Home » OPINION » Columns » Time to hold execs accountable

Time to hold execs accountable

I read last week that during the market crisis that began in 1929, there was a call for the pay for CEO’s of top companies to be limited to $15,000.00 per year. Sound familiar? Except for the enormous difference in the dollar amount, it seems to be deja vu all over again. I am appalled, as are most Americans I think, with the incredible lack of judgment used by some of these top executives. From AIG forging ahead with a big party weekend in Vegas just after receiving government funds to stay afloat, to the top three executives in the Big Three Auto Club spending somewhere around $100,000 to fly, each in their own jet, to Washington to ask for bailout money instead of driving their own cars, to financial institutions who continue to give huge bonuses to executives after receiving taxpayers’ money to avoid bankruptcy is simply mind-boggling. Interestingly, one of the reasons used for the Big Three taking their own jets was security for these important men. I would think the common terrorist out there could find better marks than the heads of companies that can’t stay afloat without government intervention.

We scratch our heads and wonder how all of this got so far out of line without anyone seeing it coming. Congressman Barney Franks, just two months before the virtual collapse of the credit markets, vouched for the financial strength and solid balance sheets of Freddie Mac and Fannie Mae. How could he not know? It’s not rocket science. I knew we had a credit problem two years ago when my daughter, then eight years old, received a credit card application in the mail for her new business with a pre-approved limit of $10,000. The only business she had ever run was a lemonade stand that sold $8 in lemonade and $6 worth of cookies. Ads for credit cards followed by ads for bankruptcy attorneys are another big hint that things are out of hand.

But what really chaps people that I have talked with is this executive pay issue. I remember once when I was dealing with a charitable foundation and there was an argument between members of the board because the executive director went out of town for his job and took his wife with him. The executive director did not want to go out of town alone so he had asked his wife to go with him and had the charity pick up the tab for both of them. Now this doesn’t sound too bad at first blush, but the point is that this was not a privately owned company, this was a charity. The charity used money given by donors to fund its existence and those donors presumably didn’t give that money so the executive director could take his spouse on business trips with him. If it were a private business the choice would be the directors, but it wasn’t and the basic standard of care is different.

The same holds true for publicly traded companies. Publicly traded companies are not owned by the CEO. He may have a great deal of stock, but not enough to make decisions that benefit him over the shareholders. This is something that we tend to forget as shareholders. The company may be run by the executives, but it is owned by the shareholders and the executives have a fiduciary responsibility to make decisions that are in the best interest of the shareholders. I don’t care how much money your company makes, that should not include a $1-million renovation of the CEO’s office. It doesn’t include $25,000,000 birthday parties with headliner entertainment that we can’t even afford at our 10,000-seat coliseum in my hometown of Tupelo. And it certainly doesn’t include paying huge bonuses when the company is on life support.

So why do they do it? Because they can. Everyone has an opportunity to own stock of a company, which is a positive, but one of the downsides of the expansion of the investment industry over the past quarter of a century is that publicly traded companies are now owned by so many different shareholders. Each of those shareholders has such a small piece of the company that it is hard to hold executives accountable any longer. In the past couple of years companies have had to resort to calling shareholders to ask them to vote their proxies for the annual meeting. We don’t even want to vote anymore. And as long as the stock is going up, no one seems to notice or care that their leader made $50 million in salary and another $100 million in stock bonuses, flies his family around in the company jet and has a desk in his office that costs $50,000. If we bothered to find out, I think it would be safe to say that we wouldn’t vote for that no matter how much profit the business showed.

But when the market crashes around us and we see the costs of American business chasing the dollar of profit without regard for the consequences and rewarding them for putting our companies at risk, then we want answers. How could this happen? We let it happen.

I’m not saying that it is easy, but we need to find a way to hold executives accountable for their actions in the good times, as well as the bad, because it is what happens during the good times that gets us in these messes in the first place.

Scott Reed, CIMA

About Contributing Columnist

Leave a Reply

Your email address will not be published. Required fields are marked *

*