July 12, 2012
Infuriated British parliamentarians argued yesterday that former Barclays CEO Bob Diamond lied to or misled their committee when he described his bank’s ties to the Financial Services Authority, Britain’s main markets regulator, as cordial and their view of his stewardship as favorable. Now he’s taking his punishment – kinda, sorta – for his role at the bank while it was actively engaged in fixing a key floating interest rate, giving his institution and its traders an unfair advantage and misleading the market about the real cost of capital. Diamond will relinquish a lavish package of bonus and incentive payments amounting to about $31 million – quite generous when compared to those offered to other City of London CEOs – although he’ll still pocket his salary for the year and other benefits worth more than $3 million more.
That $31 million the company will save may look like chump change compared to the $450 million plus in fines levied on Barclays by British and American regulators for its manipulation of Libor, the benchmark lending rate set daily in London. But it’s the principle of the thing that matters: Why should a CEO receive, and be allowed to retain, a financial reward for doing active damage to the company, or for failing to halt a major erosion in its business?
But Diamond isn’t alone. Here are some other nominations of CEOs who might want to contemplate making a grand gesture and returning some of their bonuses to the company and shareholders, whatever their lawyers and the small print in their employment contracts tells them is required.
Michael Francis, J.C. Penney
Francis spent less than nine months as the marketing and merchandising chief of J.C. Penney (JCP), but walked away with a payday amounting to more than a million dollars for each of those months, mostly in the form of a signing bonus. Was Francis directly responsible for Penney’s woes? Probably not. The retailer was already struggling and new CEO Ron Johnson certainly shoulders most of the responsibility for the disappointing results thus far from his turnaround plan. But Francis, a former marketing guru for Target (TGT), should have been able to identify the obstacles he would face in overhauling J.C. Penney for the 21st century and turned down the job in the first place – or been more nimble in adjusting his advertising plans when they failed to catch on with consumers. “We haven't communicated our pricing change in a way that customers understand yet," CEO Johnson told investors last month. "It's just been kind of confusing." So while Francis may have been the fall guy for J.C. Penney’s recent missteps, he didn’t exactly earn the $10 million or so he made during his short stint with the company.
Scott Thompson, Yahoo
Another signing bonus issue here. Thompson, it turns out, performed some cosmetic surgery on his resumé, claiming to possess a computer science degree that he had never been awarded. Whoops.… Thompson blamed a recruiter for the error, but that’s a bit like JPMorgan Chase CEO Jamie Dimon blaming his traders for the multi-billion dollar trading loss. Whether he did it or simply never bothered to read over and fact-check his bio – even when he was being considered for the top job at Yahoo – doesn’t matter. He was either misleading Yahoo’s board or negligent. Neither are qualities you want in a CEO, and in either case, he certainly doesn’t deserve to hang onto the $7 million or so of cash and stock he received from the company after taking on the top job at the beginning of the year. He won’t get a severance package, but this is a case where Yahoo erred on the side of excessive generosity by allowing him to hang on to the signing bonus.
Jamie Dimon, JP Morgan Chase
Since we mentioned Dimon.... After JPMorgan Chase announced its multi-billion-dollar trading loss, media reports quoted Dimon saying the bank “will do the right thing” when it comes to holding bank employees responsible for what happened. “That may well include clawbacks,” he added, explaining “the buck always stops with me.” Well, if that’s true, maybe the clawbacks should start with Dimon’s own outsize package of salary and bonuses? His bonus for 2011 alone amounted to $21.5 million – again, a drop in the ocean compared to the magnitude of the losses that the bank incurred, but forfeiting even half of it would deliver a sharp message to Dimon and other CEOs. Instead, the bank reportedly plans to claw back bonuses only from Ina Drew, the executive who ran the Chief Investment Office responsible for the bad trades, and trader Bruno Iksil, the “London Whale” who actually made them. We’ll likely learn more about those claw-back plans on Friday, when the bank reports its quarterly earnings.
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No one wants executives like Dimon to shun risk-taking or simply play it safe out of fear that their personal net worth will suffer; on the other hand, a CEO overseeing a company whose shareholders suffer because of his actions or inaction shouldn’t be immune from the punishment he doles out to others. Either Dimon didn’t see what was going on, or he didn’t see that it was anything to worry about until it was too late. Either way, he’s culpable, and should be willing to go beyond his profuse apologies and forfeit at least part of his bonus.
Jim Balsillie and Mike Lazaridis, Research in Motion
Under the leadership of this duo, the maker of the iconic BlackBerry climbed to the top of the tech world and then fell to the point where it’s now struggling for its very survival. The co-CEOs presided over the loss of $70 billion in market capitalization and (probably) the disappearance of a once-great brand. Their reward: $12 million in combined “golden handshake” payoffs for leaving the CEO job. Certainly, it’s worth asking whether Lazaridis – who stayed on as vice chairman of the board – deserves not just the golden handshake but the deal awarding him his own office, an executive assistant and a car and driver, for the next two years, a deal worth about $773,000, all in exchange for continuing to “make himself reasonably available.” When it’s far from sure the company will survive that long, and reasonably sure that Lazaridis presided over its final steps toward oblivion, that kind of special treatment seems excessively generous.
None of this is about morality, but simply a matter of common sense. A corporate CEO has a duty to shareholders, to maximize the value of the business he is running on their behalf. Errors in judgment happen, and every CEO has to do battle with forces that are beyond his control that may damage the company. But in each of these cases, the executives played a role in eroding shareholder value. The legalities are less important than how an already-embattled company wants to be perceived by its remaining loyal shareholders. Paying out hefty sums to executives who have actively or passively contributed to its woes is a poor reward for that shareholder loyalty.