|Bad Bosses: How Inept Execs Got Away With Mismanagement and Scandal In 2012|
By AOL Jobs DEC 11, 2012 11:10 AM
A look at the corporate leaders who got fat bonuses stapled to their pink slips.
This article was written by David Schepp and originally appeared on AOL Jobs.
Companies lay off vast numbers of workers with such depressing regularity that you may not have noticed the announcement. Last week Citigroup Inc. (NYSE:C) said it would lay off 11,000 workers worldwide, citing a need to reduce expenses. Yet, at the same time, the company revealed that it gave top execs hefty "incentive awards," including $6.7 million to Vikram Pandit, Citi's former CEO.
The bank, which disclosed the payment in a regulatory filing Friday, also paid its former chief operating officer, John Havens, who left Citi last month along with Pandit, $6.8 million. As The Associated Press reports, the executives will get 40% of the money right away, and the rest will be paid in installments through 2017.
The company said Pandit and Havens will continue to vest in deferred stock and deferred cash incentive awards previously granted to them. Those were worth $8.8 million for Pandit and $8.7 million for Havens.
The outsized payments to the Citi execs aren't isolated examples. Numerous other leaders at other companies who presided over huge financial losses, disasters or other mismanagement, have escaped job loss, criminal charges or steep fines -- the kinds of punishment deemed appropriate in such failures.
In fact, some also walked away with golden parachutes worth millions of dollars, and found new and sometimes even better jobs.
The regularity with which such instances occur raises important questions: Why aren't executives being held accountable? Are the financial reforms that were put in place by Sarbanes-Oxley in 2002 to protect shareholders and the general public from accounting errors and fraudulent practices a failure?
Nell Minow, a longtime shareholder advocate and corporate governance expert, believes the reforms are too weak. They "haven't done very much to discourage illegal behavior," says Minow, founder of GMI Ratings, a firm that publishes risk ratings for public companies based on factors that include governance.
There is ample evidence of a lack of accountability, exemplified by the increasing disconnect between pay and performance at the highest levels of corporations, Minow says. What's more, executives in the corporate world are held to different standards than their counterparts in government.
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The example of former CIA Director David Petraeus is proof of that, she says. On November 9, the same day that Petraeus resigned his post after it was revealed that he had an affair with his biographer, incoming Lockheed Martin Corp. (NYSE:LMT) CEO Christopher Kubasik was asked by the company's board of directors to resign for having a "close personal relationship" with a subordinate at the defense contractor. Kubasik acquiesced, but otherwise walked away from the incident unscathed while also receiving a $3.5 million separation payment.
Meanwhile, Petraeus faces possible charges should ongoing investigations turn up evidence that the former four-star general began his affair with Paula Broadwell prior to his retirement in August 2011, Military.com reports. Petraeus, who served in the military for 38 years, is entitled to a pension of about $220,000 per year, according to CelebrityNetWorth.com.
Maximum punishment for military officers found guilty of adultery is dismissal from the service, forfeiture of all benefits, including pensions, and imprisonment for up to a year, Yale Law School military-law expert Eugene Fidell told Time.
And the double-standard is especially evident within companies. If a middle-level executive had violated Lockheed's ethics polices in the same way that Kubasik reportedly did, "he would not get a $3.5 million payout," Minow says, even though some federal rules require companies to enforce ethical standards equally at all levels.
Minow says the disparate standards between company and government officials may stem from Americans' impatience generally with the pace of government. Additionally, she says, "It may be that we feel a more personal and direct connection with government officials who work for us."
Still, even critics like Minow concede that corporate governance is much improved from 25 years ago. And that, says Patricia Harned, president of the Ethics Resource Center, a nonprofit research organization based in Arlington, Va., is proof that corporate executives are indeed being held accountable for their actions.
"We certainly see CEOs who are being removed from their positions because they've had morality challenges or they haven't actually accomplished what is required of them as a leader," Harned says.
Corporate executives are also being held accountable by shareholders and public opinion. "CEOs can certainly take a beating from the public when there's not satisfaction with their performance," she says.
Further, there's a stronger tone from officials in Washington these days, Harned says, "in terms of their desire to hold individuals accountable, if there's criminal activity that's taking place in a corporation." The debate about whether US laws governing corporate governance are too lax or not is likely to go on, especially in light of these recent examples of company executives who oversaw scandals and didn't pay the price: