Monday, 26 January 2009

Strictly Business: Not Quite The Bottom Line

Billionaire business tycoon Carl Icahn has a blog, and he's written a piece about the need for reform in corporate governance. Now he's not calling for more government regulation, because when you do a little digging, government regulation is pretty much at the root of most economic woes. What Icahn wants are some concrete and inviolate laws that would return power to the shareholders.

What a radical idea, having the people who actually own the company have a say in how it's run.

You see, a lot of corporations these days are run
by the CEOs, for the CEOs, and investors be damned. They get the companies incorporated in a state with fairly lax corporate laws, they then rewrite the corporation's bylaws and stack the Board of Directors with their cronies to make sure that those who are able to grab the top spot, can not only hold onto the power, but all the rewards as well.

Now I'm not against CEOs earning big money, but the key word is
earning. How many times have we seen major corporations driven into near insolvency while the CEO not only bags a massive salary, but huge bonuses, and a golden parachute that could buy India if they actually do get fired, while the shareholders not only lose money on their investment, they can't do anything to change it. Those CEOs do not earn their rewards, they just take them. A CEO who earns all his boons and bonuses does so by making real profits, and creating real dividends for their shareholders.

The neo-feudalist "taker" CEOs are the kind of CEOs who buy $50 million corporate jets with the federal bailout money that was supposed to stave off bankruptcy. Can you name anyone who isn't the CEO or his crony that could possibly support that decision? Probably not.

It used to be said that all companies care about is the bottom line, if only that were true. You see the bottom line has the elements that would create real value for shareholders, and using that as a basis for decision making at least has some merits. The problem is that most companies are not thinking about the bottom line, instead they're basing their decisions on a few lines up from the bottom, the ones that delineate CEO salary, bonuses, and perks, and when that's all anyone thinks of, the bottom line suffers, shareholder suffers, and the whole economy suffers.

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