The Icahn Report

Bailout Plan Must Include Corporate Governance Changes

With the shocking collapse of multiple banks and financial institutions in recent months and staggering losses to shareholders, Congress clearly needs to forge a bailout package to stall the economy from further downward spiral.

In my view, the primary factor that got us into this mess is the egregious mismanagement and short-sightedness of boards and CEOs of these institutions, who took inordinate and leveraged risks with stockholders money, not simply external factors like the housing market slump.

Business cycles happen. Obviously, responsible managements should have planned for this possibility and not blindly invested in subprime mortgages and other toxic instruments.

Unfortunately this has been a disaster for shareholders, many of which are pension funds for working people. These shareholders are paying for the mistakes, while managements are leaving with huge bonuses, such as the $2.5 billion package for Lehman executives after the bank collapsed.

I have long maintained that there are too many laws in this country that protect inept managements and don’t give stockholders enough power to throw out these managers. The banking industry is a prime example.

The bailout is one answer. But perhaps the most important solution is to bring private money into these institutions. We need to have management accountability to induce private money to come into the financial industry.

Say On Pay

John McCain and Barack Obama finally agree on something: corporate accountability.

'Say on Pay' has become a hot topic in the 2008 elections and highlights our faulty corporate structure. 'Say on Pay' may be the first step in emphasizing to our political leaders how important corporate governance is to the United States economy.

The other day, I watched CNBC anchor Melissa Lee say, "…both presidential candidates railing against high executive pay at failed firms Fannie Mae and Freddie Mac and certainly the GSEs (are) not the only troubled firms giving multimillion dollar send-offs to departing CEOs. It has happened at Merrill Lynch, it has happened at Citigroup, the list goes on and on." Now executives at Lehman’s New York office that may be directly responsible for the world’s largest corporate bankruptcy are to share a $2.5 billion bonus courtesy of its deal with Barclays. Should a top executive pocket big bucks even if the company is failing?

Good question. The answer is NO.

Corporate Waste Brings this Nation Closer to the Brink

Few things bother me more than the titanic government debt load this country carries from years of reckless government borrowing and spending. We really have no ability to repay this debt, other than by continually issuing new debt to pay the interest on the old debt.

The Peter G. Peterson Foundation calculates that we as a country have racked up a staggering $53 trillion in government obligations. That’s $455,000 per household and growing at the rate of $2 trillion to $3 trillion a year "on autopilot," the respected think tank says.

Just this week, we added another $85 billion to these obligations with the bailout of insurance giant AIG. Add that to the $200 billion in potential obligations to Fannie Mae and Freddie Mac, the $29 billion to back up Bear Stearns toxic credits, and $300 billion for the Federal Housing Authority and a possible $25 billion to $50 billion in low-interest loans for Detroit’s Big-3 automakers and we’re talking nearly $700 billion on top of this.

The debt and obligations we carry as a nation, combined with our miniscule savings rate and monster trade deficit, is truly frightening.

But what is even worse is the sheer amount of waste in corporate America that impedes our ability to generate revenue needed to finance these obligations. Already many infrastructure projects across the nation are suffering from declining tax revenue.

America’s corporations need to be run more efficiently or tax revenues will continue to fall far short and we will be even more in hoc to foreign lenders. Inefficiency and mismanagement on a colossal scale is causing our corporations to lose their economic hegemony in the global marketplace every day. For the past 30 years, I have warned in countless articles and interviews that we as a country are losing our economic preeminence and my predictions are unfortunately becoming a reality.

We Pay So Much For So Little

With the monster financial meltdowns of the past month, the time has clearly come for shareholders to exert their rights and bring about major changes in corporate governance in America.

I intend to use this blog as a forum and a focal point to push for legislative changes to make corporate managements more accountable to shareholders, who are the true owners of America’s corporations.

I don’t claim to know what went on inside the boardrooms of these companies. However, based on my close involvement and knowledge concerning how many boards operate, it is difficult to see how one could reach any conclusion other than that the boards of directors of a number of these imploded financial firms utterly failed to successfully implement some of their primary tasks - to oversee management and monitor and evaluate risk controls.

This is unacceptable and intolerable. The financial pain and job losses these meltdowns have caused is now reverberating through the economy and this will likely continue for months or even years.

What has transpired in recent weeks with Lehman Brothers, AIG, Fannie Mae, Freddie Mac and Merrill Lynch is shocking. The dominoes keep falling on Wall Street from a mismanaged credit crisis, causing economic disarray, huge job losses and pain on a global scale.

In each case, the root cause seems to be excessive risk-taking by managements, or worse, managements that weren’t sufficiently aware of the risks their companies were taking and how it may impact their businesses.

Who was supposed to be watching these managers? Where were the boards of directors that are supposed to be overseeing these executives? I’m not going to judge the individual boards of these companies in what they did or should have done, but consider the following.