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Wednesday, August 31, 2011

What is the job of the CEO?
Posted by Jill | 6:07 AM
If you talk to people about executive pay, you'll find pretty universal outrage, particularly about CEOs of companies that are run badly or are bad corporate citizens. Sometimes in these conversations, someone will give lip service to entertainers and athletes who also earn ridiculous amounts of money every year, but that outrage is highly selective.

If, for example, Mets shortstop José Reyes manages to score a $100 million contract with another team as a free agent, there will be a certain hue and cry (particularly among Mets fans) that no one deserves that kind of money. There will be calls to WFAN screaming about Reyes' greed in New York, but if, for example, he signs with Philadelphia, no one in Philadelphia, not even the unemployed guys who are a step away from foreclosure and eating food pantry beans right out of a can, will utter a peep. Justin Bieber can score $300,000 for a single concert and nobody bats an eye. Not even the cast of Jersey Shore, a bunch of not-terribly-attractive, boorish young people with very little grey matter in their collective crania other than a knack for self-promotion, scoring $100,000 an episode generates a lot of griping. We're remarkably forgiving of big paydays for those who entertain us, because we know and can see what they actually do.

We're also forgiving of CEOs who do their jobs well and who contribute genuine value to their companies. I'm not talking about those who lay off 10,000 people so that the cost side of the balance sheet looks good enough to make the analysts at Goldman Sachs happy for the next three months. I'm talking about the relatively few guys like Steve Jobs, whose value to Apple is beyond dispute, even if, as seems true at least in the short run, he is NOT completely indispensable. Jobs is reported to be sitting on 5.5 million shared of stock in the company he founded, which at yesterday's closing price of $389.99, is over $2.1 billion. No one should take his much-ballyhooed $1 annual salary seriously, but by any business measure -- innovation, enriching the lives of many people, and yes, contributing shareholder value, Steve Jobs since his return to a dying company in 1997 is worth every penny.

But what of the rest? What of former Verizon CEO Ivan Seidenberg and current CEO Lowell McAdams? What of eBay CEO John Donahue, who comes out of Mitt Romney's company-destroying Bain Capital? What of General Electric CEO and Obama confidant Jeff Immelt? Are they delivering the same degree of value in the big picture as Steve Jobs did? Or are they mostly about ways to run the company to enrich themselves?

Today the New York Times talks about how the mission of today's CEO seems to be less about running companies for the long haul, fostering innovation, new products and services, and new ways of delivering them, and more about satisfying Wall Street's short-term emphasis analysts through avoidance of taxes to the point where they themselves earn more than the companies they run pay in taxes:
The companies — which include household names like eBay, Boeing, General Electric and Verizon — averaged $1.9 billion each in profits, according to the study by the Institute for Policy Studies, a liberal-leaning research group. But a variety of shelters, loopholes and tax reduction strategies allowed the companies to average more than $400 million each in tax benefits — which can be taken as a refund or used as write-off against earnings in future years.

The chief executives of those companies were paid an average of more than $16 million a year, the study found, a figure substantially higher than the $10.8 million average for all companies in the Standard & Poor’s 500-stock index.

The financial data in the report was taken from the companies’ regulatory filings, which can differ from what is actually filed on a corporate tax return. Even in a year when a company claims an overall tax benefit, it may pay some cash taxes while accumulating credits that can be redeemed in future years. For instance, General Electric reported a federal tax benefit of more than $3 billion in 2010, but company officials said they still expected to pay a small amount of cash taxes.

The authors of the study, which examined the regulatory filings of the 100 companies with the best-paid chief executives, said that their findings suggested that current United States policy was rewarding tax avoidance rather than innovation.

Steve Jobs has in many ways been a throwback to innovators and who actually did something -- guys like Henry Ford, who for all that he was a notorious anti-Semite at least recognized that when more people get paid enough to be able to buy your products you can sell more of them. Guys like our own Melina's grandfather, Himan Brown, who even though David Sarnoff got all the glory from being an early broadcasting pioneer, recognized the power of radio to deliver stories to the masses. Today's CEO is all about the books, not the products. And increasingly it's all about the taxes -- and meeting analysts' demands by trying to pay as few of them as possible, and preferably none.

And in this kind of environment, Barack Obama thinks corporations will hire people just because he gives them a $5000 tax credit?

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Anonymous the wifely person said...
Your comments speak directly to the lack of social responsibility we are experiencing in this global economy.

People mistake social responsibility for socialism or handouts or the dole. But that’s not what it’s about. Social responsibility recognizes the vast majority of people work to put food on the table and a roof overhead. The purpose of “earning” is to be able to spend, not to hoard, money. Every economy is based on people having money to purchase goods. This in turn creates demand, and demand creates jobs.

People who have jobs also can take care of themselves and their families. All those anti-Obama care people haven’t figured out that as their jobs disappear, so goes the health insurance and they won’t be able to afford those vouchers they keep singing about.

Corporate raiders and financial institutions that look solely at the bottom line for profiteering are missing a fundamental point; that is people who are out of work don’t spend money. In the end, if they can’t spend, eventually that trickles up.

Anonymous Anonymous said...
In answer to the question of this post, the job of the CEO is to obtain the best value for the owners/stockholders...

Now, we know there are many ways to do that. But it would seem that one way to do that would be to do things that increase the [stock] value of the company. Given the state of the stock markets at the moment, very few CEOs seem to be doing a very good job of that.

In the long run taking the Henry Ford approach and paying employees enough so that they can buy your product or service -- do we actually make anything that employees would want to buy? -- would seem to [eventually at least] be the way to recover from this mess...

But as long as "the money" is to be made in whatever passes as "Wall Street" these days, it just ain't going to happen... [11% -- or is it 18% -- of MIT grads -- supposedly our best and brightest "engineering" talent goes to work for Wall Street??? Certainly says where the money is. "Engineer shortage" my rearend! And Obama wants to somehow increase the number of engineering graduates by 10,000 a year. And they would be doing _what_ exactly? Going to work in India or China where the jobs are, no doubt...]

I note, BTW, that the gov't has seemingly rejected the ATT/T-Mobile "merger". Repatriate 5000 low-wage, no skill, order taker jobs while laying off 10,000 well-paid administrative and technical types doesn't seem to be exactly the "right" thing to do.... But what do I know! If I knew how to ruin a company while conning the owners into paying me the big bucks, I'd do it to!

Blogger Tom said...
I had the honor of meeting Himan Brown and having him guest lecture my writing class when I was a grad assistant at the University of Georgia. It was a thrill. He was a truly kind man.