CEO Compensation (and Expectations) Fuel Shareholder Activism

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We need and want our CEOs to be charismatic, heroic, fearless and virtuous, above reproach. Recently Citigroup, Goldman Sachs, Chesapeake Energy and Yahoo’s shareholders have rallied to challenge CEO compensation and behavior. Shareholders crave value, production, and respect.

We must believe in, have confidence and faith in, and trust our leaders. Corporations are made up of people. Shareholders are people. People have basic human needs that when violated provoke anger, pain, and scrutiny.

In America, CEOs earn 475 times more than the average company worker. In the Euro-zone, the figure runs 15-22 times depending on the country. Frequently, CEOs are paid excessively in order to support the brand and mollify doubt; the theory being that if “we” pay them well, “they” must be worth it, and our image will prevail. These are all too human self-fulfilling prophecies.

A few weeks ago Citigroup shareholders successfully challenged Vikram Pandit’s compensation package. Citi’s share value has steadily decreased 90-95% from its peak. Shareholders have a voice with timbre and pitch!

Alain Sherter, CBS Newswatch, asserts that Lloyd Blankfein should be fired because he may have deceived Congress, the company has been plagued by controversy (for example, investment in an underage porn site), investors are no longer impressed with him and question whether or not he truly understands Goldman’s business, and his trading background is now a public relations liability. Frederick Allen, a Forbes writer, put it more plainly on March 14, 2012: “To Save Goldman, Lloyd Blankfein Must Go.”

The Latest & Greatest

The most recent sensations in the “CEO Compensation-Expectations Sweepstakes” involve the chiefs of Chesapeake Energy and Yahoo.

Aubrey McClendon, chairman and CEO of Chesapeake Energy has been a powerhouse (no pun intended) in the massive U.S. natural gas market. Reuters investigators have discovered that Mr. McClendon simultaneously ran a $200 million hedge fund of his own that traded the very same commodities Chesapeake Energy produces.  It was also found that he had garnered over one billion dollars in loans from his (our) company against his stake in Chesapeake. Surrealism is alive, and thriving on the shores of the Chesapeake in Oklahoma City.

Yahoo shareholders are angry and indignant. Newly ensconced Yahoo CEO Scott Thompson faces expulsion because of “inaccuracies” on his CV. His assertion claiming dual college degrees was filed with the SEC on April 27 in a very, binding legal document. Bottom-line: where there’s smoke, there’s fire. This is natural, human shareholder sentiment.

The Tip ‘O’ the Iceberg

Because of the cyclical implosion within the financial sector beginning in 2008, Main Street can no longer tolerate betrayal of whatever style or caliber.

Human beings are symbolic thinkers. Symbols represent ideas. Symbols communicate meaning. How can shareholders “digest” Aubrey McClendon’s behavior? They cannot. His behavior symbolizes run-away greed and self-interest. CEOs have a fiduciary duty to shareholders: the duties of loyalty and care, and the remedy for equity. Trust and money continue to be among the two most important five letter constructs in our culture.

Scott Thompson’s faux pax can be trivialized by the press as an inaccuracy, but not in today’s post bailout, Great Recession, subprime world. CEOs are required to be above reproach. This is not pedestrian paranoia: this is Wall Street realty. Continuing to be naïve will only deepen our problems. Main Street is still enduring a “battered person syndrome.” Shareholders continue to ask: “What’s next?”

Steven Davidoff (DealBook, May 1, 2012) minimizes Citigroup shareholders concern about CEO compensation based on the fact that Citi’s balance sheet is nearly $2 trillion. But that is not the point. Betrayal cannot be measured arithmetically. Confidence plummets based on human emotion and experience. We are all keenly aware of the power and importance of shareholder and consumer confidence.

Any economy is a delicate balance of production, trends, emotion consumer behavior, investment, and proper stewardship.

To contact Christopher Bayer directly, please email

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