Comment on – MARKETS; Merrill CEO Departs With $160 Million; His Compensation Receives Scrutiny After He Becomes A Casualty Of The Sub-prime Crisis

A few footnotes to the Merrill Lynch / O’Neal story…and CEO compensation in general…


As founders and the founding families of today’s giant, modern corporations — the Merrills of Merrill Lynch, the Rockefellers of Standard Oil (ExxonMobil) and the Fords of Ford Motor Company – gradually were being replaced by hired agents (those we know by the title of corpoate executives and senior managers today), the separation of ownership and control was thorougly explored by two leading authors / academics who were looking ahead to possible changes in the way large shareholder-owned companies would be run.


In the landmark work, “The Modern Corporation and Private Property,” authors Adolf A. Berle Jr. and Gardiner C. Means (both of Columbia University) in 1932 wrote…


“…In the corporate system, the “owner” of [industrial] wealth is left with a mere symbol of ownership, while the power, the responsibility and the substance which have been an integral part of ownership are being transferred to a separate group in whose hands lies control…” and “…where ownership is sufficiently sub-divided (as though broad-based and dispersed shareholding), management can become a self-perpetuating body even though its share in ownership is negligible…”


And so seven-plus decades later we see what the directions taken were — directors on self-perpetuating boards appointing “their own” circle of contacts or a tight-knit universe of candidates to the highest positions.


Guess who mostly benefits from “control” (vs. ownership) — right, generously paid CEOs. Where there is real performance there is often little beefing about pay. Where there is poor performance there is the charge of “pay-for-pulse” or pay for failure and shareholders raise their voices while editors flail away at what they see as excesses in the corporate world.


While top managers are “agents” of the owners (the shareholders), in effect they are really the controlling interest, even to the point of determining their own compensation. (As governance guru Bob Monks points out, no where in all of the market mechanisms does the buyer let the seller determine the price, conditions, etc. as though no competition existed — except for the CEO position.)


You can hear the sigh of relief of an important “owner” of the enterprise in this quote…””He’s walking away with the generous compensation that he’s mostly already earned,” said Ed Durkin, director of corporate affairs for the United Brotherhood of Carpenters, whose affiliated union pension funds own 875,000 Merrill shares. “At least they didn’t give him more. Although given what’s transpired, it would be a stretch to justify anything else.” (Carpenters Union)


So — despite your raised eyebrows at the numbers, the going away package here is not unusual. Way way back in the depth of the Great Depression even two bright guys like AA Berle and Gardiner Means would not have been able to forecast where all this separation of ownership and control would lead.


And today — in this 7th year of the 21st Century — can we (you, me) forecast what’s ahead for the relationship between owners and agents (top management)? Who will determine CEO pay in 2010? We’ll see…CEO comp may be the biggest debate (and focus of shareowner ire) in the coming 2008 proxy season. And Mr. O’Neal will be among the examples held up of failure of boards to appropriatel reward executives…notice that Michael Eisner of Disney is still an example cited (here in this story).


Hank Boerner


Editor – A-C

Comment 1 on – SEC Requiring XBRL To Help All Investors Learn Firms’ ABCs Financial Data Easier To Use The Technology Is Putting Complex Financial Reports Into An Interactive Format

Attention corporate executives — don’t shrug this off. XBRL is going to revolutionize accounting and corporate [financial] reporting.


Standard dictionaries (“taxonomies”) are in development by a number of cooperating agencies with SEC in the vanguard: The Commission is investing more than $50 million to make XBRL a reality in the coming months.


Watch for early December release of important information for your firm (if you are an issuer) — this will be a powerful movement for dramatic change in financial reporting, financial analysis and other aspects of the capital market in 2008 and beyond.


Check out the SEC Web site and the XBRL USA (not for profit arm of the global XBRL coalition in the USA) for details.


The editors are assembling a package of XBRL news, commentary and research for you (as a “Hot Topic”) as the SEC announcements and provider announcements roll on…


Hank Boerner


Editor – AC


Hank Boerner

Comment on – Coke, Kellogg’s Cop Bad Product Awards

So you take years, decades, centuries perhaps to build the brand, win the loyalty of customers, fine-tune the marketing and promotion, establish your distribution channels, and constantly perfect your business model.


Then consumer [product] tastes change. Behaviorial expectations (on the part of consumers toward corporations) change. Best-known brand products come under more attack than generic or unknown brands (the price of market leadership?). The demand for greater ACCOUNTABILITY becomes more widespread among stakeholders. Maybe like Malcolm Gladwell’s “Tipping Point” explanation — something triggers the crisis.


And now we have three old-line, global brand manufacturers in the advocates’ crosshairs. Coca-Cola has its issues worldwide and they seem to be growing, both in scope and intensity. Mattel has a real dilemma — where do they source now for completed products or key components (of Barbie, for example) now that consumer confidence is dropping like a stone. What can they do before the Christmas toy binge? And good old Kellogg’s — rapidly growing consumer, media and public sector interest in (and concerns about) the obesity issue and over-sugared hyper-active kids issue put the company and its sugar-cereal products in focus. (Irony: The Company’s legacy is its establishment as a nutrition- and health-based food manufacturer by Dr. John Harvey Kellogg.)


While this is an Australia-based story today there have been various expressions of the same concerns about Coca Cola, Mattel and Kellog’s in the North American, European and developing markets. These companies may find more media devoting space to the stories about them and their products in the days ahead. And being public companies, we can expect some variations on the themes in this story will be incorporated in 2008 proxy contests.


There are rising expectations that corporations marketing consumer products — and especially children’s products (all three here) — will be more accountable to end users for their actions, marketing and product stewardship. Watch for company reactions to these allegations.


Here’s Kellogg’s Australian page:


Here’s Coca Cola Company page:


And Mattel Toys:


All have news about their “corporate responsibility,” aspects of corporate accountability (including Mattel voluntary recall, for example) and are worth tracking to get all sides of the story.


Hank Boerner


Editor – AC