The Free Market Shrugged
"Businessmen," said Ayn Rand in 1961, "are the symbol of a free society -- the symbol of America. If and when they perish, civilization will perish." But then, the high priestess of free enterprise never met the men of Enron.
If she had, it's hard to believe she would have equated Enron's latest scheme with civilization or even healthy capitalism. As part of a plan approved by a bankruptcy judge on Tuesday, the slowly sinking energy giant intends to fork over $140 million in retention bonuses to "key employees" possessing "unique knowledge, skills and experience." I guess these would be people who know how to cook books, over-inflate earnings and operate the company shredders.
This is just the most recent perversion of the ideal Rand celebrated -- a competitive meritocracy operating in a free market. In books such as "The Virtue of Selfishness" and "Atlas Shrugged," the bibles of free marketeers like Alan Greenspan, Rand championed the idea that by doing what is best for yourself, you end up doing what is best for society. That equation has now been turned on its ear, and we are instead witnessing a crony capitalism where the interests of CEOs are no longer aligned with the interests of their shareholders and workers or even the long-term interests of the companies they run -- not to mention society as a whole.
Indeed, the Enron bonus plan was given the blessing of the company's official creditors committee, a Scroogish bunch that came out against additional help to the 4,500 Enron workers unceremoniously fired last year.
Unfortunately, as Warren Buffet, a living, breathing John Galt, put it: "Though Enron has become the symbol for shareholder abuse, there is no shortage of egregious conduct elsewhere in corporate America."
In "Atlas Shrugged," Rand extolled a two-fisted capitalism personified by the kind of businessman "who earns what he gets and does not give or take the undeserved" and who "does not ask to be paid for his failures, nor does he ask to be loved for his flaws." Does that description sound remotely like anything or anyone you read about in the business pages these days?
Instead, thanks to stock options, golden parachutes, and asleep-at-the-wheel corporate boards, CEOs are now protected from their own incompetence and rewarded for their failures. It's the antithesis of the Randian free market philosophy, according to which "the code of competence is the only system of morality that's on a gold standard." Now it's the code of connections, corruption, and cronyism that reigns supreme.
After a decade in which CEOs have been treated like rock stars or American royalty -- sought as after guests on talk shows and gracing the covers of major magazines -- Americans are suddenly finding out that many of them, despite their mega-million dollar salaries, are not even good at what they're overpaid to do. In fact, quite a few are downright awful. But however much they ravage their companies' bottom-line, it never seems to affect their own annual haul.
People like former Ford CEO Jacques Nasser, who was rewarded with millions in stock and cash despite a disastrous 34-month reign that left the company's revenue in a nosedive and 35,000 workers out of a job. Or executives like Doug Daft at Coca-Cola and Ken Chenault at American Express, who were given bonuses or raises last year even as their companies faltered.
It's ironic that just as our country has taken steps to abolish welfare, forcing the poor to take responsibility for their choices, we've allowed the corporate culture to weave a giant safety net for its executives. Is this corporate welfare really any different or less costly than the kind most of these people inveigh against?
The game has been rigged: no matter how badly these fat cats play it, they manage to win. And many top executives, addicted to their stock options -- perks that now account for 60 percent of the average CEO's yearly pay package -- have adopted a live-for-the-moment mindset. Why invest in research and development, when you can lay off workers, sell off valuable assets, goose the stock price and quickly cash in and get out?
Even Harvey Pitt, the corporate cozy Securities and Exchange Commission chair who, before the fall of Enron called for a "kinder and gentler" SEC, has now enlisted in the Herculean and messy task of cleaning the Augean stables of the Fortune 500.
"If managers," declared Pitt, "can reap profits from their options while shareholders are losing some or all of their equity stake, the options create conflicting, not aligned interests." He has suggested that executives "should be required to demonstrate sustained, long-term growth and success before they can actually exercise any of their options."
It's a start. But why not also have shareholders, and not just directors, vote on future option plans, and institute regulations that would force executives to return all option profits earned in the year preceding a bankruptcy filing?
Part of Enron's secretive new plan sought to protect 237 top employees from giving back any of the $55 million in bonuses the company doled out just 2 days before going belly up last December, a slimy provision the bankruptcy judge denied.
Those most devoted to the principles of a free market are the ones who should be working the hardest to put an end to a state of affairs in which businessmen -- those "symbols of America" -- are richly rewarded for failing. It's downright un-Randian. And, much more importantly for those of us who do not sleep with "Atlas Shrugged" under our pillow, it's downright un-American.