Australia’s corporate performance would not be so pathetic if we had tough disclosure laws like the US where CEO contracts must be made publicly available.
Simple ideas are the strongest, and the simple idea I like best right now goes like this: CEO employment contracts are required by law to be publicly available (though most people don’t know it); if you ask a company for a copy of the CEO’s contract, it’s supposed to give you one. So why not ask a bunch of major companies for the CEOs’ contracts and see what happens?
The idea belongs to Nell Minow, editor of a new Web research outfit called the Corporate Library ( www.thecorporatelibrary.com). Minow is a longtime crusader for better corporate governance; she was previously at Lens, an activist investment firm, and before that at Institutional Shareholder Services, which advises big institutions on how to vote their proxies. I’ve always considered Minow one of the smartest and most responsible governance activists. Also one of the toughest: At ISS she once had to recommend a vote against her father as a corporate director because he hadn’t attended enough board meetings the previous year. (And she and Dad are still friends!)
So what happens when you send out 500 letters asking politely for a copy of this particular publicly available document? Fascinating, telling things:
–A few companies were plain nasty. Occidental Petroleum, true to its long-standing up-yours attitude toward shareholders, told Minow that if she wanted a publicly available document, then she could go find it herself at the SEC, a bear to do if you don’t know the filing date, which Oxy refused to tell her. An executive at Union Pacific Resources called Minow to yell at her for daring to request the CEO’s contract. After a little more pushing, it transpired that…er…the CEO doesn’t have a contract.
–Several companies have failed to respond, despite follow-up faxes and letters in the eight months since the project began. Among them: AT&T (CEO: Mike Armstrong), Citigroup (Sandy Weill), IBM (Lou Gerstner), Microsoft (Steve Ballmer), and Seagram (Edgar Bronfman Jr.).
–A few, including Apple Computer, Gateway, and Polaroid, responded by saying, Get lost–we’re giving you nothing.
–Several dozen companies responded helpfully right away, and a few dozen more did so after a bit of prodding. Disclosure: My employer, Time Warner, was a fast responder, immediately sending over a copy of Jerry Levin’s contract. America Online, which is buying Time Warner, was a slow responder, eventually disclosing that Steve Case doesn’t have a contract.
So far the Corporate Library has received 124 contracts and posted all of them online. Go take a look. Maybe you’ll agree with Minow, who has taken a stab at identifying the best and worst among them.
–The best: Jack Welch’s contract with GE, the shortest CEO employment contract I’ve ever seen, and I’ve seen quite a few. It’s 1,015 words, a little less than two of these pages, and in paragraph 1 it says the board can fire him at any time for any reason. You don’t find that very often.
–The worst: Bob Annunziata’s contract with Global Crossing, more than 4,000 words of lovingly detailed largesse, including the exact model of Mercedes-Benz the company had to buy for him (a 500 SL). Also specified: monthly first-class air travel for his wife, children, and mother to visit him after he took the job. Of course Annunziata lost the job a few weeks ago, after just over a year. The contract made sure he was well taken care of.
Nell Minow realizes better than anyone that the value of this exercise isn’t the amusing details but how they reveal a larger message. When Union Pacific Resources tells her to shove off, that tells all of us something about its attitude toward shareholders. The cost of Annunziata’s Mercedes isn’t material, but the board’s apparent willingness to give him everything he asked for is.
As for the dozens of contracts she has requested but not yet received, Minow doesn’t seem too worried about getting them eventually. “We are in the process of obtaining those contracts,” she says coolly, “and we will be adding them to our site.” After all, they are publicly available. At least in theory.