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Many CEO’s Pursue the Four Ps – Pay, Power, Perks and Prestige Rather than Profits

Many CEO’s Pursue the Four Ps – Pay, Power, Perks and Prestige Rather than Profits

Many chief executives pursue the four Ps – pay, power, perks and prestige rather

than profits for the company.

Recently, there are more and more CEOs falling from grace. In the United States, forced

exits accounted for 39% of CEO departures in 2002 up from 25 % in 2001, according to

Booz Allen Hamilton. In 2002, Enron Chairman Ken Lay, Tyco chief Dennis

Kozlowski, Qwest’s Joe Nacchio, Worldcom’s Bernie Ebbers. Year 2003 saw the

departure of CEOs from Raytheon, Kmart, Spiegel, Scherling Plough, Motorola, Freddie

Mac, Boeing, American, etc.

Agence France-Presse (AFP) in 13 April 2004 reported that Professor David Yermack of

New York University Stern School of Business found that the average shareholder gains

underperformed market benchmarks at companies where the chief flies by luxurious

corporate jets. In the study, “Flights of Fancy: Corporate Jets, CEO Perquisites and

Inferior Shareholder Returns”, Professor Yermack said: “The central result of this study

is that CEO’s personal use of company aircraft is associated with severe and significant

under-performance of their employers’ stock….Firms’ stock prices drop an average of 2

percent around the date of initial disclosure of corporate plane use.”

Some of the CEOs may not be justifiably fired as the economy turns bad through no

faults of theirs’ but they were held accountable. However, the days of fat cats running

corporations are over.

Uncontrolled and unnecessary costs destroy businesses. If your competitor has a limo and

you do not, you are already winning. He has a leaky bucket. There are six self-made

multi-billionaires. And all of them were paragons of simplicity and prudence in self-aggrandisement.

In 1991, Sam Walton founder of Wal-Mart drove an eight-year-old red Ford pickup. He

always fetched his own coffee. As President of EDS, Ross Perot paid himself $70,000 a

year. However, when Perot sold EDS to General Motors, the President of General

Motors, Perot’s new boss, made $2.4 million salary plus a bonus. Finally, he paid Perot

$2.5 billion to go away because GM executives were embarrassed by the folksy Perot,

who did not demand a fat salary or swanky office or specially tuned cars. David Packard

never had an enclosed office before he left Hewlett-Packard for government service. Bill

Gates of Microsoft often rode coach on planes, until they finally got so big they ran their

own fleet of aircraft. Warren Buffet manages Berkshire Hathaway’s billions and billions

with a staff of 24. When they lunch together, it is McDonald’s. Warren still stayed in the

same house that he bought thirty years ago and drew on a salary of US 100,000 per

annum. Ingvar Kamprad, the founder of Ikea takes the company bus to his stores.

Indeed examples of executive abuses dominated the news during 2002. Many Enron

employees were fired whilst Senior Executives used $200,000 to fund its luxury box at

the formerly named Enron Field. Though founded on the innovative idea of instant

photography, Polaroid’s management failed to save the company from the shift to digital

cameras. Polaroid reportedly cancelled health-care benefits for the company’s retirees in

the wake of its Chapter 11 filing. However, management reportedly petitioned the

bankruptcy court for permission to dole out roughly $19 million in bonuses to keep key

executives from leaving. Webvan is another example. It failed to compete against the

traditional supermarkets with its online shopping services and home delivery. Before it

ceased operations, the company reportedly agreed to pay its resigning CEO, George

Shaheen, $375,000 per year for life although the Webvan’s stock price plunged 99

percent during his tenure.

Kmart in bankruptcy authorised payments of $362,000 per month in retirement benefits

to some 242 of its executives. The Kmart’s creditors which K mart owed $6 billion

protested to a Chicago bankruptcy judge.

L A Times writer John Balzar observed that creditors and shareholders are not the only

ones enraged at the seemingly arrogant attitudes of America’s corporate giants.

“Consumers are mad, and some are declaring petty war against the mighty corporation,

against shenanigans, the double-dealing, the get-rich-quick schemes, the fraud, the selfserving

deals.” Those investors felt that they have been robbed as they saw their

retirement savings dwindled.

In America, CEOs compensation surged 1000% in three decades, making it to 500 times

the pay of the average worker. Yet, they are greedy for more. Martha Stewart of the

ImClone System expensed off the US 17,000 cost of a holiday to her company. Dennis

Kozlowski spent US$15,000 on a “dog umbrella stand” and US$6000 on shower curtain.

John Rigas spent US $20,000 of Adelphia’s shareholders’ funds on a Christmas tree. The

list of corporate excesses goes on and on.

CEOs who live “fat cat” lifestyles using corporate funds should be slaughtered and

skinned.

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