Whither The Pitchforks?
This country is at war. It's an outrage that while we're at war, executives who are already fabulously rich are stealing and are at liberty. America is humiliated by its brightest and most ambitious looting it, while its young men and women die for it.
Read the rest of this nice rant about the latest incarnation of corporate misconduct: the backdating of stock options. It's flat-out thievery. And yes, it's unpatriotic; it's an example of the ethical vacuum that's as much a threat to our financial system as terrorism.
Except for a few posts here and there, I haven't spent much time on this topic. I've concluded that most people are so apathetic, uninterested, and inured to it that they need to feel pain before taking to the village square with pitchforks. That's too bad, because when the thieves think no one cares, they get busy. In the meantime, the best hope we have is more high-profile prosecutions like Enron that might deter those with a sense of self-preservation if nothing else. One of the reasons I've supported Eliot Spitzer is the deterrent factor; the only thing that kept some Wall Street and corporate thieves from reaching into the cookie jar during the past few years was the fear that someone was watching. Those who have opposed Spitzer's aggressiveness fall mainly into two camps: media shills for the financial industry and corporate America, and ivory tower academics far removed from the fetid trenches. I agree with Stephen Bainbridge more often than not, but at least on Spitzer, Bainbridge is an example of the latter. Those interested can visit his blog here and do a search for "Spitzer" to get his take, which I feel is pedantic and myopic.
Undoubtedly, Democrats will try to score outrage points in the midterms and in 2008 by conflating corporate malfeasance with the Lagos-on-the-Potomac type of corruption. But the former is not a product of Republican government (indeed, much of it has roots in the laissez-faire regulatory environment of the Clinton years) nor would it end with a Democratic takeover of either Congress or the White House. It's become part of our national identity. I think we're beyond self-help at this point, so things will change most likely because foreign creditors force us into a period of ethical enlightenment and the public's pain reaches a tipping point. We're not there yet, and it's a long road. But our foreign friends may have started us down it.
Read the rest of this nice rant about the latest incarnation of corporate misconduct: the backdating of stock options. It's flat-out thievery. And yes, it's unpatriotic; it's an example of the ethical vacuum that's as much a threat to our financial system as terrorism.
Except for a few posts here and there, I haven't spent much time on this topic. I've concluded that most people are so apathetic, uninterested, and inured to it that they need to feel pain before taking to the village square with pitchforks. That's too bad, because when the thieves think no one cares, they get busy. In the meantime, the best hope we have is more high-profile prosecutions like Enron that might deter those with a sense of self-preservation if nothing else. One of the reasons I've supported Eliot Spitzer is the deterrent factor; the only thing that kept some Wall Street and corporate thieves from reaching into the cookie jar during the past few years was the fear that someone was watching. Those who have opposed Spitzer's aggressiveness fall mainly into two camps: media shills for the financial industry and corporate America, and ivory tower academics far removed from the fetid trenches. I agree with Stephen Bainbridge more often than not, but at least on Spitzer, Bainbridge is an example of the latter. Those interested can visit his blog here and do a search for "Spitzer" to get his take, which I feel is pedantic and myopic.
Undoubtedly, Democrats will try to score outrage points in the midterms and in 2008 by conflating corporate malfeasance with the Lagos-on-the-Potomac type of corruption. But the former is not a product of Republican government (indeed, much of it has roots in the laissez-faire regulatory environment of the Clinton years) nor would it end with a Democratic takeover of either Congress or the White House. It's become part of our national identity. I think we're beyond self-help at this point, so things will change most likely because foreign creditors force us into a period of ethical enlightenment and the public's pain reaches a tipping point. We're not there yet, and it's a long road. But our foreign friends may have started us down it.
posted by The Cunning Realist at Thursday, June 01, 2006
31 Comments:
As an investor and an employee in corporate America, I am sickened by executive compensation. These senior executives and their boards are absolute sociopaths.
Stein poses the basic question I have often pondered but have never really been able to comprehend. Why is it that for these crooked corporate executives, Wall Street swindlers and corrupt Republican politicians, even TOO MUCH is never enough?
And I absolutely agree with your own statement about the "ethical vacuum" in our country today except that I would take it a bit further. I think the future of the average American is in much more danger today from Corporate America, Wall Street and Washington then they are from a bunch of Islamic fanatics.
It's nice to hope that maybe the rest of the world will force us to straighten up and fly right. Maybe you will be right. Unfortunately, I fear that if anything, they will continue to act as facilitators; at least as long as it serves their own interests.
Sociopaths indeed.
WHo lit a fire under Ben Stein? He has been all over the place with these rants lately.
As a liberal with economic views way to the left of CR or Stein I find it refreshing to see there are still honest Conservatives out there. My question is when will you and your ilk re-take the Republican party?
Executive compensation is wildly out of control but how can you blame them? Fund managers have no problem buying shares and that, in my opinion is what really needs to be looked at.
Maybe the funds should be forced to disclose the executive compensation in their top 20 holdings so the folks sitting in cubicles all day can decide if that is a good use of their 401k money.
That's five generals off the top of my head.
I dunno if this is number six, but it sure does seem a helluva coincidence to me that out of 300 million Americans, the one MOST suited to lead the immigration service (used to be INS, then CIS, now I'm not sure what) happens to be the duaghter of one Gen. Myers, who's compiled an enviable record as a most compliant Chairman of the Joint Chiefs.
-- sglover
Ayn Rand was right. 'Friends in Washinton' results in destruction of society.
Camus is right. Only appreciation of the absurd will allow survivial. Unfortunately, he killed himself.
Until we see more police beating white middle class people over the head apathy will reign.
Those white middle class people are now cowering in fear of terrorists and losing their job. POTUS with the complience of Congress and the Judiciary have, in fact won. Hitler took 90 days to achieve the same thing, so GWB is taking his time.
Will there be an election in 2008?
Dorian
The question is why aren't shareholders and boards of directors doing their job? Is there something that the government can do that won't make things worse?
I wish we knew the answer to these questions.
What about the Rolling Stone/R. Kennedy enquiry into massive 2004 election fraud? Scary stuff, isn't it?
Hello from Italy and congrats for your work.
Michelle Leder digs through corporate filings and blogs at Footnoted.org (http://www.footnoted.org/) all the wonderful ways in which businesses reward their executives. (Would you believe paying for professional race car training for the president's sons? $41K a month for 31 months for a retired CEO to give advice to his replacement?). It's enough to raise your blood pressure!
Kind of make one nauseous to think our retirement depends on the stock market, the ethics of Wall Street, and this type of corporate behavior. These executives are stealing from everyone that has a 401k and IRA, and destroying the fabric and integrity of the American business.
Exxon Mobil Shareholders Show Displeasure
At the Exxon shareholder meeting it wasn't just individual shareholders, but also pension managers, which are finally waking up and voting because these corporate executives just keep taking and taking, while Directors do nothing.
Good story on the beginning of the options war which politicized the FASB.
There is a lot of talk about soul of capitalism and corporate governance. But on an individual basis, if I vote my teeny tiny proxy, it has as much affect as twiddling my thumbs. You're right, it has to come down to arrests and regulations.
In a way, mutual funds, indexes, have destroyed the markets ability to regulate, if that existed in the first place, because people mindless dollar cost average and purchase these for retirement, with no regards to any individual corporate behavior.
There's a story in the book Corporate Governance (Nell Minow) that describes a particular corporations governance policy. It was a shiny example. Unfortunately it also belonged to Enron. So how do we know when it is for real and when it is for show? :-(
Dorian: Ayn Rand just makes my blood boil anytime anyone mentions her name. She insists that anything and every dirty trick is legitimate, nay, even necessary, so long as it leads to profit. Then she adds a couple of footnotes that say, oh, by the way, you should actually produce a legitimate product in order to earn your profit, oh and by the way, using the government in any way to advance your business is the lone exception to the rule that any dirty trick is legit.
There's a great scene in "Atlas Shrugged" (I forget the names of the characters by now, it's been years since I read it) where Taggert apologizes to one of her competitors who has been wiped out of existence by legislative fiat. She says words to the effect of, "Oh, I'm so sorry, if it had been a free competition I would have nailed you to the wall and stolen your market share and driven you into the ground and turned your family starving out onto the streets. But I didn't want it to end like _this_!!"
Well, why not? If corporate behavior must not be restrained by any any sense of morals or restraint, then why not turn to Big Brother to lean on your competition, if you can?
There's a hidden sense of 'decency' which Rand assumes, that prevents her heroes from acting in certain ways, such as creating Enron "puffball" companies (her word) or selling defective products. But since she never really articulates the specific points or values which comprise this sense of decency... at least, not the way she hammers repeatedly on her other points, such as deregulation, ruthless competition, "Money = Virtue" and so forth...
...her adherents 50 years later (even the ones who don't know her by name, but look up to people who looked up to Ayn Rand) -- continually find themselves surprised when people like Ken Lay. People whose public statements and outward appearance seemed to exemplify Rand's principles, turn out to have a very different (and much smaller) unspoken definition of 'decency'. Such people now completely control our economy, typically via the stock market and government connections.
The truth which both Adam Smith and Karl Marx recognized, however crudely, and Ayn Rand did not, is that monopoly, chicanery, corruption, collusion, and government protectionism achieved through bribery, are FEATURES of unbridled capitalism, and not BUGS. They arise from the same ethic that leads people to advance their company through unbridled competition.
Let's never forget that perhaps the highest-profile Ayn Rand fan was Alan Greenspan. And if you believe anything TCR has posted on his blog, then it follows that Greenspan's respect for Ayn Rand didn't seem to stop him from engaging in quite a lot of fiscal chicanery. Did Alan really believe, as Ayn Rand did, that each and every dollar really represented a tiny jewel of a competent person's hour of labor? You'd never know it from his fiscal policies, and Ayn's writings were vague and poorly-written enough that they seemed to accomodate him comfortably.
Sorry for a couple of typos in the above post, where I split up or deleted or edited run-on sentences... such as, I meant to say "people are surprised BY Ken Lay." not "People are surprised WHEN Ken Lay."
Good post, but with a bit of outright misinformation.
"(indeed, much of it has roots in the laissez-faire regulatory environment of the Clinton years) "
laissez-faire regulatory environment? Just what do you base that on?
Are we to believe that Sarbanes Oxley cleared up this environment?
Because anyone involved with a fortune 500 company would quickly explain to you that S/O is a total mess and only benefits the cottage industry of compliance consultants it has created.
Have to agree about Ben Stein. He's finally talking sense again, after a long absence.
Adam Smith's other book was, "The Theory of Moral Sentiments".
As I see it the big struggle we are involved in is against extremism. As it has been sold, it is religious extremism but the reality as we are seeing with examples like this is it actually our own capitalist extremism that may take down the whole ship.
Fundamental changes are needed. It is amazing to me that so quickly after Enron companies found a way to pickpocket their shareholders through stock buy backs and this option back dating.
Anon 4:10 -- exactly!
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings by any law which either could be executed, or would be consistent with liberty and justice." --Adam Smith
In trying to return my lengthy post to the subject at hand of the original TCR article --- Ben Stein and CEO salaries -- I think that these obscene CEO packages paid, especially to CEOs who preside over poor company performance, are an example of corruption, and to some degree (e.g. loopholes in Sarbanes Oxley) they are protected by government, due to campaign contributions and a generally warped attitude towards lassiez-faire.
This corruption is a result of unbridled capitalism, particularly in the absence of government protections for consumers and stockholders -- not in any way an aberration, mistake, accident, relic, nor "temporary adjustment" which deviates from "pure" capitalism. I get so worked-up about Ayn Rand because I believe that honest conservatives, such as William F. Buckley (in the TCR link above), or Ben Stein (this particular week), would recognize that, whereas judging from her novels Ayn Rand would not.
(And to Anon 2:39 -- Clinton wasn't lassiez-faire? [** spit take **] When most of the legwork for Energy Deregulation was done on his watch? Did Janet Reno ever see a corporate merger she didn't like? Do you remember Pearl Jam testifying before Congress about the Ticketmaster Monopoly, and DOJ telling them "Go away, sonny boy, we like monopolies just fine around here" ? Does the 1996 Telecommunications Act, more commonly known as the "Great Digital Spectrum Giveaway", ring any bells? Did the Administration support it? Well let me put it this way: the so-called "Gore Commission" said that after giving away this huge bounty which formerly belonged to the public explicitly -- an estimated $11 to $70 Billion, for free -- to established broadcasters, the broadcasters should donate a few mHz so that police, firemen, schoolteachers, or maybe low-money political candidates have public access to the digital spectrum... but this should be on a completely voluntary basis. Progress to date: zero point zero zero zero. So when people tell me what a wonderful President that Gore would have made, or may make in 2008, I look at his past performance and shudder.)
Kevin, I'd say you are a little confused.
The 1996 Telecommunications Act was had only one sponsor, Sen. Larry Pressler, R SD.
The National Energy Policy Act, which allowed power producers to compete for the sale of electricity to utilities was enacted in 1992.
Order 888 required utilities to open their transmission lines to competitors and was enacted by the FERC in 1996, but it was the states, first New Hampshire, followed by Arizona, California, etc. that allowed competition.
Spot on.
I think it was NPR that had an article a few months back regarding the issue. That article traced this increase in corporate chicanery to mutual funds. It went something like this:
As "normal" people began dumping x% of their pay into mutual funds, they hoped that they could just ignore the funds until they were ready for retirement.
The financial industry has had a field day with this. For them, the less attention people payed to these huge sums of money, the better. Even if individuals wanted to dump a stock because of board misdeeds, they often own the company as part of a mutual fund and not an independent stock.
So here's my idea: How about the best of both worlds? I propose a mutual fund that provides investors with a web-based interface that allows them to choose which stocks in the fund they do not want their funds invested in.
I know, the whole point of a mutual fund is that you hire someone else to cover these details for you. As we have seen above, there are shortcomings to this arrangement.
What if, as a Humbug Mutual Fund owner, I could log onto the HMF site and see a list of all companies that are currently owned by the fund. If Company X had really peeved me by giving their CEO a fat bonus while grinding up impoverished children in Africa to add as a main ingredient in their product, I could go to the HMF site, click the button next to 'Company X' and vote that my "share" of Company X holdings should be liquidated and reinvested in the other remaining companies.
Yes, I know, this is a childish view that is impractical to implement and ignores the practicalities of modern mutual funds and how they work. But how many people would dump money in the fund if someone were to get it to work? I know I would.
The ultimate Socially Responsible mutual fund.
To Anon 5:58 --
The 1996 Telecommunications Act passed by a huge bipartisan margins —- 91 to 5 in the Senate and 414 to 16 in House. Bob Dole was the only politician who is on record as _ever_ saying anything less than totally fawning about the bill. I personally remember President Clinton bragging about how pleased he was with the bill for many years thereafter, but since you apparently didn't click through my links, the Common Cause paper notes that "Even President Bill Clinton, who had threatened to veto an earlier version of the bill, had become a true believer. Signing the Act into law at a glitzy ceremony in the Library of Congress, Clinton predicted that 'consumers will receive the benefits of lower prices, better quality and greater choices in their telephone and cable services, and they will continue to benefit from a diversity of voices and viewpoints in radio, television and print media.'"
Al Gore, apart from apparently being pleased with the results of the Gore Commission as I mentioned, on the signing of the bill said: "This legislation will expand and strengthen universal service... It allows open access to the pipelines of knowledge." Al Gore has made many fantastic and hard-hitting statements about media consolidation since leaving office, but I have never once heard him criticize the 1996 Telecommunications Act specifically. Have you?
I have cited several sources to indicate its bipartisan support by now; please show me a quote where any politician in office at the time, besides poor lonely Bob Dole, has _EVER_ disapproved of it.
Remember the early signature project that Bill put Al to work on, "Reinventing Government" ? It was nothing but deregulation, outsourcing, and privatizing (scroll to end), privatizing (scroll to middle), and more privatizing. Who exactly said "The age of big government is over" ?? It astonishes me that anyone would say the Clinton-Gore Administration was against deregulation and lassiez-faire. (Of course, Republicans say this all the time, but it amazes me when they do so.)
To their credit, the Democrats in general leapt off the bandwagon of energy deregulation quickly after it so obviously went to hell in California in 2000, with Clinton issuing "emergency orders" to the FERC to re-institute price caps -- not changes of policy, but temporary orders which Bush easily rescinded -- prior to that, the Clinton/Gore FERC had nothing but good things to say about electricity deregulation. The States "allowed" electricity deregulation only after the groundwork had been fully elaborated at the FERC level by Order #888 in 1996. Please show me a quote from the Clinton FERC where they disapproved of electricity deregulation.
This is why I despair that the Democrats will be able to repair this country even on the long-shot chance that they get elected in bulk again. Certainly Dems, especially Gore, have been unfairly maligned in the media, and their quotes twisted. BUT Their supporters retroactively imagine them taking positions which in real history, they did not. Sure the Dems are more likely than Republicans to fix these messes, but this has been the unfulfilled promise of the Democratic Party for about 30 years, during much of which time they held significant political power.
I agree with what you say with the exception of people being apathetic regarding the finances and remuneration of corporate executives. Alot of people do not understand the mechanics of investment-such as myself. Most feel powerless to make a stand. Who would it be against. How would it be carried out. Would then the "C" word come out. While I haven't lost a job due to coporate downsizing, I have certainly had to take on extra duties without an increase in pay and being told that "we" needed to tighten the belt. No, it's not apathy, it frustration and lack of leadership.
In one of the economic books I was reading, it said the greatest concern to capitalism is the lack of growth everywhere else.
Logically you cannot have railroad sales and earning growths at a 60 degree angle forever, but that is what some folks look for, and is why corporations manipulate earnings. So this brazen unethical behavior by Corporate leaders makes one feel less secure about the financial future in the sense that these folks are grabbing as much as they can, while they can, because it is going to get a whole lot worse and they are taking care of themselves before 98 million + US investors catch on.
Ben Stein has a good ending:
"This country is at war. It's an outrage that while we're at war, executives who are already fabulously rich are stealing and are at liberty. America is humiliated by its brightest and most ambitious looting it, while its young men and women die for it.
...
President Bush is looking for an agenda at home. How about a simple one? Justice for all."
It seems like there are so many critical issues - economic, heathcare, tax simplification, environment, education - and the President picks gays, Frist picks flag burning, etc., etc. Diversion tactic? Or they also know so why bother?
Representative Tancredo, from CO, had an interesting comment the other day on Tavis Smiley. He said, I don't know what an American corporation even looks like today. If profits are the only concern (I believe otherwise) of a corporation, why would they have loyalty to a country.
President Bush radio address: "Marriage cannot be cut off from its cultural, religious, and natural roots without weakening this good influence on society. Government, by recognizing and protecting marriage, serves the interests of all. [...]"
So excessive executive compensation and unethical behavior by our brightest, while our young die at war, is because... drumroll... gay marriage.
Well, if the Senate passes it. I sure do expect those CEO's and Wall Street to straighten up.
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