The Stench of Executive Greed(A)
There appears to be no limits to the greed of corporate executives. The attitude that they can treat a company’s coffers as their personal cookie jars is best symbolized by Dick Grasso’s payout of $187 million from the New York Stock Exchange. The new head of the Big Board, John Thain, formerly with Goldman Sachs, wants Grasso to be a good guy and forgo some of this compensation.
However, as I write this column, I read that Grasso is digging in his heels. Not only does he want the additional $48 million, he is thinking of going after another $10 million that would come his way if his exit was considered a firing, which it certainly was.
While this was going on, not far from the New York Stock Exchange, at the Supreme Court of New York, Mark Swartz, former chief financial officer of Tyco International, took the stand in the trial where he is charged, along with former CEO Dennis Kozlowski, of looting the corporate treasury of some $600 million. Swartz, like other U.S. taxpayers, gets a W-2 form showing how much money he earned in the past year. In 1999 he received one showing income of $10.6 million. Not bad for a CFO. The thing is, during that year Swartz received, in effect, a $12.5 million bonus in the form of forgiveness of loans from Tyco. But somehow that was not reflected on his W-2 form.
The prosecuting attorney, Marc Scholl, said to Swartz: “No one mentioned that, gee, half your compensation is missing?” Swartz replied: “No – no one did.” After all, who in the company is going to question the CFO? “You’re an accountant, right?” Scholl asked. Swartz acknowledged that this was the case.
Tres amusant, but to me the more egregious example of greed comes from the MONY Group, an insurance company formerly known as Mutual of New York. MONY de-mutualized in 1998 so that it could become a publicly traded company. Its performance has been miserable, posting one of the lowest returns on equity in the insurance industry. The initial public offering priced the stock at $23.50 a share; five years later the stock was selling at about the same price.
What to do? Management headed by Michael I. Roth and Samuel J. Foti hit upon an ingenious plan: sell the company to French insurance giant AXA. They worked out a deal to sell MONY for $31 a share. The $1.5 billion price tag was less than 75% of book value, but hey, when you’re not doing well, you don’t have a lot of leverage.
While the shareholders are being shafted, the guys at the top are doing okay. For finding a ready buyer, members of senior management allocated to themselves a reward of $90 million, in cash. Letters sent out to policyholders assured them that their policies would continue in force – and if they were also shareholders, they were urged to vote for the sale. This letter neglected to disclose that the senior managers were making off with $90 million.
The deal stank so much that institutional shareholders screamed about the terms and urged other shareholders to turn it down. MONY executives then regrouped and agreed to cut their payout by $7.5 million so that shareholders would receive an additional dividend of 10 cents a share. Even with this reduction, the MONY managers are taking a 5.5% slice of the deal, which is about twice what executives typically get in such transactions.
So, looking at the pending MONY-AXA deal, which of the following four conclusions is the most appropriate?
1. Senior executives of MONY are acting in the interests of policyholders.
2. Senior executives of MONY are acting in the interests of shareholders.
3. Senior executives of MONY are acting in the interests of employees.
4. Senior executives of MONY are acting in their own interests.