Cover Story: Fat cat stories
Doug Daft: Coke + fiasco = mo’ money
Atlanta’s top CEOs can immerse their companies in scandal, drive business into the ground, watch stock values plummet and still live like kings. We should all be so lucky.
The numbers don’t add up. At least not to us common folk.
CEOs made 71 times what the average worker earned in 1989, according to the Economic Policy Institute. By 2003, chief executives took home 185 times more than the average worker.
And the disparity gets worse every year. In 2004, average CEO pay jumped 12 percent to $9.84 million, according to a report by Pearl Meyer & Partners, a leading compensation consulting firm.
But who are we to complain?
We’re just average Joes and Janes. We don’t fly in corporate jets. We don’t have shareholders fork out for our country club memberships. We don’t get allowances for our four mansions, and we pay our own income taxes.
We certainly don’t get multimillion-dollar pension plans after just eight months on the job. We sure as hell don’t get bonuses when we screw up. And when we leave a job, there’s no $80 million golden parachute.
It’s like we’re different species from those guys. They’ve ascended into a separate society where the usual rules of success and failure don’t apply, where you can flop miserably and still get handed millions.
Silly us. We thought the rules were the same for everyone. We had no idea you could skate through life with all ups and no downs. So, to learn a bit from our betters, we’ve taken a look at the careers of four current and former Atlanta CEOs. Take notes. Maybe, we can all learn how to get filthy rich in today’s screwed-up corporate world.
On Feb. 17, 2000, the day Douglas Daft took the reins of the Coca-Cola Co., he was led into a high-security vault at SunTrust’s corporate headquarters in downtown Atlanta. There, as is tradition, he was shown the original top-secret recipe for Coca-Cola.
That was pretty much the pinnacle of Daft’s career.
A former math teacher, Daft joined the soft drink giant at age 26 at its Sydney, Australia, offices in 1969. He rose to upper management in 1982, as vice president of Coke’s Far East division. By 1991 he’d moved to headquarters in Atlanta as president of the Pacific Group. In December 1999, Coke’s board of directors elected him chairman, CEO and all around numero uno, replacing Douglas Ivester, who had an even shorter tenure in Coke’s top office.
It’s the kind of promotion that changes somebody’s lifestyle forever. Beyond tens of millions in salary, bonuses and stocks options, Daft and his wife were given use of the corporate jet, which cost the company more than $100,000 a year to operate.
Daft’s reign saw the Securities and Exchange Commission and the Department of Justice launch two investigations into allegedly shady accounting practices in Coke’s Japan unit. He’d been the head of the Japan business when the accounting irregularities began.
While Daft was CEO, Coke also was embroiled in controversy over the following accusations: rigging a Burger King marketing test; hiding losses on a failed computerized fountain drink system; selling drinks that contained traces of dangerous heavy metals and pesticides; soaking up drinking water supplies for thousands of villagers in India; and turning a blind eye to nine union-related murders in Colombia.
Meanwhile, company revenues slid. And in 2001, his first full fiscal year as CEO, Coke stock dropped from $61 to $47 a share.
Daft responded by telling shareholders and investment analysts that things were just fine and dandy. For that, he and Coke were hit with a class-action lawsuit from shareholders. The suit, which is still in the courts, claims he misled investors by painting a rosy picture of the company’s finances.
You’d think Coke’s governing board would hold Daft accountable. Maybe it would have in the last century, back in the days of muckrakers and monopoly busters. But we’re living in the new millennium, where corporate boards are manned by other CEOs.
In Daft’s case, the Coke board gave him $69 million in salary, bonuses, stock options and other perks in fiscal 2001, the same year that Coke shares were dropping, according to the Atlanta Journal-Constitution. Based on a differing estimate of stock option values, USA Today computed his compensation as even higher - around $200 million!
In fiscal 2002, the Coke board increased Daft’s bonus by half a million bucks, to $4 million, and retroactively lowered Daft’s performance targets so he could be given company stock worth an additional $86.3 million.
But the capper is that last year, when Daft was pretty much forced into retirement, the board paid him a golden parachute - a farewell present of more than $36 million.
Coke, a traditional company, has a well-established tradition of rewarding the shoddy performance of executives, especially as they’re walking out the door.
Since the untimely death of CEO Robert Goizueta in October 1997, the company has struggled to maintain its edge against archrival Pepsi and second-string Cadbury Schweppes (Dr. Pepper’s maker), gradually losing the sheen that came along with the world’s most familiar brand. Coke’s market share is now at its lowest point since 1996, according to Beverage Digest.
But Daft and the other guys at the top - the ones supposedly responsible for the company - weathered the hard times with no problem at all.
Steven Heyer, Coca-Cola’s former president and chief operating officer, received a severance package worth at least $24 million after only three years on the job, according to data compiled by the AFL-CIO. Jack Stahl, also a president and COO, received a severance package worth more than $25 million.
Ivester, Daft’s predecessor, left with a retirement package worth $119 million after he was forced out in late 1999.
The tradition continues. In Coke’s 2004 fiscal year, the current chief executive, Neville E. Isdell, raked in $17.5 million in salary, stock options and other compensation. During the same period, the company’s earnings dropped 8.7 percent.
Last fiscal year, Coca-Cola paid $8.4 million in bonuses to its top six executives, the equivalent of almost $2,300 for each of the 3,700 employees it laid off from 2000 through 2003.
Some Coke shareholders responded by pushing for corporate versions of ethics reform. They proposed new rules that would have banned golden parachutes and limited stock options.
Of course, the company’s board urged shareholders to reject the measures. At Coke’s annual meeting April 19, at the Hotel du Pont in Wilmington, Del., all those measures failed by a wide margin.
Marce Fuller’s rise to the CEO’s suite at Mirant Corp. was nothing short of dazzling.
While majoring in electrical engineering at the University of Alabama, she got part-time work at Alabama Power, a Southern Co. subsidiary. Her job was to hit power poles with a hammer to see if the wood was rotten.
In 1985, at age 25, she joined Alabama Power full-time as a staff engineer. Pretty soon, she was helping the company negotiate long-term power sales. Within seven years, Fuller was an international project director, responsible for new business development around the world.
A protégé of former Southern Co. CEO Bill Dahlberg, she also devised a strategy for the electricity giant to enter the emerging wholesale energy market, through Southern Energy, a subsidiary that eventually was spun off into a new public company called Mirant.
Fuller was 39 when she was picked to be Mirant’s CEO.
Mirant produces, buys, and sells electricity on the wholesale market. The energy-trading spin-off offered its initial shares on the New York Stock Exchange Sept. 27, 2000.
By the end of 2001, Mirant was worth $12 billion, on paper. It employed 10,000 in the Americas, Europe and Asia. Forbes listed Fuller as No. 5 on its list of the country’s 50 most powerful women.
The company was so flush that Fuller committed $50 million to addressing climate change and reducing greenhouse gas emissions. The whole time that she was the business world’s darling, she repeated a personal mantra about how integrity and trust were absolutely crucial for corporations and executives.
But then came the California energy crisis, in which it was discovered that energy-trading companies had manipulated the state’s deregulated market to jack up prices.
That was quickly followed by the collapse of Houston-based Enron, the biggest of the new breed of energy-trading companies. Investigators and shareholders soon learned that Enron’s apparent success had been built on dubious accounting and off-the-books enterprises. That led to one of the biggest financial scandals in American history.
Several lawsuits and the state of California allege that Mirant had quite a bit in common with Enron. Not the off-the-books stuff - that was Enron’s specialty. But, similarly to the Texas company, Fuller and Mirant were accused by the state of California of manipulating the supply and price of electricity on the wholesale market. According to one lawsuit, California’s attorney general found more than $2 billion worth of “suspect” transactions.
Another lawsuit, also filed by the state’s attorney general, alleges Mirant and its wholly owned subsidiaries engaged in price gouging and “unjust, unreasonable, and illegal overcharges,” and of receiving “unprecedented profits at the expense of consumers, ratepayers, businesses and the state of California” that resulted in “hundreds of millions of dollars of overcharges and illegal profits.”
Accusations like that aren’t good for business. In spring 2002, the Los Angeles Times reported on the lawsuit against Mirant. Shareholders, sensing an Enron-type implosion, began selling. The company’s stock began a steep descent, falling 12 percent in one day. Once as high as $47, a Mirant share now trades at around 66 cents.
In 2003, the company posted a loss of $3.8 billion, partially because of the collapse of wholesale energy markets that floundered in the wake of Enron’s bankruptcy.
That hasn’t exactly made shareholders ecstatic. In a class-action lawsuit, they accused Fuller, whose hobbies include scuba diving in the Bahamas, and three other top Mirant officials of personally making $8 million by artificially inflating the company’s stock price.
First, Fuller and other Mirant executives talked up “quarter after quarter of outstanding growth and positive financial results,” according to the lawsuit filed in the U.S. District Court for the Northern District of California. Then, Mirant sold a second round of stock in May 2001 and a third round that December. Next, the lawsuit says, “defendants reaped over $8 million by selling Mirant stock at artificially inflated prices.”
In July 2003, Mirant filed for Chapter 11 bankruptcy protection. It was the largest filing in Georgia history and the 11th largest in the U.S. at the time. The filing automatically put the shareholder lawsuit against Fuller on hold.
But the state of California got its claim in under the wire. Last January, the state’s attorney general agreed to drop four lawsuits against Mirant and its subsidiaries in exchange for $606 million.
After all this, guess, just guess, what Mirant’s board of directors did to show their disapproval of the bankruptcy filing, California’s accusations, the canning of 1,000 employees and the plummeting stock price? They went and gave Marce Fuller a $174,000 performance bonus, on top of her $850,000 salary, because, hey, running a company into the ground sure is hard work.
Dahlberg, Fuller’s mentor and a Mirant board member, said in a memo obtained by the Atlanta Journal-Constitution that employees might wonder why “our executives receive bonuses in the year we filed for Chapter 11 protection.”
Good question. But a deal Fuller worked out for her retirement, filed with the Securities and Exchange Commission last December, suggests the company didn’t care what shareholders or anyone else thought. Whenever she’s replaced as CEO, she’ll get a one-time payment of $3.4 million, a performance bonus of $850,000 for her awesome work during 2004, two years of health insurance, and a pension of $423,000 per year when she turns 50. When asked why the company agreed to give Fuller such a cushy retirement package, company spokesman Lloyd Avram said, “Ms. Fuller’s compensation was negotiated with the support of our bankruptcy committees.”
Shareholders, of course, are upset. But the weird thing is that bankruptcy court rules allow this kind of thing to happen all the time. With contracts that were in place before filing, it’s often easier and cheaper to pay departing executives what they ask for rather than fight them over it, according to Marty Butler, an accounting professor at Emory University.
Also, Butler notes, large creditors are given first priority, and the lawyers and accountants that are hired to help the company during its bankruptcy filings are next on the priority list. Shareholders are at the bottom of the totem pole, getting the scraps if any are left.
Mirant’s new CEO should fare even better. Avram says the company will emerge from bankruptcy this year.
At Delta Air Lines’ annual meeting May 19 in a College Park conference center, a few crusading shareholders tried to hold company executives’ feet to the fire. Resolutions that would ban raises for top managers during unprofitable times and even shrink salaries and bonuses were met with cheers and applause.
Ultimately, the resolutions failed. But they were backed by holders of more than 20 percent of the company’s stock, a record-setting challenge to Delta’s leadership.
It was an attempt to rein in executive pay at an airline teetering on bankruptcy. Too bad the man who aimed Delta toward its crash already had left the company - and taken millions with him.
Leo Mullin is the man who got away. Stanley Barczak, a pilot with Delta for 27 years, says he was spurred to push the resolutions because of “the mismanagement and the arrogance I witnessed under Mr. Mullin.”
Mullin was supposed to be a reformer. Back in 1997, Delta’s board was looking for someone new to shake things up. He did that. Mullin had been vice chairman at Unicom Corp., an energy company, and was a complete outsider to Delta and the airline industry. But he had a reputation as a manager’s manager.
Delta’s corporate culture had been grounded in customer service, lean management and treating employees well - even those who didn’t have union representation. Mullin’s top-down style rubbed many employees the wrong way.
In 2000 and 2001, his leadership skills faced a crucial test. Delta and the rest of the airline industry were getting smacked around by labor demands, failed acquisitions and a 2 percent drop in passengers. Then, the airlines were knocked to their knees when terrorists hijacked United and American jets to ram the World Trade Center on Sept. 11, 2001. Afterward, rising fuel prices collided with travelers’ fears and expensive new security measures, generating a perfect storm for the industry.
Days after the attacks, Mullin made this plea while asking Congress for a $15 billion aid package for the airlines: “It is not a bailout, but rather a package designed solely to recover the damages associated with the heinous acts of Sept. 11.”
His wish was granted. Congress gave the airlines $10 billion in government-backed loan guarantees and $5 billion in direct cash handouts, of which Delta got $528 million.
Over the next 14 months, Delta lost more than $1 billion and laid off 1,000 employees.
A lot of Delta’s problems weren’t Mullin’s fault. But he didn’t feel he should be paid less just because his company was headed for the toilet.
In 2002, while he was devising plans to lay off 8,000 employees, Mullin received a salary of $795,000, a $1.4 million bonus, and more than $10 million in other forms of compensation - double his total pay from the year before.
In spring 2003, the airlines asked Congress for more help. The Senate Commerce Committee was considering how best to aid the struggling aviation industry, including another possible round of financial aid.
But those hearings went differently. Sen. John McCain read about Mullin’s compensation and was outraged.
McCain told reporters on Capitol Hill that if Mullin showed up during the committee hearings, he would tell him, “You ought to be ashamed of yourself.”
“I’m sure every American is angry, because Delta laid off thousands of employees,” McCain told Reuters.
During that round of hearings, the committee learned that Delta had hooked Mullin up with a $4.5 million pension after just eight months on the job. The move was one of several that prompted Congress to devise the Pension Fairness Act, a toothless law that had one surefire effect: It made Congress look as if it was solving the problem.
The next year, Mullin decided to forgo his bonus and reduce his salary. But it was too late.
“To all us employees, the fact that he was asking for sacrifices from everybody and then he turned around and he gave himself and all the management bonuses and raises and protected their pension - I just don’t think that’s right,” says Barczak, the pilot. “He seemed to think he was worth this amount of money even though the company was going down the drain.”
Mullin left Delta in December 2003 and is now listed as a part-time financial adviser with Goldman Sachs Capital Partners, a private equity fund group. Why work full time when you’ve got such a nice pension?
Left with the mess he inherited from Mullin, current CEO Gerald Grinstein has been trimming the company with round after round of layoffs. Since late 2000, Delta’s cut 23,000 workers and lost close to $9.5 billion. Grinstein, who earns a $500,000 annual salary, also is seeking relief by asking Congress to let Delta postpone its pension payments. The company has only pitched in $220 million of the $450 million it owes.
If Delta does file for bankruptcy, and if United Airlines’ bankruptcy is any guide, then the Atlanta-based airline may wipe its pension obligations completely clean. Employees will be paid, but it’ll come from a federal fund. And it will likely be a much smaller amount than what the company owes its retirees.
Home Depot is doing fine. No allegations of fraud. No accounting problems or Department of Justice investigations. The home-improvement giant isn’t on the verge of bankruptcy.
Far from it. Home Depot’s profits get bigger almost every quarter. The company almost always surpasses Wall Street’s expectations and keeps its competitor Lowe’s biting at its heels.
The house that Arthur Blank and Bernie Marcus built is in the capable hands of CEO Robert L. Nardelli, a former Western Illinois University offensive guard. Nardelli dreamed of going pro. Instead, he majored in business and got a job at General Electric, like his father before him.
After about 30 years at GE, Nardelli was on track to take the CEO’s spot after Jack Welch retired. But Neutron Jack went with an Ivy Leaguer instead. Nardelli was stunned, according to Fortune magazine.
And one of things driving him to make Home Depot more successful is to prove to Welch that he screwed up by picking the wrong guy. That’s probably a good thing for Home Depot shareholders.
The only thing that seems a bit out of whack with Home Depot and Nardelli is that his salary was more than $30 million last year - that’s almost a 20 percent increase over 2003. Yes, you read that correctly.
Thirty.
Million.
Dollars.
That means that Nardelli, who works 15 hours a day, seven days a week, according to Fortune, earned about $5,494 an hour last year. Nardelli’s big bonus was tied to the company’s performance, which is generally seen by critics of corporate pay as a good thing.
The standard resolutions to limit executive pay didn’t get much traction at Home Depot’s annual meeting in May. But an impressive 56 percent of the company’s shareholders voted to limit golden parachutes, the gift money executives take with them when they retire.
The resolution was nonbinding. And Home Depot’s board didn’t enact it, sending a clear message to shareholders that their money is wanted but their ethics aren’t.
Some shareholders also don’t like how Nardelli spends his and Home Depot’s money - at least when it comes to politics. Nine percent of them voted in May to ban the company from contributing to political campaigns.
Nardelli personally has contributed $72,000 to Republican candidates since 2000, and nothing to Democrats, according to the Center for Responsive Politics. He also hosted a fundraiser for George W. Bush at his home that netted $3 million. And, during the 2004 campaign, he allowed Home Depot to be used as a rally backdrop for the president.
Home Depot, campaign contributions and political action committees have given $700,000 to Republican candidates since 2000, dwarfing the pittance that Democrats got. And, using shareholder money, the company itself gave $250,000 to Bush’s second inaugural party.
The natural questions are: Why just Republicans? And why so generous to Bush in particular? Part of the reason has to do with the special interests of big business. Duh. Republicans generally are viewed as the party of corporate America
But Home Depot faces its own specific problems. For instance, Nardelli and Bush see eye to eye on an issue that could save the company millions of dollars. Both want to pass a federal tort reform law.
See, Home Depot is fending off at least eight lawsuits from the families of employees and customers who were killed by falling objects while shopping in Home Depot. The company also reported that 185 customers were injured inside stores in 2004 - then, it stopped disclosing such figures.
Bush also wants to limit pending class-action suits like the one filed in Texas against Home Depot for selling wood treated with toxic chemicals. Tort reform would make settling those cases a lot cheaper, if not do away with them altogether.
But you have to wonder whether a corporate chieftain’s personal interests influence his political giving, as well as the way his company and its employees’ PAC spend money on politics.
With that CEO salary and benefits, Nardelli has risen into a select strata that’s fared better than any other under the Bush presidency. A study by United for a Fair Economy shows that between 2002 and 2004, the richest 1 percent of Americans was given $197 billion in tax cuts.
Wouldn’t it be cool if the president was your buddy? Wouldn’t you want to make sure a friend like that got to stay in the White House?
One more thing: When Nardelli decides to retire, he could go home with up to $82 million in stock options and other benefits. And you damn sure don’t want to pay too much in taxes on a windfall like that.
michael.wall@creativeloafing.com
The numbers don’t add up. At least not to us common folk.
CEOs made 71 times what the average worker earned in 1989, according to the Economic Policy Institute. By 2003, chief executives took home 185 times more than the average worker.
And the disparity gets worse every year. In 2004, average CEO pay jumped 12 percent to $9.84 million, according to a report by Pearl Meyer & Partners, a leading compensation consulting firm.
But who are we to complain?
We’re just average Joes and Janes. We don’t fly in corporate jets. We don’t have shareholders fork out for our country club memberships. We don’t get allowances for our four mansions, and we pay our own income taxes.
We certainly don’t get multimillion-dollar pension plans after just eight months on the job. We sure as hell don’t get bonuses when we screw up. And when we leave a job, there’s no $80 million golden parachute.
It’s like we’re different species from those guys. They’ve ascended into a separate society where the usual rules of success and failure don’t apply, where you can flop miserably and still get handed millions.
Silly us. We thought the rules were the same for everyone. We had no idea you could skate through life with all ups and no downs. So, to learn a bit from our betters, we’ve taken a look at the careers of four current and former Atlanta CEOs. Take notes. Maybe, we can all learn how to get filthy rich in today’s screwed-up corporate world.
On Feb. 17, 2000, the day Douglas Daft took the reins of the Coca-Cola Co., he was led into a high-security vault at SunTrust’s corporate headquarters in downtown Atlanta. There, as is tradition, he was shown the original top-secret recipe for Coca-Cola.
That was pretty much the pinnacle of Daft’s career.
A former math teacher, Daft joined the soft drink giant at age 26 at its Sydney, Australia, offices in 1969. He rose to upper management in 1982, as vice president of Coke’s Far East division. By 1991 he’d moved to headquarters in Atlanta as president of the Pacific Group. In December 1999, Coke’s board of directors elected him chairman, CEO and all around numero uno, replacing Douglas Ivester, who had an even shorter tenure in Coke’s top office.
It’s the kind of promotion that changes somebody’s lifestyle forever. Beyond tens of millions in salary, bonuses and stocks options, Daft and his wife were given use of the corporate jet, which cost the company more than $100,000 a year to operate.
Daft’s reign saw the Securities and Exchange Commission and the Department of Justice launch two investigations into allegedly shady accounting practices in Coke’s Japan unit. He’d been the head of the Japan business when the accounting irregularities began.
While Daft was CEO, Coke also was embroiled in controversy over the following accusations: rigging a Burger King marketing test; hiding losses on a failed computerized fountain drink system; selling drinks that contained traces of dangerous heavy metals and pesticides; soaking up drinking water supplies for thousands of villagers in India; and turning a blind eye to nine union-related murders in Colombia.
Meanwhile, company revenues slid. And in 2001, his first full fiscal year as CEO, Coke stock dropped from $61 to $47 a share.
Daft responded by telling shareholders and investment analysts that things were just fine and dandy. For that, he and Coke were hit with a class-action lawsuit from shareholders. The suit, which is still in the courts, claims he misled investors by painting a rosy picture of the company’s finances.
You’d think Coke’s governing board would hold Daft accountable. Maybe it would have in the last century, back in the days of muckrakers and monopoly busters. But we’re living in the new millennium, where corporate boards are manned by other CEOs.
In Daft’s case, the Coke board gave him $69 million in salary, bonuses, stock options and other perks in fiscal 2001, the same year that Coke shares were dropping, according to the Atlanta Journal-Constitution. Based on a differing estimate of stock option values, USA Today computed his compensation as even higher - around $200 million!
In fiscal 2002, the Coke board increased Daft’s bonus by half a million bucks, to $4 million, and retroactively lowered Daft’s performance targets so he could be given company stock worth an additional $86.3 million.
But the capper is that last year, when Daft was pretty much forced into retirement, the board paid him a golden parachute - a farewell present of more than $36 million.
Coke, a traditional company, has a well-established tradition of rewarding the shoddy performance of executives, especially as they’re walking out the door.
Since the untimely death of CEO Robert Goizueta in October 1997, the company has struggled to maintain its edge against archrival Pepsi and second-string Cadbury Schweppes (Dr. Pepper’s maker), gradually losing the sheen that came along with the world’s most familiar brand. Coke’s market share is now at its lowest point since 1996, according to Beverage Digest.
But Daft and the other guys at the top - the ones supposedly responsible for the company - weathered the hard times with no problem at all.
Steven Heyer, Coca-Cola’s former president and chief operating officer, received a severance package worth at least $24 million after only three years on the job, according to data compiled by the AFL-CIO. Jack Stahl, also a president and COO, received a severance package worth more than $25 million.
Ivester, Daft’s predecessor, left with a retirement package worth $119 million after he was forced out in late 1999.
The tradition continues. In Coke’s 2004 fiscal year, the current chief executive, Neville E. Isdell, raked in $17.5 million in salary, stock options and other compensation. During the same period, the company’s earnings dropped 8.7 percent.
Last fiscal year, Coca-Cola paid $8.4 million in bonuses to its top six executives, the equivalent of almost $2,300 for each of the 3,700 employees it laid off from 2000 through 2003.
Some Coke shareholders responded by pushing for corporate versions of ethics reform. They proposed new rules that would have banned golden parachutes and limited stock options.
Of course, the company’s board urged shareholders to reject the measures. At Coke’s annual meeting April 19, at the Hotel du Pont in Wilmington, Del., all those measures failed by a wide margin.
Marce Fuller’s rise to the CEO’s suite at Mirant Corp. was nothing short of dazzling.
While majoring in electrical engineering at the University of Alabama, she got part-time work at Alabama Power, a Southern Co. subsidiary. Her job was to hit power poles with a hammer to see if the wood was rotten.
In 1985, at age 25, she joined Alabama Power full-time as a staff engineer. Pretty soon, she was helping the company negotiate long-term power sales. Within seven years, Fuller was an international project director, responsible for new business development around the world.
A protégé of former Southern Co. CEO Bill Dahlberg, she also devised a strategy for the electricity giant to enter the emerging wholesale energy market, through Southern Energy, a subsidiary that eventually was spun off into a new public company called Mirant.
Fuller was 39 when she was picked to be Mirant’s CEO.
Mirant produces, buys, and sells electricity on the wholesale market. The energy-trading spin-off offered its initial shares on the New York Stock Exchange Sept. 27, 2000.
By the end of 2001, Mirant was worth $12 billion, on paper. It employed 10,000 in the Americas, Europe and Asia. Forbes listed Fuller as No. 5 on its list of the country’s 50 most powerful women.
The company was so flush that Fuller committed $50 million to addressing climate change and reducing greenhouse gas emissions. The whole time that she was the business world’s darling, she repeated a personal mantra about how integrity and trust were absolutely crucial for corporations and executives.
But then came the California energy crisis, in which it was discovered that energy-trading companies had manipulated the state’s deregulated market to jack up prices.
That was quickly followed by the collapse of Houston-based Enron, the biggest of the new breed of energy-trading companies. Investigators and shareholders soon learned that Enron’s apparent success had been built on dubious accounting and off-the-books enterprises. That led to one of the biggest financial scandals in American history.
Several lawsuits and the state of California allege that Mirant had quite a bit in common with Enron. Not the off-the-books stuff - that was Enron’s specialty. But, similarly to the Texas company, Fuller and Mirant were accused by the state of California of manipulating the supply and price of electricity on the wholesale market. According to one lawsuit, California’s attorney general found more than $2 billion worth of “suspect” transactions.
Another lawsuit, also filed by the state’s attorney general, alleges Mirant and its wholly owned subsidiaries engaged in price gouging and “unjust, unreasonable, and illegal overcharges,” and of receiving “unprecedented profits at the expense of consumers, ratepayers, businesses and the state of California” that resulted in “hundreds of millions of dollars of overcharges and illegal profits.”
Accusations like that aren’t good for business. In spring 2002, the Los Angeles Times reported on the lawsuit against Mirant. Shareholders, sensing an Enron-type implosion, began selling. The company’s stock began a steep descent, falling 12 percent in one day. Once as high as $47, a Mirant share now trades at around 66 cents.
In 2003, the company posted a loss of $3.8 billion, partially because of the collapse of wholesale energy markets that floundered in the wake of Enron’s bankruptcy.
That hasn’t exactly made shareholders ecstatic. In a class-action lawsuit, they accused Fuller, whose hobbies include scuba diving in the Bahamas, and three other top Mirant officials of personally making $8 million by artificially inflating the company’s stock price.
First, Fuller and other Mirant executives talked up “quarter after quarter of outstanding growth and positive financial results,” according to the lawsuit filed in the U.S. District Court for the Northern District of California. Then, Mirant sold a second round of stock in May 2001 and a third round that December. Next, the lawsuit says, “defendants reaped over $8 million by selling Mirant stock at artificially inflated prices.”
In July 2003, Mirant filed for Chapter 11 bankruptcy protection. It was the largest filing in Georgia history and the 11th largest in the U.S. at the time. The filing automatically put the shareholder lawsuit against Fuller on hold.
But the state of California got its claim in under the wire. Last January, the state’s attorney general agreed to drop four lawsuits against Mirant and its subsidiaries in exchange for $606 million.
After all this, guess, just guess, what Mirant’s board of directors did to show their disapproval of the bankruptcy filing, California’s accusations, the canning of 1,000 employees and the plummeting stock price? They went and gave Marce Fuller a $174,000 performance bonus, on top of her $850,000 salary, because, hey, running a company into the ground sure is hard work.
Dahlberg, Fuller’s mentor and a Mirant board member, said in a memo obtained by the Atlanta Journal-Constitution that employees might wonder why “our executives receive bonuses in the year we filed for Chapter 11 protection.”
Good question. But a deal Fuller worked out for her retirement, filed with the Securities and Exchange Commission last December, suggests the company didn’t care what shareholders or anyone else thought. Whenever she’s replaced as CEO, she’ll get a one-time payment of $3.4 million, a performance bonus of $850,000 for her awesome work during 2004, two years of health insurance, and a pension of $423,000 per year when she turns 50. When asked why the company agreed to give Fuller such a cushy retirement package, company spokesman Lloyd Avram said, “Ms. Fuller’s compensation was negotiated with the support of our bankruptcy committees.”
Shareholders, of course, are upset. But the weird thing is that bankruptcy court rules allow this kind of thing to happen all the time. With contracts that were in place before filing, it’s often easier and cheaper to pay departing executives what they ask for rather than fight them over it, according to Marty Butler, an accounting professor at Emory University.
Also, Butler notes, large creditors are given first priority, and the lawyers and accountants that are hired to help the company during its bankruptcy filings are next on the priority list. Shareholders are at the bottom of the totem pole, getting the scraps if any are left.
Mirant’s new CEO should fare even better. Avram says the company will emerge from bankruptcy this year.
At Delta Air Lines’ annual meeting May 19 in a College Park conference center, a few crusading shareholders tried to hold company executives’ feet to the fire. Resolutions that would ban raises for top managers during unprofitable times and even shrink salaries and bonuses were met with cheers and applause.
Ultimately, the resolutions failed. But they were backed by holders of more than 20 percent of the company’s stock, a record-setting challenge to Delta’s leadership.
It was an attempt to rein in executive pay at an airline teetering on bankruptcy. Too bad the man who aimed Delta toward its crash already had left the company - and taken millions with him.
Leo Mullin is the man who got away. Stanley Barczak, a pilot with Delta for 27 years, says he was spurred to push the resolutions because of “the mismanagement and the arrogance I witnessed under Mr. Mullin.”
Mullin was supposed to be a reformer. Back in 1997, Delta’s board was looking for someone new to shake things up. He did that. Mullin had been vice chairman at Unicom Corp., an energy company, and was a complete outsider to Delta and the airline industry. But he had a reputation as a manager’s manager.
Delta’s corporate culture had been grounded in customer service, lean management and treating employees well - even those who didn’t have union representation. Mullin’s top-down style rubbed many employees the wrong way.
In 2000 and 2001, his leadership skills faced a crucial test. Delta and the rest of the airline industry were getting smacked around by labor demands, failed acquisitions and a 2 percent drop in passengers. Then, the airlines were knocked to their knees when terrorists hijacked United and American jets to ram the World Trade Center on Sept. 11, 2001. Afterward, rising fuel prices collided with travelers’ fears and expensive new security measures, generating a perfect storm for the industry.
Days after the attacks, Mullin made this plea while asking Congress for a $15 billion aid package for the airlines: “It is not a bailout, but rather a package designed solely to recover the damages associated with the heinous acts of Sept. 11.”
His wish was granted. Congress gave the airlines $10 billion in government-backed loan guarantees and $5 billion in direct cash handouts, of which Delta got $528 million.
Over the next 14 months, Delta lost more than $1 billion and laid off 1,000 employees.
A lot of Delta’s problems weren’t Mullin’s fault. But he didn’t feel he should be paid less just because his company was headed for the toilet.
In 2002, while he was devising plans to lay off 8,000 employees, Mullin received a salary of $795,000, a $1.4 million bonus, and more than $10 million in other forms of compensation - double his total pay from the year before.
In spring 2003, the airlines asked Congress for more help. The Senate Commerce Committee was considering how best to aid the struggling aviation industry, including another possible round of financial aid.
But those hearings went differently. Sen. John McCain read about Mullin’s compensation and was outraged.
McCain told reporters on Capitol Hill that if Mullin showed up during the committee hearings, he would tell him, “You ought to be ashamed of yourself.”
“I’m sure every American is angry, because Delta laid off thousands of employees,” McCain told Reuters.
During that round of hearings, the committee learned that Delta had hooked Mullin up with a $4.5 million pension after just eight months on the job. The move was one of several that prompted Congress to devise the Pension Fairness Act, a toothless law that had one surefire effect: It made Congress look as if it was solving the problem.
The next year, Mullin decided to forgo his bonus and reduce his salary. But it was too late.
“To all us employees, the fact that he was asking for sacrifices from everybody and then he turned around and he gave himself and all the management bonuses and raises and protected their pension - I just don’t think that’s right,” says Barczak, the pilot. “He seemed to think he was worth this amount of money even though the company was going down the drain.”
Mullin left Delta in December 2003 and is now listed as a part-time financial adviser with Goldman Sachs Capital Partners, a private equity fund group. Why work full time when you’ve got such a nice pension?
Left with the mess he inherited from Mullin, current CEO Gerald Grinstein has been trimming the company with round after round of layoffs. Since late 2000, Delta’s cut 23,000 workers and lost close to $9.5 billion. Grinstein, who earns a $500,000 annual salary, also is seeking relief by asking Congress to let Delta postpone its pension payments. The company has only pitched in $220 million of the $450 million it owes.
If Delta does file for bankruptcy, and if United Airlines’ bankruptcy is any guide, then the Atlanta-based airline may wipe its pension obligations completely clean. Employees will be paid, but it’ll come from a federal fund. And it will likely be a much smaller amount than what the company owes its retirees.
Home Depot is doing fine. No allegations of fraud. No accounting problems or Department of Justice investigations. The home-improvement giant isn’t on the verge of bankruptcy.
Far from it. Home Depot’s profits get bigger almost every quarter. The company almost always surpasses Wall Street’s expectations and keeps its competitor Lowe’s biting at its heels.
The house that Arthur Blank and Bernie Marcus built is in the capable hands of CEO Robert L. Nardelli, a former Western Illinois University offensive guard. Nardelli dreamed of going pro. Instead, he majored in business and got a job at General Electric, like his father before him.
After about 30 years at GE, Nardelli was on track to take the CEO’s spot after Jack Welch retired. But Neutron Jack went with an Ivy Leaguer instead. Nardelli was stunned, according to Fortune magazine.
And one of things driving him to make Home Depot more successful is to prove to Welch that he screwed up by picking the wrong guy. That’s probably a good thing for Home Depot shareholders.
The only thing that seems a bit out of whack with Home Depot and Nardelli is that his salary was more than $30 million last year - that’s almost a 20 percent increase over 2003. Yes, you read that correctly.
Thirty.
Million.
Dollars.
That means that Nardelli, who works 15 hours a day, seven days a week, according to Fortune, earned about $5,494 an hour last year. Nardelli’s big bonus was tied to the company’s performance, which is generally seen by critics of corporate pay as a good thing.
The standard resolutions to limit executive pay didn’t get much traction at Home Depot’s annual meeting in May. But an impressive 56 percent of the company’s shareholders voted to limit golden parachutes, the gift money executives take with them when they retire.
The resolution was nonbinding. And Home Depot’s board didn’t enact it, sending a clear message to shareholders that their money is wanted but their ethics aren’t.
Some shareholders also don’t like how Nardelli spends his and Home Depot’s money - at least when it comes to politics. Nine percent of them voted in May to ban the company from contributing to political campaigns.
Nardelli personally has contributed $72,000 to Republican candidates since 2000, and nothing to Democrats, according to the Center for Responsive Politics. He also hosted a fundraiser for George W. Bush at his home that netted $3 million. And, during the 2004 campaign, he allowed Home Depot to be used as a rally backdrop for the president.
Home Depot, campaign contributions and political action committees have given $700,000 to Republican candidates since 2000, dwarfing the pittance that Democrats got. And, using shareholder money, the company itself gave $250,000 to Bush’s second inaugural party.
The natural questions are: Why just Republicans? And why so generous to Bush in particular? Part of the reason has to do with the special interests of big business. Duh. Republicans generally are viewed as the party of corporate America
But Home Depot faces its own specific problems. For instance, Nardelli and Bush see eye to eye on an issue that could save the company millions of dollars. Both want to pass a federal tort reform law.
See, Home Depot is fending off at least eight lawsuits from the families of employees and customers who were killed by falling objects while shopping in Home Depot. The company also reported that 185 customers were injured inside stores in 2004 - then, it stopped disclosing such figures.
Bush also wants to limit pending class-action suits like the one filed in Texas against Home Depot for selling wood treated with toxic chemicals. Tort reform would make settling those cases a lot cheaper, if not do away with them altogether.
But you have to wonder whether a corporate chieftain’s personal interests influence his political giving, as well as the way his company and its employees’ PAC spend money on politics.
With that CEO salary and benefits, Nardelli has risen into a select strata that’s fared better than any other under the Bush presidency. A study by United for a Fair Economy shows that between 2002 and 2004, the richest 1 percent of Americans was given $197 billion in tax cuts.
Wouldn’t it be cool if the president was your buddy? Wouldn’t you want to make sure a friend like that got to stay in the White House?
One more thing: When Nardelli decides to retire, he could go home with up to $82 million in stock options and other benefits. And you damn sure don’t want to pay too much in taxes on a windfall like that.
michael.wall@creativeloafing.com