Couple of entries this week into the “Pigs is Pigs” sweepstakes: Alaska Representative Don Young and judge Chancellor William B. Chandler III of Delaware’s Chancery Court.
As chair of the House Committee on Transportation and Infrastructure, Young was able to get approval for almost a billion dollars for projects in Alaska, including a bridge about the size of San Francisco’s Golden Gate – to an island of 50 people.
As reported by Rebecca Clarren in Salon.com, the so-called Transportation Equity Act provides Alaska, the country’s third least populated state, with the fourth-largest share of transportation money.
Said Young of the bill, “I stuffed it like a turkey”. And to give you an idea of what the Alaska largesse could have provided for the rest of us: a billion dollars could have improved ALL the traffic lights in the entire country, reducing congestion by up to 40 percent.
On to Chancellor Chandler: he was the presiding judge in the shareholder lawsuit against the Disney board of directors, which paid fired president Michael Ovitz a severance package worth over $130 million after a mere 15 months of employment.
According to the LA Times, the crux of Chandler’s decision is based on whether or not the Disney directors acted in good faith in not withholding Ovitz’s severance pay:
Shareholder lawyers had argued that directors were too passive, failing to properly monitor Ovitz’s firing, and that Ovitz should have been denied his severance for gross negligence and malfeasance. Attorneys for Disney directors countered that their hands were tied because Ovitz did nothing egregious enough to warrant denying his severance.
In a remarkably understated defense of Ovitz’s performance at Disney, Chandler noted that although “the general consensus on Ovitz’s tenure is largely negative,” he had made valuable contributions to the company as president such as a key recommendations about locating a gate for Disney’s California Adventure theme park in Anaheim, and persuading Tim Allen to return to ABC’s “Home Improvement” after he walked off the set.
$130 million for deciding where to PUT A GATE? And for persuading a prima donna to get back to work?
If the rest of us were compensated that well for trivial decisions and equally trivial actions, we could, without even denting our cocktail budgets, give Representative Young enough tax dollars to build 1,000 bridges.
In their desire to protect public company management, the Delaware court has put the Disney shareholders through the mill: the first lawsuit was filed in January 1997, and Chandler threw it out, “saying the stockholders did not prove the package was a waste of company assets.”
The shareholders sued again, in January 2002. The trial didn’t begin until October 2004, and ended in January 2005. Chandler has been working on his ruling since then.
In a perverse version of the “innocent until proven guilty” assumption of criminal trials, the courts put a heavy, almost impossible, burden on shareholders to prove corporate malfeasance. As if greed and corruption are unthinkable in the executive suite and the boardroom.
While Chandler’s 175 page decision is consistent with this, it defies common sense.
It seems to me that the burden in determining the equity of executive compensation – especially to one booted out after a little over a year – should be on management and the board. Can they prove that the executive increased shareholder equity by some multiple (say, 10 times or more) of their compensation? If yes, God bless the executive. If no, either don’t pay it or, post facto, attach their assets until it’s paid back.
The way the system works now, shareholders will always lose. Chancellor Chandler could have put all of this right with his 7 months in the making ruling. He chose not to, and that should be a caution to anyone who bets their financial security on investing in public companies.