Corporate Bandits Hard at Work

CEO (Chief Executive Officer), a highly exaggerated position in the American Corporations. A CEO oversees the overall activities of the corporations. CEO is looked upon as the captain of the ship and is to steer the corporation in the right direction. Right direction could mean different things to different people. Too many of today’s CEO take the direction that enable them to amass more wealth for themselves through stock options, bonuses, higher pay, etc.

The CEOs are supposed to make sure that the companies are in the right direction towards greater market share and profitability. That their corporations are good citizens.The CEO must answer to the Board of Directors and the shareholders, since it is the CEO who manages the company. Of course the management task is sub-divided to various vice presidents and directors, but the overall responsibility lies with the CEO. For its performance, the CEO receives a very handsome salary plus benefits and stock options. Benefits could include large bonuses, free automobiles, housing, etc. Stock options can add up to millions of dollars. In fact in many instances the benefits exceeds the total annual salary of the CEO.

For CEO to do his/her job right, they have access to a team of various professional advisors who are supposed to be up to date with market information.

CEO could only be hired and fired by the board of directors. This makes them very powerful in the corporate world.

The ironic thing about American corporations is that when the company is making profit, the CEO receives a big bonus and stock options and is given credit for the success of the company, never mind the poor souls (the corporate employees) who had to work hard to make things happen. When the company loses money and they have to lay off employees in order to save money the CEO receives bonus for reducing the cost, never mind that the poor souls being laid off had nothing to do with the business loss. It is a win-win situation for the CEO, company earns profit CEO receives generous bonus and stock options, company loses money, CEO receives generous bonus and stock options.

CEO failed to make the right decision, analyze the market and follow the market or they made wrong economic moves, e.g. too fast of expansion, taking over incompatible corporations that could become a nightmare for the parent corporation and many other reasons.

Everyone forgets that the reason the company is losing money is because of CEO’s failure to perform. CEO failed to make the right decision, analyze the market and follow the market or they made wrong economic moves, e.g. too fast of expansion, taking over incompatible corporations that could become a nightmare for the parent corporation and many other reasons. Or making the wrong investment, i.e. buying wrong securities portfolio, as witnessed in the last few months.

There is an inherent conflict of interests in CEO’s position. Since they are tuned to make millions in stock options and bonuses, they may make decisions that are short terms and can yield them the benefits, disregarding the bigger picture and the long term goals of the corporation.

Furthermore, when it comes to laying off employees, the CEO and the top executives are immune from layoff. There two distinct reasons for this.

The members of the Board of Directors of one company are also members of board of Directors of other company and soon enough everybody will be friend with another and due to this friendship, nepotism arises. Furthermore, generally speaking CEOs are also members of board of directors of other companies which expands their network.

First the executives will never recommend to lay themselves off. It will always be someone else. Second since they are the officers of the corporations they will be the last to leave, like the officer of the vessel that would be the last to abandon the ship. Of course there is a third argument that these executives are hard to come by and companies should not easily let them go, as they are highly specialized and will not be easy to hire them back when they are needed back. I beg to differ with this argument.

But if they are the cause of financial problem, then shouldn’t they be the first to go? In reality the answer should be “Yes”. But the top executives of each corporation are somehow are either related to one another or are old buddies and they will never take steps that is against one another.

The members of the Board of Directors of one company are also members of board of Directors of other company and soon enough everybody will be friend with another and due to this friendship, nepotism arises. Furthermore, generally speaking CEOs are also members of board of directors of other companies which expands their network.

Recently the CEO, in order to make more money, have cooked up the books with the help of other corporate executives such as CFO (chief financial officer), VPs (vice presidents), and the outside accounting firms. They have either exaggerated in the financial status of the corporation or simply defrauded its shareholders, the suppliers, the financial institutions, the government agencies, and the employees by stealing millions or borrowing millions drying up the cash flow of the corporation.

Xerox Corporation hid $1.8 billion in loss and showed it as gain.

Some of these CEOs have defrauded everyone and have caused the corporation go into bankruptcy and employees lose their jobs and their retirement plans. This is not only uncivilized, but outright criminal.

WorldCom executives lied about the financial status of the corporation by hiding $3.8 billion loss.

Enron lied about its financial situation and represented to the whole world that the company is doing fine, while in reality it was bleeding in read. They opened up many off-shore companies and transferred their losses to those companies through some fancy financial accounting and managed to fool the government agencies and the public by pretending to be a very profitable company. That was far from truth.

Xerox Corporation hid $1.8 billion in loss and showed it as gain.

While all these were going on, then we find out that some other CEOs have bailed out of potentially financial damaging situation, by selling their stock early before the bad news were published and the stock value plunges while the rest of the investors who did not have access to this information stood to lose billions of Dollars.

AOL-Time Warner was under investigation by SEC (Security Exchange Commission) for their shaky financial transactions. The examples are unfortunately too many to mention here. All these misrepresentations were done in order for CEOs and the other top executive to get their bonuses, stock options. Greed at any cost.

While all these were going on, then we find out that some other CEOs have bailed out of potentially financial damaging situation, by selling their stock early before the bad news were published and the stock value plunges while the rest of the investors who did not have access to this information stood to lose billions of Dollars.

If these activities of CEOs are not thievery, then I do not know what is.

American CEOs are highly paid comparing with the CEOs in the rest of the world for the same type of job that others do. For example the CEO of Japanese companies make far less than their American Counterparts and overall the Japanese companies are much more successful than the US companies.

There is a ripple effect throughout the stock market when major corporations are caught with some financial wrong doings. It causes the investors lose confidence and lower the value of stocks for everyone.

CEOs and other executives’ pay must be linked to their performance. If the company made profit, they should receive pay raises. If the company loses money, then they should not receive any additional compensation and be subject to reprimand and termination if the losses continue.

CEOs’ blunders have more expansive effect than just for their own companies. There is a ripple effect throughout the stock market when major corporations are caught with some financial wrong doings. It causes the investors lose confidence and lower the value of stocks for everyone. After Enron fiasco as well as the other companies’ wrongful conduct, the stock market took a tumble as investors pulled out their money out of stock and invested in other types of investments such as real estate. Unfortunately the good, solid, and honest corporations are being hurt too, as public has lost its confidence and lack sufficient knowledge to separate between the good and the bad corporations.

Furthermore, due to fall of stock market, the employees who have invested in 401K and other retirement plans, which are geared towards the stock market, have witnessed their investment and their retirement plan values taking a hard plunge. As the result the public have become more conservative, and more careful in making economic decisions. They are not spending as much as before which causes new and different problems such as slowing down the economic activities and postponing the economic recovery. Also since the businesses are not selling as much as they had projected, they start laying off people in order to save cost.

Increase in unemployment has its own problems such as loss of income tax by the Federal and State governments. Also making payment to laid off employees in form of unemployment benefits, which means the money that the government could have used up for some other project, will be spent on unemployment benefit instead.

It is unconscionable that CEO and other top executives of AIG take a spa vacation to the tune of $400,000 soon after the Federal Government bailed them out and avoiding the bankruptcy. This happened while millions of Americans see their dreams being destroyed by losing their homes.

Also the foreign investors lose their faith in American Corporations and may avoid investing in American Corporations that create its own set of economic problems. As noted, there is a chain reaction. Everything in the market is connected to each other, one goes down, and it affects every other element in the economy.

Sarbanes-Oxley Act managed to bring some accountability and transparency to the companies’ financial activities. With the recent corporate misconduct in the financial world, it seems we need more effective regulations to effectively sever the possibility of further misconducts by the top executives.

It is unconscionable that CEO and other top executives of AIG take a spa vacation to the tune of $400,000 soon after the Federal Government bailed them out and avoiding the bankruptcy. This happened while millions of Americans see their dreams being destroyed by losing their homes.

The corporate bandits must be severely punished so that the future executives think twice before they decide to defraud the public.

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