Not Just M?nterfering

A self-proclaimed lifelong conservative and executive in the US financial industry doesn’t like what he sees around him in corporate behavior much more than Franz M?nterfering does:

Delving into the compensation of Viacom executive Tom Freston, who received a $16 million bonus last year while Viacom’s stock fell 18%, [Wm. F. Buckley] writes:

“Mr. Freston is based in New York. But from time to time, business requires him to be in Los Angeles ? where, as it happens, he also has a home. On those nights does he take hotel rooms? Ample hotel rooms, understand. No. He just charges the company what he thinks is appropriate to pay him for using his own home. In 2004, this amounted to $43,000. He is evidently a man with simpler habits than the Los Angeles-based Mr. Moonves’s. He does the same kind of thing, he has his own home in New York, but what he charged the company for the nights he spent in New York was $105,000.”

And the money quote:

“That money was taken, directly, from company shareholders. But the loss, viewed on a larger scale, is a loss to the community of people who believe in the capitalist free-market system. Because extortions of that size tell us, really, that the market system is not working ? in respect of executive remuneration. What is going on is phony. It is shoddy, it is contemptible, and it is philosophically blasphemous.”

Bingo. What’s incredible is that the examples WFB cites are far from extraordinary. Because of my job, I’ve had a front row seat to these ongoing outrages for many years, and some of what I see is stunning. One very small company I follow announced a “stock buyback” of 2 million shares; the buyback took place, with the company buying 400,000 shares from the public and 1.6 million shares from the personal account of the CEO, who then put the proceeds of that sale into his own wallet. The same company also announced a “cash dividend” to be paid to all stockholders. The largest stockholder? You guessed it–the CEO, who owned about 50% of the stock and thus received the majority of the dividend straight from the company’s coffers. All this, despite a stock price that had declined about 95% from its high of the past few years.

It’s not just outrage about this abuse or that egregious action, it’s a systemic critique.

One of the essential facets of capitalism is trust. Capital markets, the counter-party system and free trade cannot exist in an ethical vacuum; there must be an underlying pillar of public trust for the system to function effectively and to be sustainable. Trust is hard-won and easily lost; it springs from an underlying atmosphere of ethics, common sense, and proportion regarding issues such as executive compensation and corporate conduct. Without trust, a nation’s economic system falters, its citizens become cynical and jaded, and its enemies gain fuel.

Capitalism, as has long been known, is too important to be left to the capitalists.

It speaks volumes that the most important enforcement activity has come from New York State Attorney General Eliot Spitzer, a Democrat. While he’s motivated partially by political ambition, Spitzer recognizes the threat to our financial system and is acting appropriately–in the absence of a vigorous SEC, NASD, and Justice Department, and to the chagrin of Wall Street’s laissez-faire pollyannas.

There are values external to the market that are essential for the market to function. And it’s not just M?nterfering who’s right to call attention to this fact.

3 thoughts on “Not Just M?nterfering

  1. I think the problem is that few would disagree with this.

    I don’t imagine anyone is arguing that there aren’t problems to address in corporate behaviour: that would be Dumkopf :). As I said somewhere else ‘deregulation doesn’t mean no regulation’ and following Edward Heath there is an ‘unacceptable face of capitalism’. This is why we need laws, this is why we need regulators, and this is why, contra Grass’s worst fear we need Parliaments to do the controling.

    Hans Eichel has just said that the activities of hedge funds should be investigated. This seems sensible to me. They are a relatively new phenomenon in Germany and there may well be ways in which the legal situation can be tightened up: eg TCI seems to be registered in the Cayman Islands. You could look at the question of the so called ‘fiscal paradises’.

    You could also look into the activities of people like Seifert and Breuer – especially Breuer’s activities at both Deutsch B?rse and Deutsch Bank – to see if there are lessons to be learned.

    Also the growing disparities in earnings between workers and directors, or the rapid rise in corporate profitability, seem to be causing concern. Again there are traditional and effective methods available: parliamentary committees, commissions of enquiry, legislation, tax instruments etc.

    All of these constitute part of the quiet, daily activity of managing a complex society: few headlines here.

    What has preoccupied so many about M?nterfering is that he has approached these issues in highly emotive terms, in a way which suggests he is looking to make political capital.

    Further these are *not* core issues in terms of the painful reform process that Germany is going through. Getting these regulations right won’t resolve the longstanding economic problems.

    So those of us who have ‘wicked’ imaginations could think that this is being raised in the way it is as a ‘smokescreen’ to get away from the real issues.

  2. What has preoccupied so many about M?nterfering is that he has approached these issues in highly emotive terms, in a way which suggests he is looking to make political capital.

    Oh yeah. I had essentially assumed he was looking to make political capital. I’ve forgotten whether the original remarks were prepared or off-the-cuff, but I always read them in the context of the NRW election. (Just like I see the whole ‘visa-affair’ as an attempt to dent Fischer’s personal popularity in the long run-up to the 2006 national elections.)

    Further these are *not* core issues in terms of the painful reform process that Germany is going through. Getting these regulations right won’t resolve the longstanding economic problems.

    Also true. Could this, though, be the spoonful of sugar that helps the medicine go down? (Even if it’s not the most delightful way…)

    So those of us who have ‘wicked’ imaginations could think that this is being raised in the way it is as a ‘smokescreen’ to get away from the real issues.

    What do you think this is, one of the later Kohl governments? 😉

  3. Some points on M?ntefering. It’s exactly the language and ideas of the thirties, yes. “Heuschrecken” / “locusts” is how Jews are called in the Nazi film “Jud S??”. M?ntefering is not interested in a debate. He is the head of a party that is desperate – they didn’t achieve anything, because they lack completly any idea and strategy. Germanys problem: how can we adapt our system to global economy? All the neighbours are successfull in doing it. Instead of proposing a strategy, M?ntefering is using a highly yenophobic and nationalist (“good” German enterpreneurs versus bad “international” capital) language, the same archaic anti-western language that neo-nazis and radical lefist alike are preaching since years.
    To discuss the order of the market economy is not what M?ntefering is interested in. Its pure demagogy, and really the worst of it. We – at least we in Germany – should not accept this kind of scapegoat-policy. To be clear: nothing against a serious discussion on capitalism. But neither M?ntefering nor Grass are discussing the issues. They just using archaic demagogy.

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