Everybody's Business
New Front: Protecting America's Investors
By BEN STEIN
Published: February 12, 2006
IN the tiny room where I am writing this missive, there are four little display cases and a framed diploma, among many other mementos. The diploma is for my father-in-law, Dale Denman Jr. of Arkansas, and it is from the United States Military Academy, dated June 6, 1944 — a day when quite a lot was happening of military significance in France.
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Philip Anderson
Next to that is a display case with two little stars. One is a Silver Star that my father-in-law won in Europe several months after he graduated. It is for running along a road under heavy German machine-gun fire to call in artillery to save the company for which he was a forward artillery observer. Next to it is a Bronze Star that my father-in-law, then a colonel, won in Vietnam in 1966 for holding his unit together when it was ambushed by a Vietcong force and would have been cut to pieces without him.
I have been thinking a lot lately about these heirlooms that Colonel Denman left to my wife and me. That's because of some mail I have been getting about my recent articles in this space about the way high executives have been treating their employees and stockholders. What I said two weeks ago about UAL, the parent company of United Airlines, prompted hundreds of e-mail messages. (I have still not even remotely caught up with all of them because I read them myself — no secretary here.)
Several people sent clippings describing how UAL provided Glenn F. Tilton, who was living in San Francisco when it hired him as chairman and chief executive, with a suite in a luxury hotel when he spent time at its headquarters in Chicago. UAL was paying for the suite — which cost $18,000 a month, according to The San Francisco Chronicle — while it was reorganizing its finances under bankruptcy court protection and telling tens of thousands of workers that their jobs had been eliminated, their pay cut, their pensions terminated or all of the above because the company was broke.
Some of the letter writers recalled how UAL spent an average of $10 million a month on lawyers, accountants and investment bankers for 37 months while UAL was in bankruptcy, and yet was unable to pay its employees their pensions.
Now UAL has emerged from bankruptcy with a mighty flourish, and an allowance of hundreds of millions of dollars for its top executives. Some letters pointed out that one of UAL's board members is none other than our old friend Robert S. Miller, chief executive of Delphi, the auto parts maker.
Delphi also recently entered bankruptcy — but proposed to the bankruptcy court a payment of well over $100 million to its top executives to keep them happy while it was in bankruptcy. Mr. Miller, who goes by Steve, a version of his middle name (not the one who sings "Fly Like an Eagle," but an artist of sorts nonetheless), has told Delphi's workers that they will have to take pay cuts of roughly two-thirds in order to save the business.
But my favorite communication, the one that made me stay up nights, was from a United States Army sergeant who has done two combat tours in Iraq and two more in Afghanistan, and is now home in Georgia training others to serve in those wars. I have been pals with this man for a couple of years now, and we talk on the phone. He has been following my articles online, and he simply asked, "Was this what I was fighting for in Iraq?"
The question haunts me, not only because of UAL and Delphi, but also because there is something deeply broken about the corporate system in America. Long ago, my pop was pals with Harlow H. Curtice, the president of General Motors in its glory days in the 1950's. Mr. Curtice presided over a spectacularly powerful and profitable G.M.
For that, in his peak year as I recall from my youth, he was paid about $400,000 plus a special superbonus of $400,000, which made him one of the highest-paid executives in America. At that time, a line worker with overtime might have made $10,000 a year. In those days, that differential was considered very large — very roughly 40 times the assembly line worker's pay, without bonus; very roughly 80 times with bonus. A differential of more like 10 to 20 times was more the norm.
Now C.E.O.'s routinely take home hundreds of times what the average worker is paid, whether or not the company is doing well. The graph for the pay of C.E.O.'s is a vertical line in the last five years. The graph for workers' pay is a flat line — in every sense.
Now, my fellow free-market fans may well say: "Hey, stop your whining. This is the free market at work." Only it isn't the free market at work. It's a kleptocracy at work. (I am indebted to another of my correspondents for the word.) What's happening here is that the governance system for many — by no means all — corporations has simply stopped working.
For centuries, the idea has held that the stockholders own the company. They are the trustors. The trustors select directors who in turn hire a chief executive and other top officers and then keep an eye on them for the stockholders. They — the chief executive, other top officers and the directors — are all agents for the stockholders, many of whom are often the employees, as is the case at UAL.
But what has happened is that — as in a corrupt, failed third-world state — the trustees in too many cases are captives of the C.E.O. and his colleagues; they owe both their places on the board and their emoluments to the chief executive, and they exercise no meaningful restraint at all on managers. The directors are instead a sort of praetorian guard, protecting management from its real bosses, the stockholders, as management sucks the blood out of the company.
I am by no means saying this is the standard or the usual way business is done in this country. Most managements are still honest and hard-working, I believe. But far too many are simply in the catbird seat to take what is not decently theirs from people who cannot afford to be taken.
Government, meanwhile, does nothing, or next to nothing. Courts, especially bankruptcy courts, do nothing. And the employees and stockholders and the whole society are looted. Maybe it's not looting in the legal sense, but something basic is removed from the society. In the capitalist society, the most basic foundation is trust. But in today's world, trust is abused, mocked, drained of meaning.
Again, I am not talking everywhere, by any means. I work with many, many businessmen and businesswomen, and a huge majority are honest and amazingly hard-working. I am sure that this is true nationally. But enough are not so honest and hard-working that it takes a toll on the rest of us.
Don't get me wrong. I am not a newborn. I know that looting is not new. Man is highly flawed when money is on the table and not guarded well. I saw it and wrote about it in great detail when Michael R. Milken and Drexel Burnham Lambert were ascendant, and in many other cases. It was terrible and dreadful, at least in my view, back then in the 1980's. It has always been terrible.
But there is something new and unlovely that my pal in the Army brought up. Now, we are engaged in a war. More than 100,000 Americans are fighting far from home. Many don't come back. Many come home crippled. They are fighting for a vision of a just and decent society back home in glorious, shining, blessed America. And back home, meanwhile, the looters are running wild, taking the meaning out of that vision of America, taking some — by no means all — of the beauty out of America as a land of justice and fairness.
ONE of my correspondents wrote that she, a flight attendant at United Airlines, had played by the rules, believed what her bosses told her, trusted that the laws would protect her, believed that fairness would triumph in the end because it's America. "I guess that makes me a fool in today's world," she said, because now she is broke, with no job, barely any pension and no faith. While the soldiers are fighting to protect us from the terrorists with bombs, too few are at home protecting us from the terrorists with briefcases. There aren't a lot of such terrorists, but they do a lot of damage.
Surely this is not what Colonel Denman won his medals for. Surely this is not the America that our best are fighting and dying for in Iraq and Afghanistan. There is something desperately wrong here, and if President Bush is searching for an issue, I might suggest this: common decency for the workers and the savers and investors of this country, and an end to the hideous breaches of trust that build great mansions in the Hamptons and wreck a free soci- ety.
Ben Stein is a lawyer, writer, actor and economist. E-mail: [email protected].
New Front: Protecting America's Investors
By BEN STEIN
Published: February 12, 2006
IN the tiny room where I am writing this missive, there are four little display cases and a framed diploma, among many other mementos. The diploma is for my father-in-law, Dale Denman Jr. of Arkansas, and it is from the United States Military Academy, dated June 6, 1944 — a day when quite a lot was happening of military significance in France.
Skip to next paragraph
Philip Anderson
Next to that is a display case with two little stars. One is a Silver Star that my father-in-law won in Europe several months after he graduated. It is for running along a road under heavy German machine-gun fire to call in artillery to save the company for which he was a forward artillery observer. Next to it is a Bronze Star that my father-in-law, then a colonel, won in Vietnam in 1966 for holding his unit together when it was ambushed by a Vietcong force and would have been cut to pieces without him.
I have been thinking a lot lately about these heirlooms that Colonel Denman left to my wife and me. That's because of some mail I have been getting about my recent articles in this space about the way high executives have been treating their employees and stockholders. What I said two weeks ago about UAL, the parent company of United Airlines, prompted hundreds of e-mail messages. (I have still not even remotely caught up with all of them because I read them myself — no secretary here.)
Several people sent clippings describing how UAL provided Glenn F. Tilton, who was living in San Francisco when it hired him as chairman and chief executive, with a suite in a luxury hotel when he spent time at its headquarters in Chicago. UAL was paying for the suite — which cost $18,000 a month, according to The San Francisco Chronicle — while it was reorganizing its finances under bankruptcy court protection and telling tens of thousands of workers that their jobs had been eliminated, their pay cut, their pensions terminated or all of the above because the company was broke.
Some of the letter writers recalled how UAL spent an average of $10 million a month on lawyers, accountants and investment bankers for 37 months while UAL was in bankruptcy, and yet was unable to pay its employees their pensions.
Now UAL has emerged from bankruptcy with a mighty flourish, and an allowance of hundreds of millions of dollars for its top executives. Some letters pointed out that one of UAL's board members is none other than our old friend Robert S. Miller, chief executive of Delphi, the auto parts maker.
Delphi also recently entered bankruptcy — but proposed to the bankruptcy court a payment of well over $100 million to its top executives to keep them happy while it was in bankruptcy. Mr. Miller, who goes by Steve, a version of his middle name (not the one who sings "Fly Like an Eagle," but an artist of sorts nonetheless), has told Delphi's workers that they will have to take pay cuts of roughly two-thirds in order to save the business.
But my favorite communication, the one that made me stay up nights, was from a United States Army sergeant who has done two combat tours in Iraq and two more in Afghanistan, and is now home in Georgia training others to serve in those wars. I have been pals with this man for a couple of years now, and we talk on the phone. He has been following my articles online, and he simply asked, "Was this what I was fighting for in Iraq?"
The question haunts me, not only because of UAL and Delphi, but also because there is something deeply broken about the corporate system in America. Long ago, my pop was pals with Harlow H. Curtice, the president of General Motors in its glory days in the 1950's. Mr. Curtice presided over a spectacularly powerful and profitable G.M.
For that, in his peak year as I recall from my youth, he was paid about $400,000 plus a special superbonus of $400,000, which made him one of the highest-paid executives in America. At that time, a line worker with overtime might have made $10,000 a year. In those days, that differential was considered very large — very roughly 40 times the assembly line worker's pay, without bonus; very roughly 80 times with bonus. A differential of more like 10 to 20 times was more the norm.
Now C.E.O.'s routinely take home hundreds of times what the average worker is paid, whether or not the company is doing well. The graph for the pay of C.E.O.'s is a vertical line in the last five years. The graph for workers' pay is a flat line — in every sense.
Now, my fellow free-market fans may well say: "Hey, stop your whining. This is the free market at work." Only it isn't the free market at work. It's a kleptocracy at work. (I am indebted to another of my correspondents for the word.) What's happening here is that the governance system for many — by no means all — corporations has simply stopped working.
For centuries, the idea has held that the stockholders own the company. They are the trustors. The trustors select directors who in turn hire a chief executive and other top officers and then keep an eye on them for the stockholders. They — the chief executive, other top officers and the directors — are all agents for the stockholders, many of whom are often the employees, as is the case at UAL.
But what has happened is that — as in a corrupt, failed third-world state — the trustees in too many cases are captives of the C.E.O. and his colleagues; they owe both their places on the board and their emoluments to the chief executive, and they exercise no meaningful restraint at all on managers. The directors are instead a sort of praetorian guard, protecting management from its real bosses, the stockholders, as management sucks the blood out of the company.
I am by no means saying this is the standard or the usual way business is done in this country. Most managements are still honest and hard-working, I believe. But far too many are simply in the catbird seat to take what is not decently theirs from people who cannot afford to be taken.
Government, meanwhile, does nothing, or next to nothing. Courts, especially bankruptcy courts, do nothing. And the employees and stockholders and the whole society are looted. Maybe it's not looting in the legal sense, but something basic is removed from the society. In the capitalist society, the most basic foundation is trust. But in today's world, trust is abused, mocked, drained of meaning.
Again, I am not talking everywhere, by any means. I work with many, many businessmen and businesswomen, and a huge majority are honest and amazingly hard-working. I am sure that this is true nationally. But enough are not so honest and hard-working that it takes a toll on the rest of us.
Don't get me wrong. I am not a newborn. I know that looting is not new. Man is highly flawed when money is on the table and not guarded well. I saw it and wrote about it in great detail when Michael R. Milken and Drexel Burnham Lambert were ascendant, and in many other cases. It was terrible and dreadful, at least in my view, back then in the 1980's. It has always been terrible.
But there is something new and unlovely that my pal in the Army brought up. Now, we are engaged in a war. More than 100,000 Americans are fighting far from home. Many don't come back. Many come home crippled. They are fighting for a vision of a just and decent society back home in glorious, shining, blessed America. And back home, meanwhile, the looters are running wild, taking the meaning out of that vision of America, taking some — by no means all — of the beauty out of America as a land of justice and fairness.
ONE of my correspondents wrote that she, a flight attendant at United Airlines, had played by the rules, believed what her bosses told her, trusted that the laws would protect her, believed that fairness would triumph in the end because it's America. "I guess that makes me a fool in today's world," she said, because now she is broke, with no job, barely any pension and no faith. While the soldiers are fighting to protect us from the terrorists with bombs, too few are at home protecting us from the terrorists with briefcases. There aren't a lot of such terrorists, but they do a lot of damage.
Surely this is not what Colonel Denman won his medals for. Surely this is not the America that our best are fighting and dying for in Iraq and Afghanistan. There is something desperately wrong here, and if President Bush is searching for an issue, I might suggest this: common decency for the workers and the savers and investors of this country, and an end to the hideous breaches of trust that build great mansions in the Hamptons and wreck a free soci- ety.
Ben Stein is a lawyer, writer, actor and economist. E-mail: [email protected].
