Gold News

CEO Excess, Facebook-Style

Zuckerberg isn't alone in crazy spending...

WHY do publicly traded companies have a Board of Directors? asks Jody Chudley in Addison Wiggin's Daily Reckoning.

The answer is to represent and protect the interests of the shareholders who collectively own that company.

A key responsibility of the Board is appointing a CEO to run the company for shareholders and then monitoring the job that the CEO does.

Unfortunately, quite often the Boards of our publicly traded companies act as little more than "yes men" to the CEOs that they are supposed to be keeping an eye on.

The result is a massive waste or misappropriation of cash that belongs to shareholders.

Examples of this happening are endless...

I don't know if you've heard, but apparently Facebook isn't all that worried about protecting your information.

Approximately 87 million people whose data was illegally used by Cambridge Analytica know all about that...

However, when it comes to CEO Zuckerberg, security is another matter entirely.

Facebook's proxy statement recently revealed that in 2017 alone, the company spent $8.8 million on Zuckerberg's security and travel.

I feel like you could hire the entire roster of UFC fighters for a year and spend less.

Compare that $8.8 million to the $317,000 that Apple spent on security and travel for CEO Tim Cook, and you can't help but think that Facebook's Board of Directors needs to start asking some questions...

In 2008, the financial world was falling apart and Merrill Lynch was falling apart along with it.

John Thain took over as Merrill Lynch's CEO early in 2008, well aware that the company was in major trouble.

His first order of business – to remodel his office to suit his specific tastes, of course.

After flipping through a few catalogues he decided what he wanted. The cost of the remodel came in at $1.2 million.

Included in the $1.2 million remodel was:

  • A $1405 trash can
  • A comfy $87,000 rug
  • A George IV chair for $18,468
  • Curtains for $28,981
  • A pair of guest chairs for $87,784

In any environment, this is obviously a terrible waste of shareholder cash. But in the middle of the financial crisis – when the company's survival is in question – this is beyond unbelievable.

Merrill eventually was taken out by Bank of America for peanuts at the bottom of the banking collapse, while Thain was released from duty after it was revealed that Merrill had lost $15 billion in Q4 of that year alone.

I hope he got a few naps in on that rug before he left.

In the past decade, it's hard to beat the former Board of Chesapeake Energy for negligence in its duty to shareholders.

The Chesapeake Board let CEO Aubrey McClendon do anything that he wanted.

Let Aubrey use Chesapeake accountants and engineers for $3 million worth of personal work?

No problem.

Spend $108,000 on a private jet that McClendon's family took for a European vacation?

Sounds reasonable.

Buy a $12 million antique map collection from Aubrey because he needs cash to make a margin call?

Okay.

McClendon knew what he was doing. He had the Chesapeake Board stacked with his friends and he showered them with compensation and perks. Chesapeake's bank accounts were there for whatever McClendon wanted to use them for.

As investors, these are the types of companies we might need to stay away from.

Publisher of Agora Financial, Addison Wiggin is also editorial director of The Daily Reckoning. He is the author, with Bill Bonner, of the international bestsellers Financial Reckoning Day and Empire of Debt, and best-selling author of The Demise of the Dollar.

Addison Wiggin articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

scri

Market Fundamentals