CEOs are neglecting shareholders

Oct 01, 2009
<p>Unscrupulous CEOs have worked to weaken shareholder influence and undermine dividend payments</p>

‘Bonus’ was sexist slang in stock market Latin, dating back to the 18th century and the era of the South Sea Bubble, when merchants forgot their classical grammar and manufactured a whole new discourse of commerce. In Julius Caesar’s time, it actually meant ‘a good man’.

Of course Caesar had his own line in bonuses, which he lavishly awarded for hostile takeovers of neighboring countries and massacres of those who opposed him. Taking a tip from Caesar, modern corporate executives often elect themselves in perpetuity, ensuring that little short of assassination or argosies of treasure can remove them from office.

These execs should recall how dearly Caesar suffered for his policies in the mother of all boardroom revolts on the Senate floor. (I feel a Business secrets of Julius Caesar exclusive coming on. Let me call my agent...)

It would be quite a stretch to suggest bonuses are the root of all evil, but they are certainly in the vicinity. On Wall Street, bonuses and perks have made a mockery of the myth of shareowner accountability. They have impelled stock churning and weakened shareholders’ interest in and influence over the companies they nominally own.

This year many CEOs have been using shareholder money to lobby furiously against giving shareholders a say on pay. Their latest rearguard action is to try to stop the SEC’s proxy access proposal, which would allow shareholders to more easily nominate board members.

The indignant assumption is that a company’s assets are management’s to do with as it wishes, while the actual owners, the shareholders, are supposed to turn up and applaud once a year, in the same way the Caesars expected the cowed senators to applaud their every action.

Using 21st-century stock market Latin like ‘shareholder value’, many senior executives have persuaded investors it is acceptable to forgo dividends in favor of growth while awarding themselves bonuses and other incentives. They fought, daggers drawn, in the Forum to prevent transparent expensing of options – even as they persuaded the actual owners of the companies that share buybacks benefited them, when often they were just a cover to avoid the dilution inevitable in the face of massive free or cheap share offers to executives. 

The Caesars had poets to sing their praises. Modern CEOs have analysts, lobbyists and IROs. Roman generals once fell on their swords when their actions brought about public catastrophe. Now, among the ruins of the global economy, there is silence in place of the squelch of steel on stomach. Bonuses flow unabashed, and any attempts to reform the system meet with dogged resistance in the Senate and Congress, where corporate money – shareholders’ money – flows to the Hill to ensure investors continue to be sacrificed on the altar of managerial omnipotence and incompetence.

A glance at my pension holdings suggests that firms whose CEOs were not gorging so greedily at the trough are those whose value has held up well over the last year. They’re also the ones paying dividends. There is much to be learned from recent as well as ancient history.

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