December 2, 2002
Bandits in the Boardroom
by Donald G. Mashburn
Some arrests have been made; some corporate executives are charged with financial crimes; reforms are promised. But so far no one has offered a sensible answer to the question: What’s going on in the boardrooms of corporate America?
Reports of insatiable financial gluttony and wrongdoing in high places make us wonder just how corrupt big business has become. Or, more accurately, how corrupt CEOs and other bandits of the boardroom have become.
Corruption in high places isn’t new. The sleaze and scandals of the Clinton years left us shaking our heads or wanting to throw up. And that period also produced an uncommon convergence of greed and arrogance that allowed corporate insiders to enrich themselves far beyond any objective evaluation of their worth.
All the corporate misdeeds uncovered over the past 18 months can’t be listed here. But a few snapshots will show the pervasiveness of greed and gross neglect in some major company boardrooms.
Former Enron chairman Kenneth Lay sold a ton of stock ahead of the giant energy firm’s collapse. Civil suits allege Lay sold stock worth $100 million between February 1999 and July 2001. But Reuters reported the figure might be “closer to $184 million.”
For 2001, Lay reportedly was paid $67.4 million in salary, bonuses and stock. Enron also loaned Mr. Lay more than $70 million in 2001. This from a company already well on its way to bankruptcy for lack of financing.
Additionally, the Enron board “rewarded” Jeffrey Skilling with $40 million, including some $26 million in stock options. Skilling served as Enron’s CEO from February 2001 to August 2001 all of six months!
No telling what Skilling could have collected had he worked all year!
The “goldmine” at Enron was rich, but small compared with the bonanza tapped by Gary Winnick, CEO of communications fast-stepper Global Crossing. Winnick was also a golfing buddy of Bill Clinton and contributor of $2 million to the Clinton library.
On a PBS “News Hour” newscast, Jeffrey Kaye mentioned Winnick’s renovation of his “$94 million palatial California estate” and his huge sales of stock in the failing company. But for Global Crossing employees, things haven’t gone so well. Last January, the company filed for bankruptcy.
Rep. George Miller of California, in a letter to House colleagues, condemned the greed and exploitation in Global Crossing. Miller wrote, “Rank and file workers lost up to $200 million of their nest eggs, while top Global Crossing executives netted $1.3 billion in stock sales.” Miller added, “Global Crossing’s Chairman Gary Winnick sold nearly $735 million in stock.”
Last August, Global Crossing announced plans to lay off 2,000 employees. At the same time, Kaye reported, “[T]he company wiped out the terms of an $8 million loan to then-CEO Thomas Casey.” Casey was replaced as CEO just two months later.
Adelphia Communications, founded by John Rigas, has been under investigation for months because of questionable accounting, and $2.3 billion borrowed by the Rigas family. In May, Rigas and his three sons resigned their positions with Adelphia, and the firm filed for bankruptcy on June 25.
Then in July, federal authorities arrested John Rigas, two of his sons, and two other former company officers, accusing them of using Adelphia as their “personal piggy bank.”
Then there’s WorldCom, which filed for bankruptcy July 21. Investigators want to know about $3.8 billion mislabeled expenses, inflating net income, and the $408 million WorldCom loaned its CEO, Bernard Ebbers.
These snapshots show that no correlation exists between insiders’ exorbitant windfalls and company performance. Raiding the company till and conning the public were at their worst in the months before the companies went belly up.
It’s obvious that pusillanimous, or conspiring, directors can’t protect shareholders. It’s also obvious that the public, shareholders and regulators should hold directors responsible for passing out corporate funds like "found money."
Jesse James was born 100 years too soon. With his talent, as a modern-day CEO, he could have made millions, instead of risking life and limb for mere thousands.
If Jesse could have cleaned up like Ken Lay and Gary Winnick, he would never have gone near a bank or train.