Research support provided by the Investigative Fund of the Nation Institute.
When did the great executive stock option hog wallow really start? You
can go back to the deregulatory push under Carter in the late 1970s,
then move into the Reagan '80s, when corporate purchases of shares
really took off with the leveraged buyouts and mergermania, assisted by
tax laws that favored capital gains over stockholder dividends and
allowed corporations to write off interest payments entirely.
Between 1983 and 1990, 72.5 percent of net US equity purchases were
bought by nonfinancial corporations. At the end of this spree the
debt-laden corporations withdrew to their tents for three years of
necessary restraint and repose, until in 1994 they roared into action
once more, plunging themselves into debt to finance their share
purchases. This was the start of the options game.
Between 1994 and 1998 nonfinancial companies began to load themselves up
with yet more debt. The annual value of the repurchases quadrupled,
testimony to the most hectic sustained orgy of self-aggrandizement by an
executive class in the history of capitalism.
For these and ensuing reflections and specific figures, I'm mostly
indebted to Robert Brenner's prescient The Boom and the Bubble,
published this spring with impeccable timing by Verso; also Robin
Blackburn's long-awaited book (now being released by Verso) on the past
and future of pensions, Banking on Death.
Why did these chief executive officers, chief financial officers and
boards of directors choose to burden their companies with debt? Since
stock prices were going up, companies needing money could have raised
funds by issuing shares rather than borrowing money to buy shares back.
Top corporate officers stood to make vast killings on their options, and
by the unstinting efforts of legislators such as Senator Joe Lieberman,
they were spared the inconvenience of having to report to stockholders
the cost of these same options. Enlightened legislators had also been
thoughtful enough to rewrite the tax laws in such a manner that the cost
of issuing stock options could be deducted from company income.
It's fun these days to read all the jubilant punditeers who favor the
Democrats now lashing Bush and Cheney for the way they made their
fortunes while repining the glories of the Clinton boom, when the dollar
was mighty and the middle classes gazed into their 401(k) nest eggs with
the devotion of Volpone eyeing his trove. "Good morning to the day; and,
next, my gold:/Open the shrine, that I may see my saint."
Bush and Cheney deserve the punishment. But when it comes to political
parties, the seaminess is seamless. The Clinton boom was lofted in large
part by the helium of bubble accountancy.
By the end of 1999 average annual pay of CEOs at 362 of America's
largest corporations had swollen to $12.4 million, six times more than
what it was in 1990. The top option payout was to Charles Wang, boss of
Computer Associates International, who got $650 million in restricted
shares, towering far above Ken Lay's scrawny salary of $5.4 million and
shares worth $49 million. As the 1990s blew themselves out, the
corporate culture, applauded on a weekly basis by such bullfrogs of the
bubble as Thomas Friedman, saw average CEO pay at those same 362
corporations rise to a level 475 times larger than that of the average
The executive suites of America's largest companies became a vast hog
wallow. CEOs and finance officers would borrow millions from some
complicit bank, using the money to drive up company stock prices,
thereby inflating the value of their options. Brenner offers us the
memorable figure of $1.22 trillion as the total of borrowing by
nonfinancial corporations between 1994 and 1999, inclusive. Of that sum,
corporations used just 15.3 percent for capital expenditures. They used
57 percent of it, or $697.4 billion, to buy back stock and thus enrich
themselves. Surely the wildest smash and grab in the annals of corporate
When the bubble burst, the parachutes opened, golden in a darkening sky.
Blackburn cites the packages of two departing Lucent executives, Richard
McGinn and Deborah Hopkins, a CFO. Whereas the laying off of 10,500
employees was dealt with in less than a page of Lucent's quarterly
report in August 2001, it took a fifteen-page attachment to outline the
treasures allotted to McGinn (just under $13 million, after running
Lucent for barely three years) and to Hopkins (at Lucent for less than a
year, departing with almost $5 million).
Makes your blood boil, doesn't it? Isn't it time we had a "New Covenant
for economic change that empowers people"? Aye to that! "Never again
should Washington reward those who speculate in paper, instead of those
who put people first." Hurrah! Whistle the tune and memorize the words
(Bill Clinton's in 1992).
There are villains in this story, an entire piranha-elite. And there are
victims, the people whose pension funds were pumped dry to flood the hog
wallow with loot. Here in the United States privatization of Social
Security has been staved off only because Clinton couldn't keep his hand
from his zipper, and now again because Bush's credentials as a voucher
for the ethics of private enterprise have taken a fierce beating.
But the wolves will be back, and popgun populism (a brawnier SEC, etc.,
etc.) won't hold them off. The Democrats will no more defend the people
from the predations of capital than they will protect the Bill of Rights
(in the most recent snoop bill pushed through the House, only three
voted against a measure that allows life sentences for "malicious
hacking": Dennis Kucinich and two Republicans, Jeff Miller of Florida
and the great Texas libertarian, Ron Paul). It was the Senate Democrats
in early July who rallied in defense of accounting "principles" that
permitted the present deceptive treatment of stock options. Not just Joe
Lieberman, the whore of Connecticut, but Tom Daschle of the Northern
Popgun populism is not enough. Socialize accumulation! Details soon.
Events in Washington are potentially momentous, but hold the applause.
In late May, the Dow was at 10,300, but by mid-July it had dropped
almost 2,000 points. The Nasdaq and S&P indexes are at zero gain for
the past five years, as if the bubble never occurred. This slow-motion
crash induced even the most obedient right-wing lapdogs to scurry aboard
the Sarbanes reform bill, and the Senate passed it, 97-0. The President
made two malaprop-laced pep talks to recast himself as Mr. Reformer Guy
(and knocked another 500 points off the Dow). But W. is a lagging
political indicator these days. Even Federal Reserve Chairman Alan
Greenspan has lost his touch. For years he celebrated the new economy
and refused to take any action that might have worked to curb its
excesses; a bit late he tells us "irrational exuberance" was actually
"infectious greed." Now, with fear overtaking that greed in the markets
and thus in Washington, the ingredients are present for an ideological
sea change in American politics. But not yet.
Democrats, newly awakened to the potency of Enron-like financial
scandals, are throwing smart punches at the business-friendly White
House, but they are six months late to the cause (and still sound less
convinced than Republican maverick John McCain). The passage of Senator
Sarbanes's legislation is meaningful, but Democratic leaders choked on
the hard part--reforming stock options and giving workers a voice in
managing their own pension savings. Why mess up fundraising with those
high-tech companies dumping "New Dem" millions on the party of working
people? Majority leader Tom Daschle, who lamely promised a vote
(someday) on the stock-option issue, will be revealed as another limp
corporate shmoozer if he fails to deliver. So far, the Coca-Cola
directors have more courage than he. Likewise, Senator Joseph Lieberman
can doubtless raise millions from Silicon Valley for his presidential
ambitions by defending the corporate hogs but, if so, he should rethink
which party will have him.
The Republicans are in a deeper hole, of course. If Bush wants to bring
his much-touted "moral clarity" to the reform cause, he'll have to drop
the weepy speeches and dump Harvey Pitt as SEC chairman and Tom White,
the Enronized Army Secretary. Then Bush should take his own medicine and
come clean, open the secret SEC records of his insider cashout as a
director of Harken, and do the same for the SEC investigation of Vice
President Cheney's stewardship as CEO of Halliburton. Republican zealots
and their attack-dog newspaper, the Wall Street Journal,
exhausted the nation with their pursuit of the Clintons on Whitewater.
Stonewalling by the Bush White House promises to make these far more
serious financial matters a permanent theme of the Bush presidency.
The reforms currently in motion are a good start, but no more, as
William Greider notes on page 11. We know what to expect from the
Republicans--stubborn maneuvering and guile designed to stall real
change until (they hope) the stock market turns around and public anger
subsides. But Democrats have a historic opening far greater than this
fall's elections--the opportunity to revive their role as trustworthy
defenders of the folks who have always been the bone and sinew of the
party, the people who do not get stock options and who deserve a much
larger voice in Washington. If Democrats take a pass on the facts before
them, they deserve our scorn. If they find the courage to break out of
the corporate-money straitjacket and once again speak for the public,
this could be the beginning of something big.
William Lerach's legal crusade against Enron and infectious greed.
The Ten Habits Of Highly Defective Corporations
He says he had no clue the stock would tank.
About the details he is still evasive.
Though "on the board but clueless" could sound lame,
With Bush, a clueless claim sounds quite persuasive.
Last week, while Bush spoke to Wall Street about corporate malfeasance, he was beset by questions about the timing of his sale of stock twelve years ago while he served as a director of Harken En
For President Bush to pretend to be shocked that some of the nation's top executives deal from a stacked deck is akin to a madam feigning surprise that sexual favors have been sold in her establi
POP-ing the Bankers