might have helped to avoid a number of lives being ruined. But as I have noted above, injustice rarely befalls those with vast resources to pursue their rights in the avenues of both the legal system and the court of public opinion. And if I believed for one moment that Mr. Black had been disadvantaged by a significant manifestation of bias in the legal system, I would be the first to come to his defense. To whom among the unjustly treated, other than himself, has Mr. Black ever come to the defense?
One also is prompted to wonder, if Mr. Black has so many important facts to marshal in his defense, which are voluminously detailed in his column today (and how many other convicted felons do the publishers and editors of the National Post permit to make their appeal case in an Op-Ed column?) why on earth did he refuse to take the stand at his trial?
His Palm Beach mansion has more bathrooms than the accommodation he must now share with in excess of 180 fellow inmates. His address, which from birth included the more prestigious names in Toronto, New York, Palm Beach and London, will now be among the most infamous: the U.S. federal prison complex at Coleman. How ironic it is that the man who boasted that the prosecution’s case was “hanging like a toilet seat around their necks” may well end up cleaning such fixtures as part of his life as Coleman’s newest inmate. His newly acquired dog will have more freedom and live a life of greater splendor than will Mr. Black for the next several years. A man who has known the rarest of luxuries on the grandest scale will soon discover that the simple act of opening a refrigerator door for a glass of milk or taking a stroll down the street on a warm summer evening are things to be envied in the lives of the most common of individuals.
It is not just the contrast from a world of mansions, limousines and privileged society to one of bars, starchy food and shared showers that is difficult to grasp here; it is the reality of what might have been that will not now be; the unfulfilled accomplishments and potential successes of a man of uncommon ability, but regrettably of rather common criminal persuasion. Gone is the Argus empire he effectively inherited. Little remains of the newspaper domain he once ruled. Discarded in a foolish fit of pique is the Canadian citizenship he exchanged for a title and an ermine-fringed robe from another land. However responsible Mr. Black is for his fate, one cannot but ponder how strange it is that success can be such an impostor and only a warm-up for the main act of self-inflicted tragedy yet to arrive.
Mr. Black once boasted in a BBC interview that if he had to go to prison, he would wear the sentence like “a badge of honor.” There was no award ceremony evident as he arrived at the Coleman prison facility at noon today in a Cadillac with darkened windows. My father used to counsel that one of the tests of a bright person was the ability to make a sensible point without sounding like an idiot. Mr. Black is a bright man. On too many occasions over the past number of years in the things he has written and said (the “renunciation of the rights of the French nobility;” comparing federal prosecutors to “Nazis,” etc.), Mr. Black has sounded a few points lower than his IQ has been rated.
The tribulations that lie ahead for him will be significant, and the distress imposed on his family and friends is truly unfortunate. But the fact remains that in too many ways when Mr. Black has been the focus of hope and great expectations, he has disappointed and left those who have looked up to him feeling empty.
Conrad Black has enjoyed many honors in his life, some of which have been attached to his name. What he might have done with them and what his legacy might otherwise have been, will be a mystery forever lost in the mists of history unwritten. Overshadowing all of this is the fact that Conrad M. Black, Baron Black of Crossharbour, PC, OC, KCSG, who once reigned over an empire that saw the doors of kings, presidents and world luminaries open wide to him, is inmate number 18330-424, lord now only of his own bunk bed.
If there could be a less predicted or more bewildering turn in the life of a man, imagination fails to conjure up what that might be.
As of 8 pm EST, the Bureau of Prisons information posting regarding its custody of Conrad Black (below) had not been updated.
If it were a crime for legislators to bring discredit to parliament, the MPs investigating cash payments to a former prime minister would long ago have been carted off and locked up.
A lot of people I have talked with over the years view Canada’s system of government as something akin to a relative without personality: they’re nice enough to invite to the party but nobody will be terribly disappointed if they don’t show up.
Canada’s parliamentary-style democracy lacks the history and majesty of the British and misses out on the vigorous checks and balances that define the U.S. system. Its politicians, except for the few rare figures like Lester B. Pearson and Pierre Elliott Trudeau, seldom stand out on the world stage. And if you happened to be watching the action in Ottawa this week, the experience would have caused you to have an even lower opinion about how Canada is governed.
The House of Commons ethics committee investigating cash payments to former prime minister Brian Mulroney (he had always denied receiving any until recently, and those assurances formed part of the basis for the federal government paying out $2.1 million to settle his lawsuit with it in 1997) held more of what can only be charitably called hearings this week. It’s a committee that has demonstrated a chronic inability to engage in a straight line of inquiry with anything approaching discerning and well-researched questions. Even the fact that while he was prime minister, envelopes of cash were regularly being dispatched to the first minister’s official residence every month, seems to have gone over members’ heads. Can you imagine the scandal that would erupt in Washington if a former presidential chief of staff admitted that cash payments were being delivered like pizzas to the president and first lady at the White House? In Canada, it barely elicited a shrug.
Over the years, I have frequently been asked to testify before committees of both Canada’s House of Commons and Senate on ethics and governance issues. The experience generally leaves me astonished at the lack of preparation revealed in the questioning. But this House of Commons ethics committee really takes the prize.
Its members are often juvenile, unprepared and disgustingly partisan. Questions are disjointed and answers rarely followed up. The committee looked like a ship of fools when it was interrogating the former chef at 24 Sussex Drive, the prime minister’s official residence. Yes, I mean chef as in top cook. The committee seemed stunned that he had nothing of value to offer that would assist in its deliberations. A soupcon of arsenic might have been in the public interest.
One member of the committee has the unimpressive habit of curling his finger through his hair, which he wears with bangs, while questioning witnesses. The “questioning” part is generous; it’s really a whine delivered while mumbling. Other members are so far over their heads that it is painful to watch. The committee chair lets the witnesses decide if they want to take an oath to tell the truth at the beginning of their testimony. His pedantic displays and facial contortions of impatience make all the lame vice principals I have known look like paragons of manliness and virtue. So lacking in backbone is this committee and its chair that when a witness refused to give evidence unless the chair recused himself, Liberal MP Paul Szabo obliged and turned the gavel over to another member. Try pulling that stunt on Chris Dodd, chairman of the U.S. Senate banking committee, or Barney Frank, head of the House financial services committee.
Yesterday, Canadians learned that Mr. Mulroney is refusing to re-attend the hearings to answer further questions. His lawyer claims he doesn’t need to and that he wants to move on. So now it’s the subjects of investigation and their lawyers who are running the show. The committee, which has the power to summons witnesses, apparently is not going to demand that the man who stands at the center of its inquiry, appear again. If it were a crime for legislators to bring discredit to parliament, the members of this committee would long ago have been carted off and locked up.
Canadians over generations have nobly opposed the onset of tyranny around the world and for that reason and others they are a people who deserve respect among the ranks of those who value freedom. It is a shame that they are so often underserved by the mediocrity of their elected representatives.
The ability of law makers to hold meaningful hearings on significant matters of public policy has been a central feature of American democracy. How many failures, cover ups and scandals would have gone undetected if it had not been for the fact that Congress can actually assert itself and demand answers? Testifying is generally not an option as a long line of figures from John Dean to Roger Clemens have discovered. It’s part of the checks and balances that make the American system, for the most part, the closest thing to a model of sound governance in the world today.
As this week’s antics in Ottawa revealed, the Canadian system is often so far removed from that model it’s hard to believe it inhabits the same planet, much less the same continent. The Ethics Committee of Canada’s House of Commons was given an important opportunity to strengthen public confidence in the political system. Instead, it did the opposite, which makes it our choice for the Outrage of the Week.
