OK. I’ll admit it. I came a little late to the Occupy Wall Street party. And in principle I agree with the demonstrators. The large corporations, banks and lifelong Inside the Beltway politicians really do have a stranglehold on our economy and government.
I’ll also admit that you won’t find me sleeping in a tent in Lower Manhattan or holding a sign outside the New York Stock Exchange anytime soon. This may well be the beginning of an American Autumn — except, unlike in Egypt or Syria and so on — who are the demonstrators trying to topple from power?
It won’t be the Wizards of Wall Street or the Captains of Industry. Those groups, for the most part, are isolated from the realities now facing most working (and nonworking) Americans — and they are protected by compliant boards of directors that basically make a joke out of the notion of corporate governance.
Here’s an example. It involves Hewlett-Packard, once an iconic and innovative company that today serves mostly as a model for ineffective management and how corporate managers game the system while their peers on the board look on without apparently any qualms. Here’s from the NYT, “Rewarding C.E.O.’s Who Fail“:
Léo Apotheker’s short, turbulent reign as the chief executive of Hewlett-Packard was by nearly all accounts a disaster. The board demanded his resignation, and if ever there was a case for firing someone for cause, this would seem to be it.
So why is H.P. paying Mr. Apotheker more than $13 million in termination benefits?
Just three years after the financial crisis generated widespread public outrage that Wall Street chief executives walked away with hundreds of millions in bonuses and other compensation after driving their companies into insolvency and plunging the nation’s economy into crisis, multimillion-dollar pay for failure is flourishing like never before. H.P. is simply the latest example, albeit an especially egregious one. It’s hard to fault Mr. Apotheker for taking what H.P. offered. But among the many questions shareholders should be asking the board is why it approved an employment agreement for Mr. Apotheker that arguably made it more lucrative for him to fail — and the sooner the better — than to succeed.
“It’s a great irony that spectacular failure is rewarded lavishly,” John J. Donohue, a professor at Stanford law school and the president of the American Law and Economics Association, told me. “It is a terrible mistake to set up a structure where the top person walks away with millions even if the company is laid waste by their poor decision-making, yet this is what’s happening. It’s a shocking departure from capitalist incentives if you lavish riches on the losers.”
He added that it’s especially shocking at H.P., which fired its previous two chief executives before Mr. Apotheker and had to make multimillion-dollar payments as a consequence. “After what H.P. had gone through, you’d think the board would have been on their toes rather than asleep at the switch again,” he said.
Experts said Mr. Apotheker had what amounts these days to a fairly standard termination agreement for a chief executive. In the event he was terminated for “cause,” his contract, a summary of which H.P. filed as an exhibit to a Securities and Exchange Commission filing, provided a cash payment of twice his base pay (of $1.2 million, or $2.4 million); his earned but unpaid bonus (his “target” bonus was $2.4 million a year); any accrued but unused vacation — and “no further compensation.” That would add up to a maximum of about $4.8 million. But he wasn’t fired for cause.
In the rarefied world of high-level executive compensation, “cause” is a term of art that long ago parted company with standard usage. “Cause is a foreign concept to the general public, at least when it appears in executive employment contracts,” observed Mike Delikat, head of the global employment practice at Orrick Herrington & Sutcliffe, who said he’d litigated many such provisions on behalf of major companies. “Most people are employed at will, which means they can be fired any time and for any reason unless the reason is an unlawful one like discrimination. But ‘cause’ is a negotiated term. It is often very narrow, limited to things like conviction of a felony or a complete failure to perform material duties under the contract.”
Gee. Maybe this is the kind of corporate abuse that the Occupy Wall Street protestors are railing against.
Well, good luck to them and to the prospect of an American Autumn.
For me, I’ll continue the good fight to repeal MLB’s designated hitter rule.