Where Have All the Leaders Gone? (11 page)

A
lot of corporate executives must have been paying close attention in 1987 when the actor Michael Douglas uttered those famous words in the movie
Wall Street
: “Greed is good.” They took it to heart.

When I was a kid, the nuns hammered us with the Seven Deadly Sins. Those were the sins that doomed your immortal soul. Serious stuff. Greed was on top of the list. I didn’t really understand what they were getting at with the word
deadly,
but I figured it out pretty quick when I got into business.

Greed has always been with us, especially in the money-changing professions. But has it ever been this bad? I don’t think so. The most prevalent motto of corporate America seems to be greed. You ask someone to name a top business leader, and they think of the guy they just saw being led away in handcuffs.

Greed is big, but I’m not letting
envy
off the hook. That’s a deadly sin, too. Sometimes I think the real culprit is envy. A CEO looks at another CEO, and says, “Hey, he’s making fifty million, and I’m only making thirty million. I’m in the same industry, and I’m better than he is. I should be making
sixty
million.” That’s how the executive compensations spiral up. Nobody says, “Well, thirty million is pretty good.” So envy can trump greed.

When I was young, I’d look at the CEOs of the big companies, and I’d say, “Wow! That’s where I want to be someday. They’re the cream of the crop.” In those days, CEOs were the most admired people in the country, and car salesmen were the least admired. Today, car salesmen rate above CEOs on the admiration scale. What’s going on? Is it a few bad apples, or is the whole barrel decayed?

A HECKUVA JOB, KENNY BOY

My mother always taught me not to speak ill of the dead, but I have to say a few words about Kenneth Lay, may he rest in peace.

I know that some people found it hard to think of Ken Lay as a bad guy. He had such an
engaging
manner, such a fresh, all-American face. He was charming. He loved his wife. He didn’t fit the image of a robber baron. He was the CEO of Enron, an energy company based in Houston—the poster boy of American success.

And how many villains have cute nicknames given to them by the President of the United States? “Kenny Boy” just didn’t seem like the kind of guy who would cook the books and drive his company into the ground. And he didn’t seem like the kind of guy who would defraud his workers. But that’s what he did. When it became obvious to him that Enron was going under, Lay did two things. First, he unloaded his own stock, making $70 million on the spot. Then he froze his workers’ stock, which was invested in their pension plans, so they couldn’t withdraw the money. When the collapse finally happened, Enron’s stock was worth thirty-five cents a share. Most of the employees lost their pensions, along with their jobs.

We’re not talking about small change here. There were employees with over thirty years at the company whose pension plans had swelled to between $500,000 and a million—and they were left with nothing. Others had saved $100,000 or $200,000, and they were looking forward to retiring with twice that amount. In all, the Enron collapse resulted in employee pension losses of almost $1 billion.

In 2006, Ken Lay was convicted on six counts of fraud and conspiracy, and was awaiting sentencing when he suddenly dropped dead of a massive heart attack. I guess in Kenny Boy’s case, greed really
was
a deadly sin. There’s a bright side, though—at least, for Kenny Boy’s wife. Because he conveniently died before sentencing, Lay’s conviction was thrown out. That means not a penny of his fortune will go to the pension-poor employees he robbed. I guess those former Enron employees will have to get their rewards in heaven.

PAY FOR PERFORMANCE—A NOVEL IDEA

Guys like Ken Lay finally got people paying attention to how outlandish executive compensation was getting. But the thing that most people, including me, find unbelievable is how many executives get huge pay packages even though they’re doing
terrible
jobs of running their companies.

What kind of capitalist system is that? Whatever happened to “pay for performance”?

Okay—time for full disclosure. I made a lot of money as CEO of Chrysler. Some people probably thought I made
too much
money. But the reason I made money was because most of my income was directly tied to the stock price. And the stock price went up 800 percent because we were doing so well. Get it?
Pay for performance.
It’s the only way.

Unfortunately, times seem to have changed. Now it’s no longer a requirement that a CEO make a company profitable in order to earn big bucks.

A few years ago, it got so bad that
Fortune
magazine published a cover featuring a smiling pig in a business suit, with the headline “Have They No Shame?” That was the year the highest-paid CEOs in the country were heading the worst-performing companies. How do you explain that?

You always hear, “We’ve got to pay big bucks if we want to attract the top talent.” Huh? Is this a new definition of talent—the ability to
lose
money?

The guys taking these monstrous salaries and pensions are thumbing their noses at the shareholders. It’s got to stop. So, how do we stop it? Well, the problem starts with the good old boys (and girls) on the boards of directors.

INCEST IN THE BOARDROOM

Incest isn’t one of the Seven Deadly Sins, but maybe it should be. Today’s corporate boards are extremely incestuous: Insiders bring in other insiders who bring in other insiders. Most boards serve at the pleasure of the CEO. It’s not supposed to be that way, but that’s the reality. I’ve been there and experienced it myself. If a CEO is powerful, he makes a board his own. Although the board’s job is to represent the shareholders, its members are chosen by a hired hand.

The job of a corporate board of directors is to keep chief executives on the straight and narrow, to review their plans and priorities, and to hold them accountable. But it can be very comfortable and clubby. When I first got to Chrysler, we had a crisis board, so everyone worked very hard. There were some terrific business minds on that board, including the guy who hired me, Bill Hewlett of Hewlett Packard. Later, when I got to select my own board, I looked for people with the best reputations, and they recommended others. I thought I assembled a strong board. But there’s no question it was an inner circle.

There are some nice perks that usually go with being a director. In exchange for eight to ten days a year, directors earn compensations that can range from $50,000 to $100,000. Some get pensions, stock awards, free medical and dental care, and the use of private corporate aircraft. If you’re on the board of a car company you get a new car delivered to you a couple of times a year.

I’m not saying there aren’t a lot of conscientious board members in corporate America. Probably the majority are conscientious. What’s missing is
leadership.
Leaders don’t just take things at face value. They ask hard questions. They hold CEOs accountable.

The members of corporate boards are not secret, but unless you’re a media hound like Ross Perot was when he was on the General Motors board, most directors try to keep their names out of the news. And when something goes really wrong—like Enron—everyone runs for the showers. They don’t want to be tainted. Unfortunately, there’s no real accountability for boards.

The most infamous board right now is the one that governs the New York Stock Exchange. Although it’s a nonprofit entity, the board approved a pay package for its former CEO, Richard Grasso, that included $140 million in deferred compensation. The compensation committee of the board was handpicked by Grasso himself, and it was mostly comprised of representatives from NYSE-listed companies over which Grasso had regulatory control. Now
that
’s a fox in the henhouse! New York Governor Elliott Spitzer thought so, too. When he was attorney general, Spitzer sued Grasso to get some of the money back. Grasso was forced to step down, but to this day he claims to be outraged by the suggestion that he’s not worth the money. (If you’re keeping track, that’s the deadly sin of pride. Also wrath.)

Another recent eyebrow-raiser was the golden retirement package awarded to Lee Raymond, former CEO and chairman of ExxonMobil. Raymond received more than $400 million in total compensation. You tell that to the folks who are pumping three-and four-dollar-a-gallon gas and you might have a riot on your hands. They’re already pissed off that ExxonMobil is showing record profits on their backs.

ExxonMobil employees have a legitimate gripe, too. In spite of those record profits, the company has underfunded its pension plan by $11.2 billion—the most of any company on record. How do they explain that? Were they afraid they’d have to shave a few bucks off Raymond’s package if they funded the pension plan? What’s especially galling is that U.S. taxpayers are on the hook for defaulted pension plans.

Where is the accountability to the workers who spend their lives building equity, with the promise that they’ll be taken care of when they retire? How can you say to them, “Sorry, our contract with you is no longer valid?” The scandalous robbery of middle-class pensions must be investigated. It’s almost as if the rule has become golden parachutes for execs and a kick in the teeth for workers.

WINDFALLS OF WAR

If there were a Hall of Shame for corporate greed, you’d have to include Halliburton, the world’s largest oil and gas services company, with subsidiaries in a variety of industries. The war in Iraq has been a windfall for Halliburton. Maybe I’m getting cynical in my old age, but I wonder if it has anything to do with Vice President Dick Cheney. Before he appointed himself Vice President of the United States, Cheney was CEO of Halliburton. Strangely, Cheney’s official White House biography, which is published on the Web, doesn’t mention his job at Halliburton. I guess he forgot.

Halliburton and its subsidiaries just happen to be the chief beneficiaries of the rebuilding efforts in Iraq. So far, they’ve been awarded no-bid contracts of about $11 billion. If a job needs to be done, Halliburton’s your company. It has mastered the art of the no-bid contract.

There have been numerous scandals about the way Halliburton has spent our money. The U.S. Army reports that Halliburton has overcharged the government about $128 million for fuel transportation and food services. The Halliburton subsidiary KBR, which is the main contractor responsible for restoring Iraq’s oil industry, has made little progress. There are accusations of kickbacks and other outright frauds. And of course the gigantic Super Bowl party the company threw its workers in Baghdad, with big-screen TVs and tubs of chicken wings and tacos. All billed to the American taxpayer.

In spite of Halliburton’s many irregularities in Iraq, after Hurricane Katrina hit the Gulf Coast, one of its subsidiaries was awarded a $29.8 million, no-bid contract for cleanup work. I hope the citizens of the Gulf Coast are enjoying their trailers!

Cheney insists that it’s purely coincidental that Halliburton is the beneficiary of so much government largesse. He has said repeatedly, “I have absolutely no influence, involvement, or knowledge of federal government contracts.” It’s a strange thing to say, because I think that’s part of his job description.

When Cheney became Vice President, he was required to sever all ties with his former company, which he did—sort of. He still retains unexercised stock options and deferred salary. His stock options alone have risen more than three thousand percent since 2004—from a value of about $250,000 to more than $8 million. I don’t think that’s what they mean by
severing
ties. It all amounts to an extremely generous retirement package.

Now, Cheney might be one of those rare guys who walks the straight and narrow and does the right thing, regardless of whether he benefits personally. But even if this is so, shouldn’t he try to avoid the
appearance
of a conflict of interest? If you look at the raw facts, you might conclude that our Vice President is moonlighting as CEO of Halliburton.

TRY A LITTLE VIRTUE

So, those are some of the biggest sinners in the world of corporate greed. For the solution, I have to go back to basics. In fact, the answer is so simple it’s a wonder I even have to spell it out: Instead of living by the deadly sins, corporate America should try living by some of the virtues.

 

Instead of greed, how about generosity.

Instead of envy, try a little charity.

Instead of pride, show some humility.

Instead of wrath, let’s see composure.

 

Our capitalist system holds the promise that every American can succeed, but if we don’t infuse it with some humane values, it deteriorates into a winner-take-all setup, which doesn’t really serve our free enterprise system
or
our common good.

Let me tell you a story about a company that prospered under the worst circumstances because it took care of its employees. This one involves leadership in a crisis.

Before September 11, 2001, James Dunne III, one of three managing partners of the small investing firm of Sandler O’Neill & Partners, wasn’t that interested in the business. In fact, that morning he wasn’t at his office at the World Trade Center. He was on a golf course trying to qualify for an amateur tournament. Being a goof-off saved his life. The other two partners, along with sixty-four employees, died in the terrorist attacks.