Loser CEOs, Raking It In

One would think that having engineered these catastrophes, O'Neal and Prince would be in for some real financial reckoning. Some working stiff on the assembly line who forgot to tighten the lug nuts on the cars going past him or some clerk in the risk department who forgot to file an insurance claim would surely suffer some penalty. Like being fired without a huge going-away gift. But O'Neal got to pocket $160 million in stock-based compensation as his departure present -- on top of the more than $100 million he received during the past couple of years. Prince, it is said, left with $100 million, on top of the $100 million he got as Citi's CEO.

How can this comport with notions of fairness? If some Merrill or Citi lower-level manager lost $2 million -- let alone $100 million -- you can bet that the board would come down on that poor soul like a ton of bricks. And these boards would no doubt sue a defaulting counter-party who cost their corporation $800 million -- let alone these billions in losses -- because of a "mistake."

It would be one thing if this were an isolated incident reflecting just terribly bad judgment by these CEOs' pals on their boards. But it's not. It's a way of life in American executive suites, aided and abetted by lax regulations and politically compromised regulators at the Securities and Exchange Commission. Executive failure is consistently rewarded with giant payments -- or, really, payoffs -- to keep the parting sacrificial lamb quiet so that he or she won't bleat to the stockholders, lawyers and the media that the others at the top of the company (and in the boardroom) knew what was really going on.

Similar examples of excess abound. Take Morgan Stanley, where a few years ago, top executives Philip J. Purcell and Stephen Crawford were ousted after a series of managerial missteps swamped that bank with losses and crushed its stock. Their reward? More than $100 million -- as they were shown the door. Jerry Levin was pushed out as chairman and CEO of AOL Time Warner (oops, now it's just Time Warner; the AOL name is gone but not forgotten) after engineering the worst acquisition of the past century, which cost his shareholders $100 billion and sank the stock from $58 to $9. His going-away payoff -- $600 million. After Carly Fiorina ran Hewlett-Packard into the ditch, she was sent packing with a $100 million gift for her "leadership." Dick Grasso, New York Stock Exchange, $140 million. Michael Ovitz, Walt Disney Co., $135 million. And dozens more.

The real frustration is that there's so little that can be done. Shareholders supposedly have access to the courts for a remedy, but they won't get far. A stockholder suit filed more than two years ago challenging the Morgan Stanley payoffs languishes in court. The CEO-and-director club knows that pro-business judges in the corporate haven of Delaware and elsewhere in the legal system will protect them. Shareholder suits against Time Warner's Levin got nothing back from him.

The government -- forget it. The SEC, and even Congress, appear to be getting ready to cut back shareholder rights and court access even more. And the Justice Department is busy defending waterboarding and targeting Democratic activists. Why do you think corporate bigwigs behave so badly so often?

One great virtue of the American free-market capitalist system is that to date, it has been able to withstand all forms of excess. But "quis custodiet ipsos custodes?" -- "Who will guard the guards?" wrote the Roman poet Juvenal. How corporate boards treat the shareholder owners of the corporations they oversee is simply intolerable. And even the strongest camel's back can ultimately be broken.

Someone told me recently that Lenin was wrong about communism but right about capitalism. Maybe he was. I'm on my way to prison because, in my zeal to stand up against this kind of corporate greed over the years, I stepped over the line. It turns out that the legal system is a lot tougher on shareholder lawyers than it appears to be on Wall Street executives.

WilliamLerach@gmail.com

William S. Lerach is a longtime shareholder advocate and plaintiffs' lawyer.