Corporate largesse expensive cars to $2900 coathangers

By Peter V O'Brien

Friday 4th October 2002

Any investor who thinks executives of top companies are paid too much and have lavish expense accounts should compare the situation here with what has been happening in the US.

A National Business Review reader returned from a trip recently with a swag of clippings from respected US newspapers covering corporate scandals and associated spinoff issues.

A criminal investigation of Tyco International chief executive Dennis Kozlowski has received some media treatment here. The US newspapers had considerable detail about Tyco's financial support of his comfortable lifestyle.

Mr Kozlowski had a company-paid $US16.8 million co-op apartment at 950 Fifth Ave, Manhattan, a classy part of a city where class is expensive.

He charged various expenses to Tyco, expressed here in US currency: shower curtain, $6000; dog umbrella stand, $15,000; sewing basket, $6300; travelling toilette box, $17,100; gilt metal wastebasket, $2200; coathangers, $2900; two sets of sheets, $5960; notebook, $1650; pin cushion, $445.

Tyco's 8K report to the Securities & Exchange Commission listed other personal expenses Mr Kozlowski allegedly paid with company funds. The $US1 million birthday party in Sardinia for his wife was publicised in New Zealand.

The rest of the list included: jewellery, $78,042; clothing, $155,067; flowers, $96,943; club membership dues, $60,427; wine, $52,334; investment in the movie Endurance, $700,000; aircraft and car use from 1998-2001, $449,331.

Disclosures about Mr Kozlowski coincided with continuing debate over US chief executives' pay rates, described in one report as showing "explosive growth" and apparent lax corporate governance on the part of directors.

Substantial amounts were paid to people in companies where there was no evidence of criminal or unethical activity.

Former General Electric chairman and chief executive Jack Welch, a highly respected executive, had a retirement package that included use of a Manhattan apartment worth $US80,000 a month, with wine, food, flowers and laundry provided; courtside seats to the US tennis open and New York Knicks basketball games; a car and driver; and bodyguards.

That information was in documents filed in court relating to divorce proceedings between Mr Welch and his wife, Jane Beasley Welch. She is fighting for more than Mr Welch's original settlement offer of $US15 million.

She may need it. Other information in the court documents showed she had rather high expenses.

Known monthly expenses were $US126,820. They included: financial manger, $7500; office rent, $1000; clothing, $7500; cellphones, $2500; dining out, $2500; opera, theatre, movies, $1000; gifts, $3100; groceries, $1200; hairdresser, $650; jewellery, $10,360; petty cash, $5000; car and driver, $4000; and wine $8260.

Expenses of $US126,820 a month would soon cut out a fair bit out of her current $US9.73 million total asset worth.

Revelations of high living among US executives, their partners and business associates may seem amusing, even astonishing, to New Zealanders (and probably to many Americans who hang on further down the berry tree) but they form only the top of a substantial mountain of perceived corporate excess.

Basic pay rates and massive parcels of stock option as adjuncts to pay have been under attack (NBR, Sept 20). The attacks' intensity seemed to increase in a direct relationship with the declining health of corporate America.

People who argued the case against escalating pay rates and the accompanying windfall stock options got a handy new weapon when the scandals of corporate excess and, in some instances, apparent criminal behaviour became public.

Congress stopped one method of giving lucrative deals when it banned from July 30 companies making loans to executives, sometimes at nil interest and provision that they could be forgiven paying the money back. US press stories noted the law did not affect existing loans, so many executives still have it sweet.

A US law professor was quoted in USA Today saying executives at a lot of companies had been using the company bank account "as a personal treasury" which would no longer be available.

There has been much talk in New Zealand recently on the lines of "it does not happen and could not happen here," whether talking about errant auditors, criminal executives, incompetent and/or lazy directors and excessive pay. Maybe, but what happens in the world's economic powerhouse often happens elsewhere on a smaller scale.

It would be a useful aid for investors if someone devised a formula showing at what level of pay an increase had no effect as a spur to executive performance, compensation for responsibility and an attraction for job applications from the best qualified people.

In the meantime, investors will have to make do with constant illumination and disclosure of executive deals.

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Corporate largesse ­ expensive cars to $2900 coathangers

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