HOW TO BECOME A TOTAL FAILURE

First let me say that I haven’t had a real problem with Vanguard. The funds have done better than many others. In downturns they haven’t lost as much and in the upswings they do better than the average. Vanguard seems to be one of the good guys, however, you knew this was coming didn’t you? However, Vanguard is not a publicly owned company and by law doesn’t not have to reveal their executive compensations, so they don’t.  I don’t know about you, but for me in this climate of demand for transparency, this policy raises a red flag. If there is nothing to hide, why hide it? (Rule #2)

As a itsy-bitsy owner of a minuscule amount of Vanguard shares, I nonetheless, received a proxy packet to vote for trustees. The description for trustee compensation sounds reasonable, I can’t see any quarrell with that. When I look through the Proxy News booklet they sent out, under What are the board’s committees? I see that there is a Compensation Committee established to oversee “compensation programs for Vanguard employees, officers, and trustees.” A compensation committe sounds like a very good idea. They meet four times a year and make decisions.  Here’s the real question that is unanswered by the friendly Poxy News booklet–who sits on the compensation committee? Is it a rubber stamp, pat-on-the-back, group of corporate yes men, or is it populated with others, like me, who are outsiders and don’t have anything to gain by doing the will of the executives? I’m betting on the former rather than the later, aren’t you?

I don’t know about you, but aren’t we tired of the corporate games? For example, Prudential Financial paid it’s Cheif Executive, John Strangfeld, between $14 million to $16.5 million dollars in compensation (depending on which Internet report you read) last year. (Rule #5) How much did Prudential earn? Ha–this is really funny–Prudential lost, lost, lost over a Billion dollars! John Strangfeld can laugh all the way to the bank, and those of use who own shares of the company, as small as they are, have no recourse but to bend over and smile. When questioned about his compensation John Strangfeld replied that people in his posistion are expected to live lavish lifesyles (Rule #4). Doesn’t it make you sick to your stomach?

I am not a financial master of the universe nor am I an economist, so I have to reduce concepts to manageable bite sized pieces, otherwise, my brain would explode. What is the stock market? Isn’t it a collection of companies who have offered little ownership pieces for sell? By buying a stock you are betting that the company will be profitable and grow. If profitable, they could declare dividends, and pay all of the stockholders according to their portion of ownership. If they grow, the stock itself could become more valuable. Stockholders who want to sell their stock at a higher amount could do so and reap a profit. Is it too simplistic? Sure, but stick with me a little longer. When all the stockholders pool their shares and the total is more than 51% of the company, who owns the company? That’s right, the shareholders own it. Not the executives, not the compensation committee, not the employees, and certainly not the customers.

So, if the stockholders own many of the companies why can’t they take care of problems like transparency in executive compensation? It’s logistics. If ten shares of stock are offered it would be pretty easy to get stockholders together. In the real world, it would be easier to get all of the ants in a 3 ft. tall ant hill to line up than getting a majority to challenge the board. The reality is that millions of shares are tucked away in 401K’s and mutual funds. Because ownership is so fragmented and indirect, I’d hazarrd to say that most stockholders don’t even know that they own anything.  Company executives can rest assured that the stockholders aren’t a real threat, and could never be a threat. Without real stockholder intervention we will always suffer losses in our stock values and decreases in our rightful dividends.

Corporate management carves out lavish lifestyles for themselves (Rule #3), at our expense, and in the process often weakens company infrastructure to the point of collapse.  Where is their collapse–those who take the money and run? Except for a very few, they get away with it scott free. You won’t hear any complaints from Swiss or off-shore banks. They love this system.
  
In all seriousness, aren’t the actions of these corporate pirates (by pirate I mean those executives who pillage and plunder) contrary to the best interests of all citizens? How many of us have been hurt by the collapse of AIG, Bear Sterns, JP Morgan, and the like? I maintain that lavish these executive compensations are a menace to the entire society, not just to their stockholders,  and since the corporate world is either unwilling or unable to control greed (Rule #6), it is up to the public, and by public, I mean the voters to correct it. I call on congress to initiate sweeping legislation for our protection. They passed laws to curb monopolies. why not make rules against legalized theft? Executive compensation should now be viewed as a public matter because the actions of the few can destroy the economy. We are experiencing the living proof of that right now. No one should be allowed that power. No one.

Written by Bill Ruesch blog author of Talking Through My Hat, A Print Broker’s Ruminations www.billprintbroker.com