Old School CEO's
This week, Warren Buffett wrote an op-ed in the New York Times criticizing not the "outright crookedness" of Enron and WorldCom, but the "flagrant deceptions" perpetrated by CEO's all over America. One such deception he cites is CEO compensation with options and the assertion by many CEO's that these options do not incur a cost to the company:
For these C.E.O.'s I have a proposition: Berkshire Hathaway will sell you insurance, carpeting or any of our other products in exchange for options identical to those you grant yourselves. It'll all be cash-free. But do you really think your corporation will not have incurred a cost when you hand over the options in exchange for the carpeting? Or do you really think that placing a value on the option is just too difficult to do, one of your other excuses for not expensing them? If these are the opinions you honestly hold, call me collect. We can do business.
The whole piece
can be found on the New York Times site, but they require registration and charge a fee for old articles.
I've read some of Buffett's letters to his stockholders--they are exceptionally clear, explanatory with a nice blend of wit and charm. Here's a quote from his 2001 letter:
Another of my 1956 Ground Rules remains applicable: "I cannot promise results to partners." But Charlie and I can promise that your economic result from Berkshire will parallel ours during the period of your ownership: We will not take cash compensation, restricted stock or option grants that would make our results superior to yours.
Additionally, I will keep well over 99% of my net worth in Berkshire. My wife and I have never sold a share nor do we intend to. Charlie and I are disgusted by the situation, so common in the last few years, in which shareholders have suffered billions in losses while the CEOs, promoters, and other higher-ups who fathered these disasters have walked away with extraordinary wealth. Indeed, many of these people were urging investors to buy shares while concurrently dumping their own, sometimes using methods that hid their actions. To their shame, these business leaders view shareholders as patsies, not partners.
Check out the whole letter
at Berkshire Hathaway's site
(be sure to read about the MiTek acquisition).
If more CEO's would sound like this and less like whining "I didn't do it" babies, and back up their claims with action, then I believe they would bring the average investor back in the market (to their own benefit).