When did the great executive stock option hog wallow
really
start? You can go back to the deregulatory push under Carter in
the late
Seventies, then move into the Reagan Eighties, when corporate
purchases of
shares really took off. But the true binge got going between 1994
and 1998,
when non-financial companies sank themselves in debt by either
repurchasing
their own shares or acquiring shares as a result of mergers. 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.
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 costs of issuing stock options could be deducted from company=
income.
As Robert Brenner remarks in his prescient "The Boom
and the
Bubble" (published this spring by Verso), U.S. law "thus
encourages
corporations to exaggerate their earnings in public for the
benefit of their
stockholders, while deflating them in private for the benefit of
the
Internal Revenue Service."
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 Ben Jonson's Volpone eyeing his gold.
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. Brenner cites a
Bear,
Stearns study reviewing all S&P 500 companies in 1999 that
calculated their
net income in that year would have been 6 percent lower had stock
options
been counted as an expense. Earnings at Yahoo, Broadcom, JDS
Uniphase and
others would either have been wiped out or gone deeply negative.
By the end of 1999, average annual pay of CEO's at
362 of
America's largest corporations had swollen to $12.4 million, more
than six
times 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 Nineties 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 America's 362 largest
companies rise
to a level 475 times larger than that of the average
manufacturing worker.
The executive suites of America's largest companies
became a
vast hog wallow. CEO's 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 non-financial
corporations
between 1994 and 1999, inclusive. Of that sum, corporations used
just 15.3
percent for capital expenditures. They used 57 percent of it
($695.4
billion) to buy back stock and thus enrich themselves. Surely the
wildest
smash and grab in the history of corporate thievery.
When the bubble burst, the parachutes opened, golden
in a
darkening sky. Consider 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 of 2001, it took a 15-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). Prime yourself for a bout of
rhetorical
populism, necessary to soothe popular indignation.
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. One great battleground of the next
decade across
much of the world will revolve around pensions and issues of
asset-based
welfare for the swelling ranks of older folk. Here in the United
States,
privatization of Social Security has been only staved off because
Bill
Clinton couldn't keep his hands off his zipper and again because
George Bush
is presiding over the public disgrace of corporate ethics.
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 can protect the
Bill of
Rights. It was the Democrats in the U.S. Senate in early July who
rallied in
defense of the accounting "principles" that permit the present
deceptive
treatment of stock options. Not just Joe Lieberman, the
corporations'
favored errand boy, but Tom Daschle of the northern plains. These
are the
Augean stables, and who aside from Ralph Nader has the
credentials to talk
seriously about cleaning them out?
Alexander Cockburn is coeditor with Jeffrey St. Clair
of the
muckraking
newsletter CounterPunch. To find out more about Alexander
Cockburn and read
features by other columnists and cartoonists, visit the Creators
Syndicate
Web page at
www.creators.com.
COPYRIGHT 2002 CREATORS SYNDICATE, INC.
