Posted by Carl Icahn October 21, 2008 : 1:35 PM
Treasury Secretary Hank Paulson, appearing on CNBC last week, seemed proud of the fact that the CEOs of the nation's nine largest banks agreed to restrictions on golden parachutes, salaries and bonuses in return for a massive, $125 billion taxpayer infusion.
I mean, some of these guys nearly wrecked the global financial system with reckless gambling on products they barely understood and "agreed" to cut back on their already bloated pay packages? How generous of them.
This is akin to giving the Titanic's owner, White Star Line Managing Director Joseph Ismay, a commendation for driving the ship so fast on its maiden voyage that it slammed into an iceberg and sank, claiming 1,500 passengers.
Ismay, of course, escaped on his own lifeboat and survived, unlike his captain, Edward John Smith, who went down with the ship. In corporate America these days, there are far too few Smiths and far too many Ismays.
One reason that Paulson may have gotten the banks to agree to the restrictions is that they do very little to actually restrict compensation. It only covers the CEO, the CFO and the next three most highly compensated executive officers.
This means that other highly paid executives aren't covered, such as Joseph Cassano, the head of AIG’s Financial Products unit who made $280 million in the last eight years writing credit default swaps that caused AIG's collapse, according to Congressional testimony this month.
And according to the Wall Street Journal, Peter Kraus, the head of strategy at Merrill Lynch for only two months, is leaving his firm with a $10 million bonus, even though Merrill's failed strategy led to its takeover by Bank of America, which accepted $25 billion from the Feds.
Additionally under Paulson's plan, golden parachutes are limited to three times an executive's average annual salary, so if the CEO made an average of $20 million a year, he or she could still take home $60 million in shareholder-paid severance.
This is what is wrong with corporate managements these days! It's heads I win, tails you lose when you get to the top, shareholders and employees be damned. Where are the non-existent boards? Out on shareholder-funded "pheasant hunts" perhaps?
This is what I aim to change with my new advocacy initiative, United Shareholders of America. We need better corporate governance in this country. We can't afford the kind of mismanagement that got us into a financial crisis that nearly caused an economic collapse.
Paulson's plan is a baby step in reforming executive pay but I have a better idea: why don't we give shareholders of any bank accepting a government bailout the immediate right to call a special shareholders meeting to elect new board members?
In my view, it was the boards of directors at institutions like Citigroup, Morgan Stanley and Merrill Lynch, Lehman Brothers, Bear Stearns, AIG and others that failed to stop management from pursuing risky strategies that crippled their firms.
In his latest book "Where Have All the Leaders Gone?," retired auto executive Lee Iacocca writes, "Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder!"
"Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing," wrote Iacocca, adding, "The most famous business leaders are not the innovators but the guys in handcuffs."
I’m not saying I totally agree with Iacocca, because we do have some great business leaders in this country. But there is definitely too little shareholder outrage over self-serving executives who get massive paychecks for deeply flawed performances.
It was only after the threat of legal action that AIG, the collapsed insurance company that required $123 billion in federal loans, agreed last week to help recover millions of dollars in payments to its former CEO Martin Sullivan and to others, including Joseph Cassano, the head of the unit that caused massive losses at AIG.
But there are far too few of these clawbacks taking place.
Under pressure by New York Attorney General Andrew Cuomo, AIG also agreed to terminate some $10 million in severance payments to Stephen Bensinger, its departing CFO. It also said it would cancel 160 executive junkets and conferences for a savings of more than $8 million. Recent trips included a $440,000 executive trip to a California resort and a $90,000 U.K. trip for pheasant hunting, according to news reports. But it shouldn’t have taken the threat of government prosecution for AIG to take these actions. How much money is also wasted in other junkets, perks and salaries at other crippled firms that we will never know about?
Sarbanes-Oxley was aimed at making corporate board oversight stronger in the wake of the collapse of Enron, WorldCom and others. But when we see the kind of debacles that occurred over the last year, obviously that legislation is only part of the solution.
What we need is millions of shareholders to rise up and demand more accountability on the parts of boards and managements of the companies they hold.
Why, for instance, don't AIG shareholders demand a new non-executive board at AIG instead of continuing with one that presided over billions of dollars in lost value and a federal bailout over the last year? The fact that the AIG debacle occurred is reason enough to demand a change in shareholder representation.
This is why we are asking people to join our cause by signing up for United Shareholders on my blog, the Icahn Report. It costs you nothing and we need as many people as possible to demand change in Washington – NOW.
Some might say we should be concerned that we may not be able to attract top performers to executive positions without huge pay packages. I say we don’t need executives whose main concern is looting their companies and pillaging the Treasury no matter how matter how poorly the company performs.
I believe if an executive is good, he or she should be willing to accept a decent income and annual bonuses based purely on performance. I have no objections to executives getting substantial compensation as long as shareholders also win - over the long term.
Unfortunately, the latest Wall Street debacle demonstrates that many managements simply devised short-term routes to profits and bonuses in strategies that laid the groundwork for the crippling of their enterprises. This is outrageous and demands a serious and sustained shareholder response.