Ernst & Young showed very bad judgment when it named Mike Fries, chief executive of Liberty Global Inc. (NASDAQ: LBTYA), its National Entrepreneur of the Year 2012 in the Media, Entertainment and Communications category. Based on many corporate governance standards, Fries is barely a CEO at all. John Malone, the chairman of the board, holds 36% voting control of Liberty Global, and by extension, control over Fries.
Malone's influence over Liberty Global is so great that in the list of risk factors the company may face, as filed with the SEC, the public company reports:
By virtue of Mr. Malone's voting power in our company, as well as his position as Chairman of our board of directors, Mr. Malone may have significant influence over the outcome of any corporate transaction or other matters submitted to our stockholders for approval.
Morningstar recently criticized Liberty for the structure:
[T]he board has created an executive committee of Malone and Fries and given it the right to exercise the full authority of the board, which negates the independence of the firm's other directors.
Another factor any evaluation of Fries should include is his extraordinarily high pay package, which has brought him $29 million over the past three years. And that pay package is for a CEO whose company has lost money recently. The justification of his pay package is difficult for Liberty, and Malone, to defend under the circumstances.
The Liberty Global financial statements are complex because of currency data, pro forma information and M&A activity. But the results of the P&L itself for the past fiscal year were that the firm has a net loss attributable to shareholders of $772 million on revenue of $9.5 billion. The company lost money again in its most recently reported quarter - $22 million on revenue of $2.5 billion.
Awards given to CEOs should at least take into account whether they are actually CEOs in fact. Additionally, chief executives who may well not act in shareholder interests can hardly be considered among the "best of the best."
Douglas A. McIntyre
Filed under: 24/7 Wall St. Wire, Corporate Governance Tagged: LBTYA