April, 2003

A slow day, but some minor accomplishment. Finished reading the Gompers article, where he constructed a governance index to rank the corporate governance level of the companies in his sample. His actual paper focused on corporate governance and investments, and whether returns for firms with better corporate governance were significantly different compared to firms with poorer corporate governance. But it was the index construction methodology that I was more interested in, rather than the results of his study.

Went to town in the afternoon; had to restock some of my groceries due to the fact that I eat at home more nowadays to save expenses. Only bought the necessary stuff – tomatoes, mushrooms, celery, smoked mackerel and tofu. Oh, and some coffee too, because my supply has finished, and the Maxwell House they serve at the office doesn’t quite taste the same as Nescafe Gold Blend. Total price – £6.36. Not bad for stuff to last me a week or so.

Also ventured into one of the charity shops and managed to find a few football jerseys – Newcastle from last season or perhaps two [adidas] and Barcelona from way back when they wore Kappa with Guardiola written on the back [and the number 4]. I always make it a point to buy cheap football jerseys. For one, they cost some £40 in-season, and only go down as far as £20 after a new one comes out. So to me paying £2 for them is value for money; and some rare ones, which are collector’s items, can be sold on Ebay. I used to go round carboot sales to find random jerseys – the nice ones I send home to my brothers and others I sell on Ebay. Perhaps it’s time to start selling again.

I’ve also added another job to my portfolio. Printer monitor. Makes me sound like a high school kid again.

Imagine, if you will, that you were fired for performing poorly at work. Maybe you’ve been taking too many sick days, maybe you have missed every deadline there is to miss, or perhaps, you have just not met the targets you were asked to meet at the beginning of your tenure. The bosses are talking, and generally, they want you out because you are undermining the company’s performance.

What would you expect as part of your dismissal? If you get a month’s pay, one would think that would be good enough, given that you’re not leaving the company under positive circumstances. But in the imperfect world that we live in, there are people who are getting windfalls as a result of performing badly. Who are these lucky people? Generally, top company CEOs.

Let me quote a few ‘severance packages’ top CEOs today get when they are dismissed – yes, dismissed, not retire – from their jobs. Tony Pedder, ex-Corus CEO received £550,000. Incidentally, Corus is laying off some 1150 people today. Bob Mendelsohn, formerly of Royal Sun & Alliance, pocketed a hefty £1.44million after dragging the company down. Henry Yuen, ex-CEO of Gemstar-TV Guide International got US$22m [approximately £13.8m], plus stock options and other benefits. And if William Aldinger III, recently appointed as a member of the HSBC board, will receive free medical and dental benefits should he ever have to leave the company.

Obscene? You betcha. How could people let this happen? Well.. it’s a market economy, my friends. The owners of the company are the shareholders, and for as long as the shareholders believe such severance pay deals are justified, us the poor mortals who can’t even afford to own any shares can scream and shout all we want. Perhaps our efforts are better directed at dreaming of a day when we, too, may become CEOs.

But why aren’t boards doing anything about it? A multitude of reasons. Cronyism, fear of the CEO, or just plain ignorance. This really is the crux of my second paper – looking at what kind of governance structures are in place that allow such obscene payouts in return for poor performance, and perhaps measures to mitigate this disturbing trend. There are quite a few other theoretical issues which I could put forth, but perhaps I should save that for my thesis.

Anyway, if you think severance packages are obscene, check out what these CEOs get paid while they’re in office. Newly appointed William Aldinger III [currently my fave guy] received US$20.3m [approximately £12.75m] for leaving his previous company, albeit under less distressing circumstances – HSBC bought the company he was CEO of – and stands to gain about US$58m [£37.5m] from his appointment to HSBC’s board. That’s US$1m [£628,000] in annual salary, US$4m [£2.5m] in annual bonuses and various other perks and benefits in the form of stock options. How many countries’ third world debt would that have written off?

American executives are generally paid more than the rest of the world. But of course they have to. They’re Americans, after all, right? But UK board members often cite that they need such exorbitant packages to ‘remain competitive globally’. They mean, to compete with America. French CEOs, for example, get paid much less. Let’s not even start on Asian CEO’s, Lee Kar Shing excluded.

Anyway, just for fun, let’s have a look at how much Malaysian CEO’s get paid. TNB’s top paid executive Dato’ Pian Sukro was paid RM358,050. Interestingly, he received no benefits in kind, where as former non-executive chairman Dato’ Jamaluddin Jarjis was given RM15,722 in benefits. Must be all the helicopter flights to Muadzam Shah, then.

Telekom’s Dato’ Md. Khir Abdul Rahman earned RM368,350 last year. British American Tobacco, generally regarded as the company with the best corporate governance in Malaysia, paid out RM 2,087,350 to Donald Watterton. The highest paid local , Chan Choon Ngai, received RM 857,838.

Genting, while not declaring personal wealth, paid it’s highest paid executive between RM 700,000 to RM 750,000. Petronas’s Dato’ Hassan Marican received RM 60,000 in fees – his actual salary and other benefits were not declared. Of the above, even if one earned RM300,000 – that is still a staggering RM 25,000 per month – the Prime Minister’s salary.

[If you're wondering where I got all these info on Malaysian CEO's pay, it's all in their annual reports. They are available online.]

Of course, some of these CEOs earn they keep, and such pay can be considered justified to a certain extent. I’m not trying to preach some sort of socialist ideology – equal pay for all and all that. After all, they are undertaking a job that requires specialised skills, not to mention being under intense pressure every hour of the day. But when the pay goes up when performance is dipping.. well.. some questions need to be answered. If you’ve ever wondered why the rich get richer and the poor get nowhere, well, perhaps this might shed some light.

Anyway, I though I’d end with some interesting anecdotes. Don Carty, recently of American Airlines, doubled his own pay and that of senior executives – while asking the rest of the employees to take paycuts amounting to US$1billion [£1.6m]. But best of all – Dennis Kozlowski, formerly of Tyco. He spend company money on a $15,000 dog shaped umbrella stand, $2,200 on a gilt wastepaper basket and $3,000 on coat hangers.

I was going to do an entry that was heavier in nature and a bit more on the intellectual side, since I haven’t said anything remotely clever in quite a while to justify my status as a postgraduate – in case people started getting confused.

Fact of the matter is, I am knackered. Can’t put a thought together, never mind a proper sentence.

Perhaps I’ll give it another shot tomorrow.