Tales of a New America by Robert B. Reich

Author:Robert B. Reich [Reich, Robert B.]
Language: eng
Format: epub
ISBN: 978-0-307-83062-3
Publisher: Knopf Doubleday Publishing Group
Published: 2012-12-12T05:00:00+00:00

6

Nor were shareholders immune from exploitation by the stewards of their wealth, corporate managers. The erosion of good faith was amply illustrated, for example, by the device of the “golden parachute,” which became routine during the merger wave of the early 1980s. This was a generous severance payment, often totaling a large multiple of the executive’s annual salary and bonus, which was awarded—the parachute automatically opened, as it were—when a takeover became successful. The telling point is the justification invoked: The protected executives suggested such insurance was essential to preserve their impartial judgment about unfriendly takeover bids. Without the parachute, so the argument went, the executive would be tempted to fight the takeover even if it was in the best interests of the shareholders. This logic suggested that the only way shareholders could trust corporate executives not to feather their nests at the shareholders’ expense was to provide them a prefeathered nest at the shareholders’ expense.

By the mid-1980s another technique known as the leveraged buyout had come into vogue. The process was quite simple. Executives borrowed money from banks or the credit market to buy up their company’s stock. The loans or bonds, which carried high interest rates, were backed by the company’s assets. The executive then owned the company. The argument was that once managers’ wealth was tied up in the company, they would adopt a more efficient, more entrepreneurial managerial style and improve the firm’s performance; executives who owned their company would work harder and better. Yet from the standpoint of the company’s shareholders, this was a curious argument indeed. If ownership would so improve management, it had presumably been deficient in the past. Perhaps the managers, unmotivated by their salaries alone, had lounged around the executive suites daydreaming about how energetic they would be if only the company were theirs. Or perhaps they had developed some new product or marketing scheme, but delayed releasing it until they could reap the full reward. Executives proposing to buy their companies had an inherent conflict of interest. How could they advise owners on whether to sell their shares when they themselves were the aspiring purchasers? If a small group of top managers could borrow to the hilt to buy their company and still expect a handsome return, it would seem wise for the original shareholders to hang on to their stakes in order to gain some of the action.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.