It's Time for the Next Generation of Executives 18 comments
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Dear Shareholders:
I am writing to offer my name into consideration for the executive positions within your company – specifically, the Chief Executive Officer – and hope you will agree I am the perfect fit. I am well educated, resourceful, analytical, ethical, and decisive. However, this mix of qualities can be found in a myriad of candidates. What I would bring to your executive suite is much more valuable in these troubled times.
Before I elaborate, let me deal with an issue that I’m sure is at the forefront of your mind – my expectations for compensation. I am quite aware that there is an imminent move by the Obama administration to limit executive pay, and this is one reason I am currently writing to you. I realize that the common perception is, in the words of James F. Reda, “[that] $500,000 is not a lot of money, particularly if there is no bonus.” I wholeheartedly support others, who also seek this position, declining to be considered because of the meager pay. As a matter of fact, I will take the position for $400,000, if offered. Further, I encourage you to pay me three-quarters of that amount in equity. The reason I would suggest this is closely linked to my qualifications for the job, beyond the aforementioned.
First, I promise to be accountable. In these troubled times transparency is of the utmost importance. Companies’ leaders have to answer to their shareholders, their directors, their employees, and even, in some instances, the government. Uncertainty and the loss of confidence has caused the collapse of many firms. Too many executives have skated through the crisis by blaming problems on their predecessors (using codewords like “legacy assets”) a year or more later. Trumpeting a business model or a plan for months, or even years, to investors and the public alike, and then changing course abruptly shows a lack of leadership and ensures the market will assume the worst. In short, I will take responsibility for what happens on my watch, ensure my decisions are transparent, and will be ready to accept the consequences of my decisions and performance rather than deflect criticism.
Second, I will be a steward of our firm’s reputation and brand. Too many firms have consistently done the exact wrong thing. I will institute rules that ensure our sterling reputation emerges from this crisis intact. Further, I will hold employees accountable for actions that harm our image and will be harsh and swift to send the message that our firm doesn’t tolerate actions that cut against our values. Simultaneously, I will be a strong advocate for defensible decisions and use my position to ensure all relevant stakeholders understand our reasoning – I refuse to let the media scare me into making decisions that aren’t in the best interest of our firm. I will also ensure that tough decisions, like deferring or drastically reducing employee compensation, are made and explained. I promise not to tarnish our firm by repeating half truths and party-line nonsense in defense of the status quo.
Third, I promise to not be ruled by quarterly results and short-term gains. How many assets could have been sold and moved off of firm’s balance sheets, but for executives’ reluctance to miss out on any “upside” of these assets? How many buybacks and ill-conceived mergers were executed because they were the flavor of the day? How much more leverage was taken on because interest rates were low and competitors were doing the same? I will not bow to these “fads” and optical enhancements to earnings, at the expense of logic and long-term strength.
Fourth, I promise to get involved with every aspect of our business. I will make it my job to ensure I am very familiar with all of our products. Further, I promise to dive deeply enough into our business that I will be able to make intelligent decisions where others will not. If no one is asking the difficult questions, I will. If there is a poor incentive structure that leads to poor controls, risk management, or business practices, I promise to find out about it myself, not be told about the problem(s) when it starts adversely affect our firm.
Fifth, and lastly, I promise to eschew the trappings associated with being an executive – I will lead by example. I will set the example for our employees. I will maintain a modest office, fly commercial whenever possible (and that does not translate to “whenever I want to”), and ensure the company never incurs expenses for my comfort or convenience. In an era where travel and expenses are highly restricted for legitimate business purposes, for me to use my position for my own convenience would be inappropriate.
It is clear to me that I will bring exactly the sort of fundamental, commonsense changes to your executive office that your firm needs. The past few weeks have shown us all that the current generation of executives, seemingly uniformly, completely fail to meet the obvious standards needed to lead our companies. Recent events have left companies’ equity values depressed, morale crushed, and, in some instances, partial or total financial collapse because of executives’ poor decisions, poor management of their brand and perception, refusal to take personal responsibility, and inability to think objectively and dispassionately about their business. And, when these executives have been forced out, they have been paid handsomely for doing an atrocious job by any objective measure. Simply put, I offer something different – any reward I will reap will come from the same reward you, as an investor, expect: an increase in the value of the firm’s equity.
I hope you agree with me that I am a great fit for an executive position – specifically, Chief Executive Officer – at your firm. Should you have any further questions, please feel free to contact me at DearJohnThain@gmail.com. I look forward to hearing back from you.
Sincerely,
Dear John Thain
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I do believe, however, that some young business people will feel empowered by this, if only because they feel that they can't possibly screw up as bad as some of their elders.
"What figures do you want me to put here?" is obviously what they all said. What a crock it all is.
Then, the gov't says what it needs from the American people to fix it, gets it, then says "that was then, this is now", and changes everything....the amount of money it "needs", what it plans to do with it, and who and what it goes to. If that is not an imperial gov't in action, unaccountable to the citizenry, then nothing is. And, we let them do it. Disgusting and pathetic we the sheeple are. We should be marching in the streets and on Washington!
In principle, the owners (shareholders) are supposed to elect directors from amongst themselves, to supervise their employees (management).
It has gotten to the absurd state that:
(a) The management (emplyees) also serve as directors (owners' representatives). In many cases, the president and CEO (an employee) is also chairman of the board of directors (chief shareholders' representative). Basically, the fox supervises the chicken coop.
(b) The management actually select the directors, and the shareholders are effectively excluded from the process, with a "vote" by the mutual fund club at an annual shareholders' meetings.
Basically, managements have gotten to the point of running companies like they were the owners of a fiefdom, with the true owners being ignored and unrepresented.
If any good can come out of the current mess, I hope that a long overdue reform of corporate governance would be one.
On Feb 04 01:04 PM Jolly_Rancher wrote:
> Your letter is directed to the wrong group. Shareholders don't make
> any decisions regarding company employment. Most upper level hiring
> decisions are made by high level managers who report to zombie directors.
> Consideration of shareholder interest is negligible. Management pay
> should come from company cash flows just like all the other employees'
> pay, and the pay should be a direct function of the dividend which
> in turn should also be company-regulated, a function of earnings
> and excess cash flow and yield. To explain further, first, dividend
> cannot be declared if there isn't sufficient earnings and cash flow.
> Second if the dividend yield rises above a certain predetermined
> level, management compensation does not increase. That way no games
> can be played with the dividend. Thus, as the dividend grows over
> time, so does the manager's pay. This would also stop the crazy stock
> buybacks at market tops. It would also stop the insane amount of
> stock added due to options.
Thank you for interest in our company. However, we regret to inform you that you are not qualified for the position. In fact, you are not qualified to clean our bathrooms. Best of luck to you on your continued job search.
P.S. Please tell Mr. Lewis the same.
Sincerely,
Angry Taxpayer
I work for the companies I own and you can be damned sure I am motivated. The combo of opportunity to benefit coupled with real fear of loss really refines executive and investment skills.
mast-economy.blogspot....
Let's go ahead recruit some of these regional bank managers with a track record... they've promised everything you list above and they have the experience and the long history of 10Qs and 10Ks to prove it.
GNE
goodnewseconomist.com
Let's forget what has gone on and how we got here. OK? It won't change anything anyway!!!
What do you want to do about it? For decades things were sort of ok. The "don't rock the boat" covered a lot of sins. None greater than those of recent vintage.
The facts are shareholders don't vote! US citizens don't vote!! You deserve what you get!!! The CEO's are the hired help. The stockholders are the owners. At least on paper and financially that is true.
Start by voting. Vote with your feet --if necessary(sell the damn shares). I read every stockholder issue I am to vote on. I don't know the directors. There will be all new ones shortly anyway!!! As far as the proxy votes I always vote against management on all compensation issues unless the stock has done well. Simple isn't it!!! Next, I think those mutual funds that some of you are talking about will want to keep you so speak up. Tell them what you want now. Now is the time!!! They are getting a lot of calls. Make sure you are also calling and threatening to withdraw. Now that you have a lot of losses a withdrawl will not hurt!!! I am sure they will respond.
Stock options are bull. Give the new CEO's low cost loans which currently won't cost you a thing. How mant shares do they want to buy. When management is an owner then and only then are their interest aligned. Options are an excuse to gamble with your money. If I want to gamble with my money, I will do it --not the CEO!!! If Wall St were still partnerships, do yo think we would have these problems? NO,NO,NO. It would have been their money.
Right now there are a lot of goooood people out of jobs. Many of them could easily replace these jerks in the executive suites for a lot less money and do a better job.
So VOTE your shares or don't complain!!!!!
Very interesting and insightful
www.gotoguy.com/?p=560
It is refreshing to see the European system considered in good ole US of A.
If $500,00 a year plus options isn't enough, then the greedy execs can suit-up and hone their physical skills for professional sports. No one need be held captive in the executive suite for "low pay."
Executive compensation practices must be reformed. I am all for some one acquiring a lot of wealth if they build a successful business (or keep a business at the top). However, rich compensation determined by quarterly and annual rersults has little to do with building or maintaining a successful business. The value of what happens in 2002 is not understood at least until 2012, and maybe even later.
No executive should receive compensation for 2002 performance for 10 years. Then we can be sure it had lasting value. Imagine how our mega banks would look today if executives had to keep the ship on course through 2011 to receive 2002 bonuses. I believe much sounder decisions would have been made.
Having the President be the Chairman of the Board is one of the worst business practices today. That's like asking Bernie Madoff to punish himself. It means there is no one is even theoretically in any position to oversee or punish the CEO. In reality, even those in a position would rather do nothing than correct corporate misdeeds.
When was the last time you heard of a board uncovering CEO misdeeds themselves and throwing him out. They are always reactionary, and only in light of severe corporate crisis.
The true is that a company has its board of directors, which choose those executives, and if you do some work and drill down inside public companies, you'll see that most of the directors has some connections with the executive they offer, recommend and finally choose. Below the surface, every company has its intrigues and sub-connections and as for the shareholders, well, they're naive enough (like you) to believe non of it is true and that they have any power with choosing this role or another. As of your qualifications, I must say that you practically missed the central point, and after the last crisis and events in the market, I hope you would notice that just asking for lower salary isn't enough anymore (actually it never was) and your skills are lacking with one important thing we noticed every other executives lacks: RISK MANAGEMENT SKILLS!!
What do you understand with risk? How you gonna protect the company from falling down or get hurt in these kind of times? Just talking about general skills and lower salary is not what shareholder are looking for and we start to understand that, so take it to your attention.
Thanks for your time.