Executives Who Defraud Reap Substantial Rewards

Not to repeat the obvious, but our corporate system is still out of wack when corporate executives who admit deferauding investors are still allowed to walk away with their heist, as this article
by The Associated Press reveals:

Disgraced execs laughing all the way to the bank.

Wednesday, November 3, 2004
Disgraced execs laughing all the way to the bank
Companies slow to end pricey buyout contracts
By Rachel Beck
THE ASSOCIATED PRESS
NEW YORK
PeopleSoft Inc.'s former chief executive lied to Wall Street analysts about the company's business.
So what happened to him? He got to keep his job for a year, and when he was finally fired he walked away with a huge severance package.
This isn't the first time that such nonsense has gone on in corporate America, and chances are that it won't be the last. It doesn't seem to matter what top executives do wrong, they keep getting paid big bucks when they are shown the door.
Things should only be so good for the rest of us. If they are lucky, employees who work lower on the corporate ladder get severance packages based on the number of years worked. But some companies only offer as little as two weeks pay, according to a study released earlier this year by Aon Consulting and the trade group WorldatWork.

Now consider what happened at PeopleSoft, the business-software-maker currently the subject of a hostile bid from rival Oracle Corp. The two companies are awaiting a judge's decision in a recently completed Delaware trial challenging PeopleSoft's implementation of an anti-takeover defense commonly known as a "poison pill."

Craig Conway, PeopleSoft chief executive, was ousted about a month ago, in part because of his clashes with other senior managers. But there was also a big lie that got him into trouble.

Conway soft-pedaled the effect on PeopleSoft's business when he was asked at a September 2003 meeting with Wall Street analysts whether customers were holding back purchases because of a potential sale to Oracle.

"The last remaining customers whose business decisions were being delayed have actually completed their sales and completed their orders. So, I don't see it as a disruptive factor," Conway said during that discussion.

And while the board knew that those comments were wrong, the company omitted his answer only in a corrected version of the meeting transcript that was filed with the Securities and Exchange Commission, not in a supplemental press release or anything else.

The directors, though, believed that Conway made his statements unintentionally. That is, until they recently got a look at a deposition that Conway gave in the poison-pill case, where he admitted he knew that his statement to analysts wasn't true but said it anyway because he was "promoting, promoting, promoting," according to transcripts.

That, in part, led to Conway's termination, but he still will walk away with as much as $50 million in severance and other benefits. The ultimate value of the package depends largely on how much he realizes from the millions of PeopleSoft stock options that were included with a $16 million payment.

That's certainly no small change for someone who misled Wall Street analysts, no less investors who pushed up the stock in the weeks after his bullish comments last year. Conway profited from that, too, when he sold more than 200,000 shares in October 2003 for a profit of about $4.3 million.

How those "golden parachutes" - as the fat severance deals are called - happen has to do with the fact that most employment contracts often loosely define what constitutes "cause."

Just doing a bad job isn't cause, nor is being under investigations or a misdemeanor conviction. It may take something like a felony conviction, but lawyers could even challenge that. And lying to analysts and shareholders? That, too, seems to be questionable, at least in the PeopleSoft case.

Given the attention that excessive severance payments have gotten in the wake of all the corporate scandals, you would think that companies would start to broaden such definitions.

"Sooner or later CEOs leave, and companies need to start thinking about an exit strategy as much as they think about hiring them," said Anthony Sabino, an associate professor at the Peter J. Tobin College of Business at St. John's University. "They need to consider what is it going to take to get them out, and the definition of that needs to be expanded."

Maybe the only good news in all of this is that some companies are dumping their contracts, which means fewer guarantees for departing executives. About 40 percent of companies in the Standard & Poor's 500 index don't have written chief executives contracts vs. about 30 percent five years ago, according to Paul Hodgson, senior research associate at The Corporate Library, a governance watchdog group.

Among those companies: scandal-plagued Marsh & McLennan Cos., which has been rocked by accusations of bid rigging and using a questionable fee structure. That means that Jeffrey Greenberg, who stepped down last week as chief executive of the insurance giant, won't be getting a super-sized severance payout like many of his peers, though he won't walk away penniless thanks to his stock options.

In some other cases, disgraced executives are still walking away with their pockets lined, but not with as much money as they wanted.

At energy company Dynegy Inc., chief executive Chuck Watson was ousted by the board in 2002 after a scandal over accounting fraud surfaced at the Houston company. But he demanded $28.7 million in severance. The company settled in August, agreeing to pay him $22 million to avoid legal wrangling.

That may be a glass-half-full way to look at this troubling situation, but at least it shows some shifting in approach. Change has to start somewhere.

Comments

[condescending]

A few words in defense of Mr. Conway:

First of all, it was about business. Former CEO, Craig Conway, viciously fought for survival of a company he shaped. True, he made misleading statements to analysts that the Oracle's hostile-buyout bid wouldn't cut into sales. Well, it raises the possibility that, PeopleSoft would have done well in the event an adverse ruling by Delaware Court didn’t take place.

Regarding the famous “golden parachute,” this is a standard and righteous compensation package for high-level executives. The only way to receive it is to be forced out from the executive board for good.

Concerning Mr. Conway’s situational ethics, I would rather be questioning the ethics of Oracle chief executive. Let me suggest that since PeopleSoft doesn’t have much choice but to accept Oracle's best offer, we have yet to see Mr. Ellison’s style of dealing with PeopleSoft shareholders and customers.

If you could tease this out a little bit: Will he honor the special money-back guarantee program that PeopleSoft put in place to protect customers from takeover-related liability? Will the shareholders be fairly compensated?

If you believe this merger will create something good, think again. A grasp of reality will come afterwards.

[toknkok]

I am looking for witnesses with knowledge of AON and Marsh & McLennan's bid rigging, contingency commissions and income accelleration practices who may be willing to talk about them. Please email any info to toknkok@aol.com