CEOs Plundering Corporate Coffers

Posted on October 22, 2008  Comments (15)

The money I stole from this hellhole

Dogbert: “I am stepping down as CEO so I can spend more time with the money I stole from this hellhole.” Unfortunately we still have far too few people that see the obscene behavior of CEOs and their brooks brother bureaucrats as unacceptable. The behavior of many of them has been similar to that of dictators looting the coffers of their country as the country sinks into despair. The CEOs have their actions supported by a flock of board members that are also spared the condemnation their despicable behavior deserves.

I must say I am amazed at how brazenly those participating in looting companies from within are; and how it is accepted. It is a shame such unethical behavior is tolerated. It seems once companies implode their are some minor complaints about the behavior, in the specific case in question, as though it was not the accepted current practice among the many of those in positions of power (Warren Buffett being one obvious counterexample).

At some point I sure hope those looting companies and voting to support such things are seen for what they are. And I hope we don’t make excuses about how those taking what they didn’t deserve were somehow excused because they paid large sums of money to others to say such behavior was acceptable. Undermining all those that rely on a companies long term success is despicable behavior. That we accept those doing so and those board members supporting it as honorable members of society is a sad commentary on our society. I understand they feel entitled to loot when they see their neighbors buying castles around the world and helicopters and jets and… But their behavior is despicable.

Do you think the moral relativism that “it is ok to take what I don’t deserve, because these other CEO’s I know are doing the same thing”, will slow down sometime soon? Unfortunately there is little evidence that it will, even today.

The group of people looting want to say that the cultural norm is that looting is ok; because my neighbors are doing it and I paid off these respected members of society to sit on our board and vote that I could loot it. That probably makes the legal claim that it is looting difficult to prove. Just like I imagine it is difficult to prosecute a dictator looting their country (assuming they bother to make sure they adjust the laws to allow what they do instead of just deciding it isn’t worth the bother to do so). However, it does not make the behavior ethically acceptable. Though paying people well to support your looting does help make the case that the society supports it. It is a shame that support for corruption is bought so easily.

I have written about this many other times and said tilting at this windmill might not do any good, but I will continue to tilt at several such windmills in the hopes some good will come from it eventually. I am fully aware that it is unlikely to have any effect. And I can see that things are just getting even worse. I don’t know what else to do though, so I continue.

As I said in 2005 in Excessive Executive Pay:

The excesses are so great now they will either force companies to:

  1. take huge risks to justify such pay and then go bankrupt when such risks fail (and some will succeed making it appear that they pay was deserved rather than just the random chance of taking a large risk and getting lucky).
  2. make it impossible to compete with companies that don’t allow such excesses and slowly go out of business to those companies that don’t act so irresponsibly
  3. hope that competitors adopt your bad practice of excessive pay (this does have potential as most people are corrupted by power, even across cultural boundaries). However, my expectation is the competitive forces of capitalism going forward are going to make such a hope unrealistic. People will see the opportunity provided by such poor management and compete with them.

As long as the pay packages were merely large, and didn’t effect the ability of a company to prosper, that practice could continue (slicing up the benefits between the stakeholders is not an exact science). The excesses recently have become so obscene as to become unsustainable.

The effects of a complete breakdown of any honorable behavior relating to executive looting is not difficult to foresee. If we don’t want to suffer from those consequences we have to stop the disastrous practice.

While some might not believe the mere act of ostracizing those that support such looting would be a powerful tool, I do. Obviously no one needs tens of millions of dollars they seek more cash as proof they are successful. The self interest of those looting is partially to have castles and the like but they also have huge egos and if they were treated the same way corrupt dictators or drug dealers were treated many would change. I don’t know but I don’t image the Metropolitan Museum of Art would name a wing after Robert Mugabe (no matter how much money he gave), I doubt MIT would name a school after Pablo Escobar…

We need to stop accepting despicable behavior from those “leading” large companies. It isn’t acceptable. We should stop treating those that are doing the looting and those that are supporting it as somehow respectable because they managed to get large bank accounts through that looting.

Failures of leadership: Tilting at Ludicrous CEO PayUnconscionable Executive Pay (post on WaMU March 2008)CEO’s Given Lottery Sized Payouts“Too often, executive compensation in the U.S. is ridiculously out of line with performance” Warren BuffettNo Excessive Senior Executive Pay at ToyotaCarl Icahn Sees Red Over Blockbuster Chief’s PayExposing CEO Pay Excesses

15 Responses to “CEOs Plundering Corporate Coffers”

  1. Lester
    October 24th, 2008 @ 1:34 pm

    John,
    I was watch Alan Greenspan explain why his ideology was flawed and that financial institutions did not act in their best interests in the loan area but instead took on bad risks. Mr. Greenspan seems not to understand that the CEO’s that make excessive wages no longer have the corporate interest at heart, but rather their own, which is protected by a golden parachute if they guess wrong. They can therefore take unwise risks, and that is what happened. If they had been tied to the company with lower salaries and no escape clause they would have been more cautious and not have risked the company. This scenario is played out all over the U.S.A, and the ones hurt are the little people in companies who cannot bail out, and the little people in the U.S.A. who lose their homes. If you make $10 Million a year you will be OK, if you make $40 Thousand a year you worry about your business. Unfortunately this countryhas been being run by and catering to the multi-million dollar salary people lately. We need to go back to the time of citizen patriots who get paid little, and care a lot. One way for those who care is to take a civil service job that pays a small amount, but allows you to serve your country. Be it Peace Corps for older retired people, or HUD in New Orleans, this country can use good people

  2. Colleen
    October 26th, 2008 @ 6:40 pm

    I hate that TV program TMZ, but I was thinking they could do some good for a change by harrassing those pillaging CEO's by seeking them out and putting their faces on national television. We already know what Britney looks like and SHE is not costing us trillions of dollars.

  3. Curious Cat Management Blog: How Private Equity Strangled Mervyns
    December 12th, 2008 @ 2:06 pm

    This plan has been repeated over and over: people buyout a company, strip off huge amounts of cash for themselves, leave the company in extremely precarious position by piling on all sorts of debt which kills cash flow…

  4. Curious Cat Management Blog: » Looting: Bankruptcy for Profit
    December 19th, 2008 @ 12:53 pm

    People, that are not honorable, and are given huge incentives to risk the future of all the other stakeholders for immense personal gain will do so…

  5. Anonymous
    January 7th, 2009 @ 2:10 pm

    I have an interesting view. The problem stems from the fact that most executives all know each other, and have for a very long time. It comes down to the high school effect. Are you going to be the one rat out your friend? All of the top executives sit on boards of other firms, they are all so deeply entrenched in each others survival (think about the secrets that they have on one another) that they would prefer to not see there friends loose positions of power.

  6. Rich Americans Sue to Keep Evidence of Their Tax Evasion From the Justice Department at Curious Cat Investing and Economics Blog
    February 25th, 2009 @ 6:44 pm

    I hope those that tried to steal from all the rest of us, and then tried to cover up their crimes, are thrown in jail at least as long as an average criminal that is young and poor that steals the amount they did…

  7. Curious Cat Management Improvement Blog » Big Failed Three, Meet the Successful Eight
    May 28th, 2009 @ 8:28 pm

    […] understand how to work with suppliers, how to stop the obsessive focus on quarterly profits, how to demand honorable behavior [not looting] from senior executives…), lead to their current […]

  8. Small Banks Having Trouble Competing with Bailed Out Banks at Curious Cat Investing and Economics Blog
    October 20th, 2009 @ 7:39 pm

    […] example of how bad an idea corporate welfare is. Not only are those given the huge bailouts just looting those payments for their friends much of the rest was just forwarded onto other big financial institutions (that had made bad bets […]

  9. Curious Cat Management Improvement Blog » No More Executive Bonuses!
    November 30th, 2009 @ 7:44 pm

    “Don’t pay any bonuses. Nothing. This may sound extreme. But when you look at the way the compensation game is played – and the assumptions that are made by those who want to reform it – you can come to no other conclusion.”…

  10. Buffett Calls on Bank CEOs and Boards to be Held Responsible at Curious Cat Investing Blog
    February 27th, 2010 @ 11:53 am

    Buffett: “It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price “

  11. Curious Cat Management Improvement Blog » Worth Does Not Equal Wealth
    November 11th, 2010 @ 11:13 am

    […] Financial success is great (I am not one of those that sees wealth as a bad thing – even if the correlation to bad behavior can seem high, at times). Even in companies this is often done where those with higher salaries are seen as more […]

  12. Curious Cat Management Improvement Blog » Warren Buffett’s 2010 Letter to Shareholders
    March 3rd, 2011 @ 8:46 am

    […] That wisdom applies to businesses as well. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behavior. (As one wag put it, “You know you’re no longer CEO when you get in the back seat of your car […]

  13. Executives Again Treating Corporate Treasuries as Their Money at Curious Cat Investing and Economics Blog
    April 3rd, 2011 @ 10:54 am

    A huge problem with current practices at American companies is that senior executives believe they personally are due what the company earns. The repeated ethical lapses perpetrated by the senior executives and supported by their well paid board continues to undermine the economy of the country…

  14. Maslow on Dealing with Authoritarians » Curious Cat Management Blog
    August 8th, 2011 @ 7:17 am

    The following quote, from page 92, is quite dramatic and showed an understanding that some people (many CEOs) will just take what isn’t theirs, if others don’t stand up to them…

  15. Taking What You Don’t Deserve, CEO Style » Curious Cat Management Improvement Blog
    December 8th, 2011 @ 3:05 am

    […] they are suppose to be leading is a very sad commentary on our leaders. They act as though the corporation exists to enrich them, and their friends, personally: and all the other stakeholders are just leeches on the […]

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