Wednesday, October 31, 2007

Betrayal From the Inside

Let me preface my remarks by saying I am a radical for capitalism. I'm talking about no-holds-barred, laisseze faire, free market capitalism unimpinged by misguided politicians with all the economic expertise of Neanderthals. I provide this disclaimer so my critique will not label me as another anti-capitalist, socialist/collectivist knucklehead.

On Tuesday, October 30, Merrill Lynch announced the retirement of CEO Stan O'Neal. Mr. O'Neal was shown the door after the country's largest brokerage house reported a quarterly loss of $2.24 billion dollars, the worst quarter in its 93 year history. This, combined with almost a fifty percent decrease in its stock value, sealed the CEO's fate. For his inept and incompetent mismanagement of the company, Mr' O'Neal was rewarded with a "departure package" of nearly 160 million dollars. It begs the question: How much would he have gotten had he done a good job?

These humongous golden parachutes given to failed executives goes beyond the absurd and irrational. They are fundamentally wrong for two reasons. First, they make for horrendous public relations. Big business and the corporate world have enough trouble with their image without such profligate and irresponsible spending. What is the public to think when they see their stock investments plummet and people losing their jobs, while the CEOs' responsible for the debacle receive severance packages the size of Rumania's Gross National Product? No wonder people hold a dim view of big business.

Second, these packages breed incompetence. Where is the incentive to do a good job? Who would be overly concerned with their performance and quality of their work when they will become rich whether they succeed or fail? What kind of message does this send?

What we have is a case of the "good-ole-boys" executive club taking care of one another. Once you become a member, your financial nirvana is all but guaranteed.

All it would take to end this stupidity is for one major company to come forward and declare that there will be no golden parachutes for failure. If you screw up, you get a pat on the back, six months salary and don't let the door hit you on the ass on your way out. Only trouble is, a company taking that stance would never be able to hire a quality executive--not when every other corporations is still offering the golden parachutes to top managerial talent. And who could blame them?

A CEO who heads up a successful and highly profitable firm is entitled to whatever the market will bare in terms of financial renumeration for a job well done. But to reward failure is the corporate equivalent of injecting yourself with the E Coli virus. Capitalism's biggest players may ultimately be its biggest threat.

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