The “Free Market” Takes Its Pound Of Flesh, But Never From The Failed CEO
I can’t let Detroit go partly because there is so much to learn from the robbery that took place in the past and is continuing to this day. Today, let’s consider for a moment the price regular workers pay when something goes bad versus the price CEOs never pay when something goes askew. It’s a telling story about the deep corruption of the system.
In one corner, we have tens of thousands of workers — regular people who just went to work every day, did their jobs for a few decades and all they want is to keep the pension they basically saved for. Saved because pensions aren’t free money — those pensions are deferred wages, money workers didn’t take home in a monthly pay check but, wisely, put off using that money until later in their lives.
The so-called “free market” — enabled by a bi-partisan love affair with so-called “free trade” (which ripped away decent jobs from Detroit and hammered down wages); profiteering in health care (because no one had the the balls or political will to destroy two of the most parasitic industries ever to leech off human beings: the drug and insurance industries); and Wall Street thieves who destroyed trillions of dollars in wealth because of the greed of a handful of Robert Rubin types — robbed Detroit.
Workers did nothing wrong in Detroit. Nothing.
And, yet, they are now being asked to pay for the sins of a corrupt system. By handing over a huge chunk of the money they had put aside in deferred wages. And, then, they are being told when they appeal to the White House — to a president who is talking about the divide between rich and poor — for financial assistance, basically, to drop dead. Twice, actually.
Just on that alone, you can legitimately yell, “what the fuck”?
But, it’s worth taking one extra step. Draw a comparison with that story by looking at the other side of the ledger: what happens when a CEO leads a company, operating in the so-called “free market”, to disaster? Does that CEO pay for that mismanagement by losing pensions? Yes, a rhetorical question.
Consider, for example, the story of one Henry McKinnell, who I wrote about in “The Audacity of Greed”:
To this day, McKinnell’s tenure is hard to forget, in particular if you are a Pfizer shareholder. In 2001, when McKinnell took over as CEO, Pfizer’s stock was trading at about $45 a share; when his tenure ended five years later, Pfizer’s stock was floundering at under $36 a share. On McKinnell’s watch, the value of the company declined by $137 billion.
However, McKinnell did not suffer for his reign of error at Pfizer. On the contrary; as he walked out the door at the end of 2006, having presided over a loss of 40 percent in the value of the company, McKinnell still had quite a wad of cash to stuff in his pocket: $12 million in severance pay; a bonus of $2.15 million; and a hunk of stocks that had vested, worth $5.8 million. In addition, he also received a $78 million payout for deferred compensation, along with about $18.3 million in “performance-based shares.” And as if that wasn’t enough, McKinnell will be cashing an annual pension check of $6.65 million—for the rest of his life. [emphasis added here]
Or, how about another abject failure, Robert Nardelli, who ran Home Depot into the ground. Again, from “The Audacity of Greed”:
Robert Nardelli is another example of the curious phenomena of tying CEO pay to non-performance. Nardelli joined General Electric in 1971 as a manufacturing engineer, rising to Senior Vice President in 1995. While he ultimately lost out in the competition to succeed Jack Welch as CEO of GE, Nardelli still received a lucrative consolation prize: an extravagant offer from venture capitalist Ken Langone (who sat on the boards of both GE and Home Depot) to run Home Depot, even though Nardelli had no prior retail experience.
During his six-year stint as CEO of Home Depot, Nardelli created absolutely no value for the company’s shareholders. I am not exaggerating: on December 4, 2000, the day before Nardelli was named chief executive, shares of Home Depot closed at $40.75; on December 29, 2006, the last day of trading before he announced his resignation as CEO, the stock closed at $40.16. For lowering Home Depot’s stock price by 59 cents over the course of six years, Nardelli received “$210 million in cash and stock options, including a $20 million severance payment and retirement benefits of $32 million,” upon his separation from the company. [emphasis added here]
Or, Charlie Prince of Citibank (from “The Audacity of Greed”):
Then there is Charles Prince of Citigroup. In his four years as CEO, Prince oversaw a financial return that averaged a negative 2.5 percent per year. Yes, that’s right, a negative return—compared to a 12 percent a year return for the Standard & Poor’s 500 index during the same time period.14 When he resigned from his job in November 2007, after a nearly $6 billion write-down because of mortgage securities’ risks, Prince said, “Given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as Chief Executive Officer is to step down.”
Apparently, Prince’s “honor” did not prevent him from accepting a $10.4 million discretionary bonus, which the board of Citigroup could have said no to, but didn’t. The board also let Prince keep more than $28 million in unvested stock and options. In addition, Prince also walked away with pensions and retirement benefits worth $1.8 million. All this for generating a negative financial return for Citigroup’s stockholders during his run as CEO. [emphasis added]
And one more cretin — though I could fill endless pages of examples of this shit because this is the story of corporate America — in the personage of E. Stanley O’Neal, he of the now-evaporated Merrill Lynch (from “The Audacity of Greed”):
Thanks to the financial collapse of Merrill Lynch, thousands of people lost their jobs—mainly secretaries, administrative assistants, clerks and a whole host of other regular workers who only knew what a multi-million dollar bonus was by reading about it in the newspaper. The fate of the company’s management? E. Stanley O’Neal, who, as chairman and CEO from 2003 to 2007 was at the helm of the company when Merrill posted a $2.24 billion loss in the third-quarter of 2007 because of a mind-boggling $8.4 billion write-down on investments in junk mortgages and risky debt securities—the largest quarterly loss in the company’s nearly 100-year history—walked away with a “retirement” compensation package worth $161 million. (And what was O’Neal doing while his company was suffering record losses? Playing golf—including three rounds on three different courses in a single day.) [emphasis added]
$161 million retirement. For destroying a company.
So, it is particularly galling to hear politicians and yappers in the media, who sat by while the real culprits of incompetence, mismanagement and robbery walked away with vast fortunes, continue to pontificate about Detroit workers needing to share the pain. Workers in Detroit, and elsewhere, have already shared the pain — and then some.
But, never a CEO. No giving back multi-million dollar pensions (the likes of which an ordinary person could only dream of). No indictments for criminal action. No demand that they relinquish, in the financial crisis mess, top jobs in return for getting hundreds of billions of dollars in taxpayer money to fix the mess they made. Nope. The opposite. Most of those guys kept their jobs or moved on to other jobs, pocketing tens of millions of dollars.
So, to recap. Regular workers do their jobs and earn modest pay and act responsibly by building up a very, very modest pension — and, then, get handed the bill for a mess they had no role in creating.
CEOs fuck up, left and right, leave huge financial messes for others to clean up…and they get rich.
Tell me, please, if there is anything more pathological than that.