New Page -- 9 September 2003
CEOs are commonly referred to as Criminally Elitist Oligarchs, Crooked Embezzling Operatives, Corrupt Evil Obscenities, Current Era Ogres, even Chief Executive Officers. In other words, the breed is not, as a general rule, considered to be one of the higher forms of life. To call them scum would in fact be highly insulting to the lowest form of scum. CEOs instead provide a unique combination of the characteristics of felons, racketeers, knaves, scoundrels, blackguards, and vile outlaws with reputations for being reprehensible, immoral, villainous, wicked, and, of course, iniquitous and flagitious. (I really like the last two descriptions.)
Quick test: Is this article pro or con with respect to its treatment of CEOs? If you answered, "pro", go to Indianapolis or email@example.com. If you answered, "con", continue reading.
On the plus side, CEOs simply view themselves as members of an Aristocracy of Wealth, Influence, and raw uninhibited Power. It does not occur to them that they do not have license to kill, maim, or otherwise use the less empowered members of their race for their own purposes. They may not claim the titles of Lord, Earl, Duke, and the like, but their actions are nonetheless equivalent in some respects to the most arrogant of history's most notorious and despicable members of royalty. Certainly, in rare cases, they may have managed to claw their way to the top from humble beginnings, but those beginnings are no prologue to their futures. The most credit they should receive is having the brains not to wallow in false titles and nobility, and never, ever to suggest to their employees and commoners, "Let them eat cake." [Royalty and aristocracies the world over have seemingly learned this lesson.]
Are all CEOs of major corporations of this type? Of course they aren’t. I once knew a CEO of a big company who was conscientious and highly respectful of his employ… No, wait a minute. He died -- leaving his arrogant son to drive the company into bankruptcy . Bummer. But seriously, though, there are some who do not fall into the categories described above. A small percentage to be sure, but they do exist.
Actually, those CEOs who have their jobs as a result of their having built a company from scratch, who have busted their fannies making things work, and who have known that their employees are the only reason for their ultimate success (other than a great deal of blind luck)… These people – men and women – can be pretty good examples of the ideals of Capitalism and the human race. Their kids may turn out to be garbage – or at least the worst possible choice for becoming the next CEO of the company when the parent dies – but the original CEO can be pretty cool.
In that respect, this particular, small, almost infinitesimal group of CEOs are really no fun at all in writing about -- no Achilles’ heel to prey upon, to exaggerate, to ridicule. They're really no fun at all! Let’s instead concentrate on the real dirt-bags – those of whom you’ve already heard and learned to loathe. This we can do without any of the slightest exaggeration. And inasmuch as they’re happily going about their lives with countless millions in their jeans, it’s not like we’re picking on the downtrodden. Undoubtedly they'll get over it.
However, since the high crimes and misdemeanors are so extensive, let us briefly note that Part I herein talks about just how thoroughly despicable the vast majority of CEOs are. Then we briefly examine why in Part II, and what to do about it in Part III.
In the process, try to keep in the forefront of your consciousness (as always), the words of Marcus Aurelius: "The first rule is to keep an untroubled spirit. The second is to look things in the face and know them for what they are."
Arianna Huffington -- currently a candidate for the California governorship -- in her book Pigs at the Trough, pretty well covers the field in terms of “how corporate greed and political corruption are undermining America”. And she’s not just talking about mining. Consider for example, the following distinction between the Aristocracy of CEO monarchy and the lowly commoners/employees who actually do the work. From Huffington’s book :
Time Magazine  notes in its Numbers that the average annual income of the 400 wealthiest taxpayers in 2000 was $174 million -- nearly four times what it was in 1992. The percentage of their income paid in federal taxes was 22.3%, down nearly 4 percentage points from 1992.
But it gets worse. We’re not even talking about the fringe benefits that many CEOs take as a matter of course and as befitting their apparently royal status. Everything from Kozlowski’s $4 and $4.7 million dollar paintings for his $18 million apartment of Fifth Avenue (plus another six residences valued at over $30 million – all at shareholder’s and employee’s expense) to Bernie Ebbers of WorldCom having a severance package of $1.5 million a year for the rest of his life, plus the use of the WorldCom jet for 30 hours a year, plus numerous other benefits. Keep in mind that Bernie had already received $44 million in pay, but claimed he didn’t understand that WorldCom had defrauded investors of $7 billion. 
Huffington’s outrage has been echoed by Fortune Magazine (not exactly an anti-business yellow sheet) who in their April 28, 2003 issue, ran a series of articles one which was entitled “12 Piggy Offenders” http://www.fortune.com/fortune/ceo/articles/0,15114,443055,00.html. The basic gist of this article was to highlight “ The author of the article, Jerry Useem,  noted the following:
[Author's notes: In all cases, “Base salary has been annualized. Notes: Total compensation includes base salary, bonus, long-term incentive plan payouts, restricted stock awards, the present value of option grants (using the Black-Scholes model), and other compensation. Does not include value of previously granted options exercised in 2002.” (4)]
In a related article, http://www.fortune.com/fortune/ceo/articles/0,15114,443051,00.html,  entitled “Have They No Shame?” Jerry Useem notes the obvious quote from George Orwell’s Animal Farm: “But the pigs were so clever that they could think of a way round every difficulty.”
For example, “You’d think that in the aftermath of a scandal that made Tyco a symbol of cartoonish greed, its board might want to make a point of frugality. Yet even as it was pressuring its former officers to ‘disgorge’ their ill-gotten gains, it was letting its new man, who became CEO last July, gorge himself on $62 million worth of cash, stock, and other prizes. By all accounts Breen is doing a fine job so far… but still. And the gravy train didn’t stop there. Tyco’s board of directors dished out another $25 million for a new CFO, plus $25 million to a division head, putting them both on a par with the CEOs of Wal-Mart and General Electric. At least the company, now with a new board of directors, seems to recognize the need for some limits: Its bonus scheme ‘now caps out at 200% of base salary,’ notes Breen, ‘whereas before it was more like 600% or 700%.’” 
Fortune goes on to report that: “Average CEO compensation dropped 23% in 2002, to $15.7 million, but that’s mostly because the pay of a few mega-earners fell significantly. A more telling number -- median compensation, or what the middle-of-the-road CEO earned -- actually rose 14%, to $13.2 million. This in a year when the total return of the S&P 500 was down 22.1%.” In the case of Disney’s Michael Eisner, “after he failed to clear his bonus hurdle two years running, his board lowered the performance bar, and then -- hooray! -- he finally cleared it. An Olympian effort worth $5 million.” 
“Even more troubling is stealth wealth. ‘Deferred compensation’ plans, for instance, let executives sock away up to 100% of their salary and bonus in a tax-advantaged account until retirement, often with the addition of a company match and above-market interest. Meanwhile, many pension plans credit executives with decades of unserved ‘service,’ even shielding them from creditors in the event of bankruptcy." 
Ah yes. The latest way to hide millions. Janice Revell  notes that CEO Leo Mullin of Delta Air Lines… Weren’t those the guys looking for bail outs from the federal government after losing $1.3 billion and slashing thousands of jobs? Right. Well after being employed by Delta for only 5 and 2/3rds years, Mullin was credited – shazam! – with an additional 22 years of service, thus allowing for an annual payout of $1 million a year for the rest of Mullin’s life. “And if the airline goes bankrupt, no problem: Special Delta-funded trusts protect the pensions of Mullin and 32 fellow executives from creditors. ‘During these very difficult times in the industry, the board decided that they needed to do something to retain qualified executives,’ explains a Delta spokesperson.”
Meanwhile, Delta announced in November that it was phasing out the traditional pension plan for its 56,000 nonunion workers and replacing it with a less costly version, known as a cash balance plan. Benefits experts say the switch could shrink the expected pensions of older workers by as much as half. The typical pension payout of a 50-year-old flight attendant with 20 years of service, for instance, could easily plunge to $15,000 a year. 
“Witness the latest--and quite possibly the greatest--double standard in the world of compensation. At the same time big companies are taking an ax to the traditional pension plans of the rank and file, they are funneling millions of dollars into what’s fast becoming the ultimate pay-for-nonperformance vehicle: the executive pension plan. In this magical land, years are transformed into decades, and the term ‘shareholder value’ doesn’t apply.” 
Not surprisingly, such details as these are buried deep within a company’s SEC filings. What amounts to stealth compensation, half of all big publicly traded companies now offer to its CEO and the next dozen or so officers, retirement plans known as SERP. “A SERP (supplemental executive-retirement plan) is a steroid-enhanced version of the traditional defined-benefit pension plan, in which a company sets aside a given percentage of an employee’s pay every year to produce a guaranteed payout.” “While the combination of a collapsing stock market and low interest rates have placed pension plans for ordinary Joes in jeopardy -- about 40% of big companies that offer company pension plans are now seriously considering cutting benefits, according to a recent survey by accounting firm Deloitte & Touch – that’s not the case for top execs. In fact, now that the stock market bubble has burst, compensation experts predict that companies will actually increase their use of SERPs to pick up the slack.” 
Then there are the executive perks. Take just one example, Honeywell’s CEO, David Cote (who was recently installed in February 2002). His compensation  consists of:
Had enough? No? Well, how about:
• “GE has four executive apartments in New York, including one worth $11.3 million purchased for CEO Jeff Immelt, who lives in Connecticut and decided he doesn't need the place. GE is selling it, but keeping the others.
• “Then there's ex-Vivendi CEO Jean-Marie Messier's $17.5 million New York pad at 515 Park Avenue, outfitted with maid's quarters (ooh la la!), a concierge service, and a wine cellar.
• “Christos Cotsakos at E*Trade had his tuition and flights to London paid for by the company as well as a security system on his house. Also at E*Trade, Jerry Gramaglia had a trash compactor, a garage door opener, and a refrigerator written into his contract.
• “Former Global Crossing CEO Robert Annunziata got a Mercedes Benz SL500, a corporate jet for commuting until he moved near headquarters, and first-class airfare for him and his family, including his mother, to come see him once a week. Nice to keep in touch with Mom like that.
• “Starbucks' CEO gets free coffee. But so does everyone else there.
• “Toyota has a $6.8 million Park Avenue apartment for Toshiaki Taguchi, the CEO of its North America unit. It includes four bedrooms, four baths, and a separate wine cellar. Veuve Clicquot anyone?
“And us? Well, we'll be lucky to get a Bugs Bunny mug!” 
Meanwhile, as Martha Stewart gets roasted for the most meager of infractions, Enron's ex-chairman Ken Lay and former CEO Jeff Skilling have yet to be charged with any crimes, WorldCom's founder Bernie Ebbers has not been charged -- even though his ex-CFO (Chief Financial Officer) has -- and HealthSouth's former CEO Richard Scrushy has yet to be charged with a crime -- even as 11 former employees have pleaded guilty. One might suspect a trend hear, except that Tyco ex-CEO Dennis Kozlowski and his CFO have been charged with crimes worthy of 25 years in prison, Adelphia has seen five executives -- including its founder John Rigas -- indicted for fraud, and ImClone's [Martha Stewart's least favorite stock] ex-CEO Sam Waksal has been sentenced to seven years in the "first prison term for an exec implicated in the wave of scandals." 
Then there is software mogul Larry Ellison, Oracle's founder and chief, made a bid for a rival firm in his quest to gobble up information technology companies. One of his reasons is that he's "just having some fun". "I love flying planes and racing boats," he says, "This is more challenging."  See what I mean about aristocratic lordships?
The bad news just gets worse. So how do they get away with it? Several reasons.
One, the boards of directors of all major corporations are inevitably composed primarily of other CEOs and top executives of other major corporations – who then extend the “good old boy” network concept to astronomical heights. Even when a few celebrity types join the boards, they are almost always kept in the dark, and have little impact on agendas which are rigidly controlled by the CEO. When the State of Washington’s primary electrical power company was contemplating building five nuclear power reactors (and which later tanked, losing billions in what became known as “WHOOPS”), they spent perhaps a half hour on the decision (i.e. basically, they knew nothing about nuclear power and thus had nothing to talk about). But they did manage to consume four hours on the critical question of the executive washroom’s color of toilet paper!
Besides a grotesque conflict of interest, general incompetence of board members on a variety of subjects, and intentional obfuscation of actual company business by CEOs and top level executives, most company’s board of directors are in violation of their fiduciary duty to protect the shareholders and employees of a corporation. Counting on the board of directors to police the company is about as ludicrous as assuming audits by so-called Independent Accounting Firms are anything but prime examples of misinformation and gross deceit.
A second reason these thieves get away with this stuff is the politicians. Basically the politicians are as crooked as the CEOs – Vice President and Halliburton Corporation's Chief Conduit of Government Funds Officer (CCGFO) Dick Cheney, for example. Consider the fact that many Lobbyists (and “Belt Way Bandits”) have unique, personalized inside tracks to many politicians. Huffington notes, for example, that Senators Trent Lott (Republican-Mississippi), Orrin Hatch (Republican-Utah), John Breaux (Democrat-Louisiana) and Harry Reid (Democrat-Nevada), along with the Speaker of the House, Dennis Hastert (Republican-Illinois) all have sons who are lobbyists. Senator Tom Daschle (Democrat-South Dakota) and Jeff Bingaman (Democrat-New Mexico) both have wives who are lobbyists.  And this is just the congressional leadership!
Enron's tangled web of politicians includes: President George W. Bush, Vice-President Dick Cheney, U. S. Attorney General John Ashcroft, Chief White House political advisor Karl Rove, recently resigned Secretary of the Army Thomas White, U. S. Senator Phil Gramm, Secretary of Energy (and former Senator) Spencer Abraham, Commodity Futures Trading Commission Chairwoman Wendy Gramm (the Senator's wife), Republican National Chairman Marc Racicot, U. S. Trade Representative Robert Zoelick, White House counsel Alberto Gonzalez, and Secretary of Commerce Don Evans. 
Besides the Bush Administration's blatant incorporation of energy policies beneficial to Enron and other energy companies, Bush II has expanded his largesse by providing a huge tax cut on dividends. Time Magazine  notes that, "Bush cut taxes on dividends to lift the economy, but it's CEOs who are getting the biggest windfall." Before the ink was dry on Bush's signature, major corporations were increasing their dividends. Corus Bankshares in Chicago tripled its annual dividend, resulting in the Glickman Family -- who owns half the stock -- generating $5.8 million in annual after-tax income, up from $1.3 million. Bear Sterns increased its dividend rate such that CEO James Cayne would reap $3.3 million after tax, up from $1.8 million. Bill Gates, meanwhile, would enjoy an after-tax dividend windfall of $82 million per year!
Warren Buffet, one of the world's richest and best known investors, called the Bush Dividend plan "voodoo economics", and noted that it placed on unfair burden on low-income families. Buffet noted, for example, that by increasing his Berkshire Hathaway dividend, he could receive $310 million in income which "would reduce his tax rate from about 30 percent to 3 percent, while his office secretary would still have to pay a tax rate of about 30 percent. 'The 3 percent overall federal tax rate I would pay -- if a Berkshire dividend were to be tax free -- seems a bit light,' Buffett wrote." "'Putting $1,000 in the pockets of 310,000 families with urgent needs is going to provide far more stimulus to the economy than putting the same $310 million in my pockets,' Buffett added." 
A third reason is that money buys friends. CEO Richard Scrushy ruled HealthSouth Corporation as a family business, and had been instructing employees to inflate earnings report to the tune of about $1.4 billion from 1999 to 2003 . But Scrushy was also very generous to his community and home state. There were donations to charities, libraries, college campuses – many of the latter which now bear his name. While he made $225.6 million from the sale of HealthSouth stock, which went from a high of $30.56 per share to mere pennies, shareholders ended up holding the bag while a small percentage of their money went to buy friends for Scrushy. Recently the federal Securities and Exchange Commission (SEC) has taken action, but don’t count on Scrushy doing any hard time.
Michael Milikan took investors to the tune of billions, but he also gave millions (i.e., 1%) to major universities and various non-profit institutions. In turn, the beneficiaries rallied around good ole Mikey when the SEC came after him. Mikey likes that! Of course, the beneficiaries had a conflict of interest in standing to lose millions by not supporting the theft of billions.
The astounding part is that even when the SEC responds to gross grand larceny and files legal actions, the perpetrators never really have to pay. Michael Milikan had the cash to pay lawyers and [allegedly] bribe judges to the point where he did not remotely pay for his crimes. Kenneth Lay of Enron and Bernie Ebbers of WorldCom are as unlikely to pay as Richard Scrushy. Otherwise, a precedent would be set, and such massive theft would begin to be discouraged. CEOs do not want that, and as long as Dem Wid de Gold Makes de Rules (the bastardization of The Golden Rule) it’s not really going to change.
Or maybe it could.
How to change this corruption? First of all, individuals need to do their homework – by, for example, reading Huffington’s book , The Wall Street Journal [e.g. 10], Fortune Magazine  and Time Magazine [8, 12, 13, 14] (among many others), Greg Palast’s The Best Democracy Money Can Buy , and similar exposes. It’s time for the consumer to learn which corporations are grotesquely dishonest with respect to CEOs, top executives, and their co-conspirators, the politicians.
For example, recognize that "wage erosion" of the rank and file is threatening to create deflation, "a downward spiral in prices that can cripple an economy by making debt repayment more difficult and encouraging consumers to wait for even lower prices."  More work will be "outsourced", such that long term employees are laid off, and foreign workers are hired to pick up the slack -- but at a wage roughly 10% of the American worker. When all else fails, employees are simply sacked,  and their pension funds are put in serious jeopardy. For example, the "Pension Shortfall" -- the difference between the total value of pension-plan assets and the amount needed to fund worker retirements -- when from $20 billion in 1999 to $30 billion in 2000 to $150 billion in 2001 to $320 billion in 2002. 
You'll be comforted to know, however, that while pension benefits for workers at struggling AMR, parent of American Airlines, go unprotected if AMR goes bankrupt, top executives landed pension guarantees worth $41 million.  Sigh.
The second step is to cease to buy those company’s products or use their services.
Thirdly, don’t buy their stock, and if you have it already have some in your portfolio, sell it. In fact, check Stock Tips for the best advice with regard to participation (or non-participation) in the capitalistic world of stocks and bonds. Cease to support this garbage with your investments and spending. Think of your investment and purchasing dollars as votes. Don't just say no, but vote no!
Fourthly, always assume major Independent Accounting Firms are crooked, incompetent, or just plain inept due to a travesty of honest dealing known as “standard accounting practices”. Never assume that the crap they pass out has any bearing on financial reality. If you’ve already been taken by one of them and lost money, sue their little fannies! It’s amazing how well you can do in small claims court, and with a very strong precedence for them to settle out of court, you should be able to recoup some of your money, if not all of it.
In the political arena, vote against EVERY incumbent. Throw the rascals out! If it’s a Republican incumbent, vote for a Democrat; if it’s a Democratic incumbent, vote for a Republican -- or for a third party, if you simply want to make a statement. Don’t worry about seniority. If we elect a majority of freshmen Congressman and Senators, then very quickly, congressional seniority rules will soon be a thing of the past.
Advocate The Rule of 20-50, which would have the effect of limiting the degree to which CEOs and others can enrich themselves to the detriment of those who are doing the work which earns the money.
Most importantly, understand that CEOs, high level executives, and political leaders all assume that they are the Aristocracy, and that they are entitled to wealth, happiness, material possessions, power and status far, far in excess of lowly working human beings. It does not dawn upon them that morals and ethics have any connection with their rights to prey unmercifully upon members of what the Aristocracy considers to be a lower form of life. Inevitably they are good at only one thing: managing others. As the ultimate non-producer, they will slowly move toward extinction once the producers cease to play their game.
The key to all of this is to cease supporting the system that rewards extreme, arrogant, and blatant dishonesty. Otherwise, you have no one to blame but yourself. And don’t assume that dumping a company will hurt innocent employees. The truly innocent employees will get the shaft soon enough. Your supporting a company only puts off the inevitable reckoning. If you really feel bad, go volunteer in a soup kitchen.
Or forward to:
 Comdisco, Inc. (CDO).
 Arianna Huffington, Pigs at the Trough, Crown Publishers, New York, 2003.
 "Numbers", Time Magazine, July 7, 2003.
 (Various articles), Fortune Magazine, April 28, 2003 [See individual links].
 "Notebook", Time Magazine, June 2003.
 "Eat... Or be Eaten", Time Magazine, June 23, 2003.
 "Enron's Tangled Web", Public Citizen flyer, 1600 20th Street, N.W. Washington, DC 20009-1001.
 Daniel Kadlec, "They're Getting Richer", Time Magazine, August 18, 2003.
 Deborah Solomon, “Inside Alleged Fraud at HealthSouth, a ‘Family’ Plot,” The Wall Street Journal, April 3, 2003.
 Greg Palast, The Best Democracy Money Can Buy, PLUME, Penquin Books, 2003.
 "Where Did My Raise Go?", Time Magazine, May 26, 2003.
 "Where Did Everyone go?", Lisa Takeuchi Cullen, Time Magazine, November 18, 2002.
 "The Next Scrambled Nest Egg?", Jyoti Thottam, Time Magazine, July 2003.
2003© Copyright Dan Sewell Ward, All Rights Reserved [Feedback]