Bad Bosses: How Inept Execs Got Away With Mismanagement And Scandal In 2012
Companies lay off vast numbers of workers with such regularity that you may not have noticed the announcement. Last week Citigroup Inc. said it would lay off 11,000 workers worldwide, citing a need to reduce expenses. Yet, at the same time, Citi revealed it gave top execs hefty "incentive awards," including $6.7 million to Vikram Pandit, above, Citi's former CEO.
The bank, which disclosed the payment in a regulatory filing Friday, also paid its former chief operating officer, John Havens, who left Citi last month along with Pandit, $6.8 million. As The Associated Press reports, the executives will get 40 percent of the money right away, and the rest will be paid in installments through 2017.%VIRTUAL-hiringNow-office%
The company said Pandit and Havens will continue to vest in deferred stock and deferred cash incentive awards previously granted to them. Those were worth $8.8 million for Pandit and $8.7 million for Havens.
The outsized payments to the Citi execs aren't isolated examples. Numerous other leaders at other companies who presided over huge financial losses, disasters or other mismanagement, have escaped job loss, criminal charges or steep fines -- the kinds of punishment deemed appropriate in such failures.
In fact, some also walked away with golden parachutes worth millions of dollars, and found new and sometimes even better jobs.
The regularity with which such instances occur raises important questions: Why aren't executives being held accountable? Are the financial reforms that were put in place by Sarbanes-Oxley in 2002 to protect shareholders and the general public from accounting errors and fraudulent practices a failure?
Nell Minow, a longtime shareholder advocate and corporate governance expert, believes the reforms are too weak. They "haven't done very much to discourage illegal behavior," says Minow, founder of GMI Ratings, a firm that publishes risk ratings for public companies based on factors that include governance.
There is ample evidence of a lack of accountability, exemplified by the increasing disconnect between pay and performance at the highest levels of corporations, Minow says. What's more, executives in the corporate world are held to different standards than their counterparts in government.
The example of former CIA Director David Petraeus is proof of that, she says. On Nov. 9, the same day that Petraeus resigned his post after it was revealed that he had an affair with his biographer, incoming Lockheed Martin Corp. CEO Christopher Kubasik was asked by the company's board of directors to resign for having a "close personal relationship" with a subordinate at the defense contractor. Kubasik acquiesced, but otherwise walked away from the incident unscathed while also receiving a $3.5 million separation payment.
Meanwhile, Petraeus faces possible charges should ongoing investigations turn up evidence that the former four-star general began his affair with Paula Broadwell prior to his retirement in August 2011, Military.com reports. Petraeus, who served in the military for 38 years, is entitled to a pension of about $220,000 a year, according to CelebrityNetWorth.com.
Maximum punishment for military officers found guilty of adultery is dismissal from the service, forfeiture of all benefits, including pensions, and imprisonment for up to a year, Yale Law School military-law expert Eugene Fidell told Time.
And the double-standard is especially evident within companies. If a middle-level executive had violated Lockheed's ethics polices in the same way that Kubasik reportedly did, "he would not get a $3.5 million payout," Minow says, even though some federal rules require companies to enforce ethical standards equally at all levels.
Minow says the disparate standards between company and government officials may stem from Americans' impatience generally with the pace of government. Additionally, she says, "It may be that we feel a more personal and direct connection with government officials who work for us."
Still, even critics like Minow concede that corporate governance is much improved from 25 years ago. And that, says Patricia Harned, president of the Ethics Resource Center, a nonprofit research organization based in Arlington, Va., is proof that corporate executives are indeed being held accountable for their actions.
"We certainly see CEOs who are being removed from their positions because they've had morality challenges or they haven't actually accomplished what is required of them as a leader," Harned says.
Corporate executives are also being held accountable by shareholders and public opinion. "CEOs can certainly take a beating from the public when there's not satisfaction with their performance," she says.
Further, there's a stronger tone from officials in Washington these days, Harned says, "in terms of their desire to hold individuals accountable, if there's criminal activity that's taking place in a corporation."
The debate about whether U.S. laws governing corporate governance are too lax or not is likely to go on, especially in light of these recent examples of company executives who oversaw scandals and didn't pay the price:
- BP America President Lamar McKay, Managing Director Robert Dudley and CEO Tony Hayward, BP PLC: Of these three, only Hayward lost his job after the 2010 oil spill that dumped 200 millions gallons of crude into the Gulf of Mexico. Often held up as the villain in the disaster, Hayward famously said, "I'd like my life back," while rescue teams struggled to clean up tar balls on the Gulf Coast. As The New York Times notes, two years on, Hayward does indeed have his life back, seeking to strike riches in the oil fields of northern Iraq. In February, BP awarded Hayward shares valued at more than $1.11 million under a three-year incentive plan that ended in 2011, The Wall Street Journal reported in March, even though he left BP before the plan's conclusion. As for McKay and Dudley, both are still employed at BP. The company recently announced that McKay will leave his U.S.-based post and move to London where he will serve as chief executive of BP's upstream business. He'll report to Dudley, whose earnings of $2.6 million in 2011 included an $850,000 bonus.
- Mike Duke, Walmart Stores Inc.: Now the current CEO of the world's largest retail chain, Duke was head of Walmart's International division in 2005, when an internal investigation reportedly revealed that the company's Mexico division was paying millions of dollars in bribes to speed expansion in the country. An investigative report by The New York Times published earlier this year alleged that Duke had detailed information about the bribery investigation, and presumably signed off on the company's decision to drop it. What's more, the report charged, Duke and other Walmart officials failed for years to tell shareholders and government regulators about the potentially damaging information. Walmart paid Duke $18.1 million last year, including $1.3 million in base salary.
- Brian Dunn, Best Buy Co.: As CEO, Dunn engaged in "an extremely close personal relationship with a female employee that negatively impacted the work environment," according to an internal audit. The investigation showed, for example, the 51-year-old Dunn contacted the younger employee at least 224 times by cellphone during two trips abroad in 2011. Despite his failings, Dunn walked away with compensation valued at $6.6 million shortly after stepping down in April, according to Forbes. The fate of the unnamed employee, who worked in human resources, isn't known. The company declined to comment about her employment status or to detail her exact duties, reported The Wall Street Journal.
- Scott Thompson, Yahoo Inc.: Thompson resigned his CEO post at Yahoo in May after just five months on the job when evidence obtained by the Internet company's board of directors revealed that the former PayPal president didn't have the degree in computer science that he claimed to have. During his brief tenure at Yahoo, he cut 2,000 jobs. Thompson, who told directors and colleagues that he was undergoing treatment for thyroid cancer, as the scandal unraveled, was granted no severance as part of his departure. But unlike the millions of Americans who've endured many months or years of unemployment, Thompson within weeks landed a job as CEO of ShopRunner, an Internet shopping service, despite his fabricated credentials. ShopRunner, a 2-year-old startup, is privately held and so isn't required to disclose executives' salaries.
- Robert Diamond, Barclays PLC: Diamond presided over the U.K. banking giant during a period in which it was alleged that the bank manipulated interest rates during the 2008 financial crisis. The now 61-year-old Diamond tried to hang on as news of the scandal spread, going so far as to issue a written apology to employees, seeking to assure them that as CEO he would get to the bottom of the matter. But under pressure by regulators and British Prime Minister David Cameron, Diamond eventually resigned -- and even forfeited his once-anticipated $30 million severance package. As reported by CNBC in July, Diamond didn't walk away penniless, however. Barclay's chairman, Marcus Agius, who was the first bank executive to resign but was forced to stay on after Diamond's departure, told lawmakers then that Diamond would receive a year's pay and a cash payment -- at a sum of 2 million pounds (about $3.2 million) -- instead of a pension. In accepting the much-reduced amount, Diamond said that he hoped his decision would "help close this chapter and allow Barclays to move forward and prosper."
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