by Deb Cupples | ABC News reports:
It's hardly a shock: public-company executives (with help from lapdog-like Board members) have for years been funneling masses of shareholder dollars to themselves. That's partly why so many public companies (and their stocks) are worth less than they could be -- and that's partly why so many jobs have been cut.
The people running Merrill Lynch did similarly bad stuff in 2006 and 2007.
Merrill Lynch reported record-high, after-tax earnings of about $7.5 billion in 2006 -- and spent $5 to $6 billion on bonuses for executives and other employees. (NY Times) The bonuses were paid out as "expenses" before the (purported) after-tax earnings were calculated.
Wouldn't the company have been better off if the bonus money had instead been used to pay off debts, to fund growth, , or to put money aside to cover future losses...?
I say "purported" 2006 earnings, because it turned out that the 2006 earnings were fake (largely based on over-valued mortgage-backed securities). I doubt that many Merrill execs eagerly gave back those very real bonuses -- despite the bonuses' having been based on very fake profits.
The story gets worse: the very next year, Merrill reported losses of $8.6 billion. If Merrill's Board had not given out all of those bonuses in 2006, the company could have used that money to offset most of its 2007 losses.
Merrill's Board cut bonuses roughly 40% in 2007 -- meaning that the company likely still gave out $2 to $4 billion in bonuses that year, despite heavy losses.
Yes, something is wrong with that picture.
About ex-CEO John Thain, Bloomberg reported yesterday:
" John Thain, the former Merrill Lynch & Co. chief executive officer ousted yesterday, spent $1.2 million redecorating his downtown Manhattan office last year as the company was firing employees, a person familiar with the project said.
"Thain hired Los Angeles-based decorator Michael Smith, chosen by President Barack Obama and his wife Michelle to redecorate the White House, CNBC reported. Thain paid Smith $837,000 and his purchases included $87,000 for area rugs, $25,000 for a pedestal table and $68,000 for a 19th-Century credenza, CNBC said."
Those dollars belonged to Merrill's shareholders -- the people whose interests Merrill's executives and Board members were supposed to protect.
As long as our government allows public companies' Board members and execs to loot the shareholder money pot, shareholders will continue to lose wealth to execs and other employees.
This has been obvious since at least 2001, when Enron collapsed and a wave of corporate scandals accompanied the ringing in of the new millennium. Yet, Congress and ex-President Bush (and his appointees) refused to enact sensible regulations that would protect us shareholders.
My hope is that the new Congress and President Obama will finally start protecting us ordinary shareholders.
Other Buck Naked Politics Posts:
* Save Jobs by Cutting Executive Pay
* Execs Made Millions While Driving Companies into Ditch
* Krugman on the "Voodoo" Bank Bailouts
* GAO: Bailed-out Companies have Offshore Tax Havens
* Are Bailout Funds Being Misused?
* Real Bonuses Based on Fake Profits
* Cleaning up Political & Corporate Culture Could Help Economy
John Thain shamelessly stole from all kinds of people. His obscene office makeover is, perhaps the most blatant. Regardless of how well the company may have been (or more likely probably wasn't really) doing, that kind of extravagance is just uncalled for.
No executive--especially the CEO--should tolerate that kind of waste. Thain's vainglorious redecorating makes the $600 toilet seat seem like a bargain!
But that wasn't good enough for Thain. He pulled ahead bonuses and lied about Merrill's impending doom. If he couldn't see it coming, the he wasn't CEO material to begin with. Instead, he's just a crook.
Posted by: Cynical Synapse | January 29, 2009 at 07:21 PM
Hi cynical Synapse,
Obviously, we agree! Furthermore -- given that Thain could not doll out executive bonuses without the Board's approval -- I think that Merrill's board members fit into the same category.
Posted by: Deb | January 29, 2009 at 11:18 PM