Here's the dilemma faced by taxpayers: CEO's build empires which, when they fail, imperil the economy, society, or both. When Sandy Weill was busy building Citi into a hodge podge empire of the future, he not only was pursuing his selfish ego-based agenda, he did it in a way that added more risk than he, or his stockholders, were able to carry alone. When the failure came, as many of us knew it would, the consequences of that failure for the rest of the country were too much for the bank to be allowed to fail. Smaller banks are allowed to fail every day, and the economy, while hurting, is not put in mortal danger when that happens.
The taxpayers and our children are forced to put our futures at risk when these fat cats put us at risk with their grand designs earmarked by more greed than common sense. The fat cats, in contrast, scoop hundreds of millions of dollars from these corporations and usually are long gone when their houses of cards fold. While our children are in hock, they live the high life. Clearly, this is not a good state of affairs for our nation.
In the past, our protection came from banking-oriented laws, rules and regulations. However, we have to face the possibility that megalomaniacs may use debt to build other empires that imperil the nation. For example, if GE decided to add a few defense contractors to its already eclectic portfolio, and do it with debt, the next recession might take them out. At that point, being deemed TBTF (Too Big To Fail) taxpayers might then be stuck with another bailout bill or we all suffer. The irony: they get rewarded for putting the nation at risk, and they receive no sanction.
So, rather than rely on industry or corporate restrictions, let's focus the solution on the actual perps. We have several well qualified contributors here at SA. I want to put together a proposal that is concise and simple and submit that to whichever politicians and newspapers that will give it the attention needed to keep it moving forward.
Will you help me by refining these, and adding a few more specific items? In particular, I'm looking for provisions which are easily identifiable (either someone did it or not, and if they did, specific penalties automatically follow).
Here's the list:
1. Any corporation receiving government bailout money in any form has to be split up into at least four smaller independent pieces, like AT&T was. This puts an immediate empire busting sanction in place.
2. Anyone who served as CEO and CFO of any such a company for the ten years prior to such aid is barred from ever serving as an officer or board member of any publicly held company again. Extreme, but we do this for fraudsters, so it does have precedent.
3. In addition, these CEO's and CFO's are personally put into involuntary liquidation bankruptcy, with the proceeds of the auction used to offset the cost of any taxpayer bailout. This will be the biggest deterrent, and will get rid of those summer cottages in the Hamptons while our children pay the bill.
4. Board members serving on the boards of such companies are likewise prohibited from serving as an officer or board member of any public corporation for another ten years. If a board member is a member of a profession, such as accountants or lawyers, they lose their license to practice for five years. Since most board members are themselves execs at other public corporations, this will cause them to lose their jobs, which will put some teeth into boards.
5. D&O insurance has to specifically exclude any of these scenarios, so these officers and directors don't simply palm off the cost onto shareholders.
With sanctions such as these, CEO's will think twice about using debt to grow too big.
Important note: none of this affects companies who go broke on their own. It only affects companies who grow "too big to fail" and whose failure puts the nation at risk and, specifically, involves taxpayer money in their rescue.
We saw the indecent haste with which Goldman Sachs wants to pay off TARP, for no other reason than the crimp it puts on executive compensation. That shows us that sanctions that apply to the individuals who make the decisions work. They work quickly and they work well. Best of all, they cost us nothing.
Feel free to add to the suggestion.