Corporate Executives

Washington Post business columnist Steven Pearlstein will be online Wednesday, Jan. 31 at 11 a.m. ET to discuss corporate executives, focusing on the proposed CVS and Caremark merger.

The transcript follows.

Read the column: Change of Control Or Out of Control? (Post, Jan. 31).

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

His column archive is online here.

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Alexandria, Va.: The answer to the problem you've identified -- and this sort of ridiculous compensation is a problem -- is relatively simple: Have the shareholders vote on the merger -- and then have a separate up-or-down vote on the departure/"severance" terms for the top executives.

If all corporate mergers were subject to that standard, I'd bet you'd see a lot of instances where the merger gets approved, but the buyouts don't. Think that might impact some executives' decisions on whether or not a merger is in their company's best interests...?

Steven Pearlstein: It is an interesting idea, although if you are right that shareholders will always balk, then the executives will argue that it would effectively be the end of such provisions. What this really requires, it seems to me, is more vigilance on the front end, with directors insisting on more modest use of change of control provisions in contracts, and large shareholders indicating in advance that they won't vote for mergers that have certain provisions in the agreement. Obviously, that last threat won't stick until a really egregious one comes along and is defeated by the shareholders. That will be the thing that points everyone on notice.

Of course the Delaware Courts could help by setting some reasonable guidelines or limits.

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Silver Spring, Md.: Good morning! Thanks for taking my question. With big investors (including Bush Sr.) taking so many companies private at the same time that neocons (including Bush Jr.) are pushing for Social Security reform that includes investment accounts for everyone, won't that create a situation where more and more small investors are staking their financial futures on smaller and smaller pool of publicly traded stocks? Pension funds may be major players in the private equity market, but face it, fewer of us have pensions these days. Many of us have 401(k)-type plans invested in publicly traded stocks. Are we asking for trouble here?

Steven Pearlstein: It is an interesting question: if half of all companies go private, and yet more and more of us are individually managing our own retirement portfolios, how can we invest in these companies. And the answer is pretty simple: either the pendulum will swing back to being public, because that will be the better and cheaper way to raise equity capital, or new mechanisms will be developed to intermediate between private investors and privately-held companies. The danger in this latter model is that you will have double fees -- one to the new intermediary who will invest in private equity funds, and another for the private equity fund managers. That seems like too much to me, which is why I suspect the ultimate answer will be a return to public markets, maybe one that has been "reformed" to gain some of the benefits of private ownership.

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Fairfax, Va.: Having been at GE at the time of the "merger" with RCA, have you seen many times where a merger actually occurs and not an acquisition by the "stronger" company? In the GE/RCA case, RCA all but disappeared approximately one year after the merger.

Steven Pearlstein: Actually, its rare the weaker company does the acquisition. AOL Time Warner wound up being that way, although I'm not sure anyone knew it at the time.

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Stamford, Conn.: I'm for some compensation when a company gets acquired. But what about the "RIFFED" employees whose jobs are eliminated after a merger? Corporations always appoint each other to their boards, especially the compensation committees. These are the folks who agree to lavish comp packages and put most of silicon valley under a cloud due to the options post-dating scandal. No one cares about reputation anymore when you have the opportunity to make 100s of millions of dollars. bg

Steven Pearlstein: You're right: if severance is a good idea for executives who involuntarily lose their jobs, it ought to be a good idea for everyone else. The comp consultants would argue that the executives are more special because they are in more demand, while front line workers are a dime a dozen. But I think our experience is that companies that treat and view their workers as being a dime a dozen don't do that well.

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Alexandria, Va.: I was watching a news show about how union health costs are now wagging the automaker dog, and it appears to me that we'll finally get universal health care when big business dumps it onto the taxpayer so they can compete with Asia. They'll call it something else, like "Re-energizing America".

Steven Pearlstein: Certainly that is what big business would like in its heart of hearts, although I would modify that a bit and say they would like to "dump" the responsibility back onto individuals. But they haven't yet, despite the fact that this is a huge burden for them. Why? Because, in fact, workers DO have some leverage over their employers and employers know employees value health insurance highly and that if they are going to attract above-average employees, they are going to have to offer it. So here's an example where labor market competition works in favor of the employee....so far.

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Columbia, S.C.: Can you explain why rising oil costs contributes to inflation, but higher interest rates, which effect virtually every transaction in our economy, do not? I posed this question to the Federal Reserve. There response was that the "Patman effect" has not received much empirical support. Instead, the Fed believes that raising borrowing costs restrains demand, lowers wealth and boosts exchange rates. Isn't this what inflation does?

Steven Pearlstein: Obviously, to the degree higher rates raise costs for businesses, and those businesses are able to pass on those costs, it has an inflationary effect. Same for consumers, who as workers might be more inclined to demand higher wages. But the other effects mentioned by the Fed are also there -- and it turns out those other effects overwhelm the "Patman" effect. So your logic is good, its just that in the real world, there are multiple ways in which interest rates impact on the macroeconomy.

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Great Falls, Va.: Just a quick note of praise. I don't always agree with you, but your column is the single best thing about the Post these days.

Steven Pearlstein: Thanks so much.

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Steven Pearlstein: So, not a lot of outrage about change of control out there, huh. Well, I can take a hint. See you all next week.

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