Yahoo Redux: Avoid Companies with Overpaid, Misbehaving CEOs

Rob Enderle

Last week, I argued that Yahoo's CEO should step down. My old friend Dan Lyons over at The Daily Beast defends Scott Thompson, the CEO of Yahoo who apparently falsified his background, this week and thinks "Resumegate" should be put to bed. He argues it is old news and, after all, the CEO of the decade, Steve Jobs, hardly ever told the truth.

 

While this reminds me never to have Dan testify on my behalf - "Sure he is guilty but there are others who are guiltier!" - it also points to a common governance question on whether CEOs should be held to the same rules as the rest of the employees. Given CEO compensation appears to be out of control, maybe it is time to take another look at this question of CEO overcompensation especially since there is a major push to make companies disclose just how much they are overpaying their top executive.

 

Certainly we have seen companies put in place austerity measures requiring employees cut back while they bought themselves bigger private jets. I've seen CEOs date subordinates in firms that have outlawed that practice, and in security I regularly saw CEOs violate security process in order to make things more convenient for them. And clearly CEO salaries often appear to go up even though the CEO makes a catastrophic mistake. Just look at the big blunders from last year; even though some CEOs did step down, often it was with multi-million-dollar platinum parachutes. Even when they do get penalized, often it seems like a slap on the wrist against the mistake that was made - look at this Netflix example.

 

Of course, there have been amazing catastrophes like Jon Corzine, who apparently misplaced $1.2 billion and apparently wasn't held accountable. While the cause is often described as a lack of independence by company boards (I might also argue it is from a lack of skills or ethics), the result can be a problem vendor/employer and one that you might be better off avoiding.

 

Looking at a comprehensive list of company scandals (many recent) you can see that bad behavior by top executives often appears to be more the standard than the exception and those punishments often look a lot like rewards. (This list also showcases that CEOs who misrepresent their backgrounds are generally asked to resign). By the way, a current poll showcases that most think the Yahoo CEO should be fired, an opinion apparently shared by Good Morning Silicon Valley.


 

Royal CEOs: More Like Spoiled Children than Corporate Leaders

 

Privilege is often cross-purposed to leadership and leadership is critical to a successful CEO. While perks like huge salaries, big limousines, private jets and exclusive boondoggles do contribute to status, they can also separate the leader from his or her employees and customers by a significant enough gap to become a problem. However, the biggest issue is that a CEO by nature is a leader and if he or she treats company assets as personal resources, employees are likely to emulate that behavior.

 

Padding expense reports, using company equipment in unauthorized ways, having affairs with subordinates and taking advantage of the firm often starts with behavior at the top and is the result of bad examples being set by the chief executive.

 

And, of course, when a CEO finally does get caught crossing the line, the result can be catastrophic for him/her and for the company. HP was badly damaged by Mark Hurd's alleged HP-funded dates of a subordinate and Best Buy's recovery was put at risk by its CEO's similar alleged misbehavior.

 

All of this puts jobs at risk at the firms impacted by this bad behavior, cripples their ability to execute plans that the now departed CEOs started, creates leadership vacuums, and makes employees, customers and investors skeptical of executive leadership and the quality of corporate governance.

 

All of this stuff seems to come from practices that place CEO compensation and perks at such a high priority that CEOs feel they can do everything and then get canned when they eventually find out they can't.

 

Now think about all of the people who have done business with these fallen executives, deals now in question, audit teams who are wondering if they are part of the scandal, wives who are wondering if their husbands are also messing around. Life is just too short.

 

Wrapping Up: Choosing a Vendor/Employer

 

Now I doubt if a Best Buy customer is badly troubled by the company's CEO issues, but I know that HP customers were very upset with Mark Hurd's antics (eventually HP was able to overcome much of this) and there lies the issue: If you are doing business with a major vendor and the relationship is strategic, consider looking at how they treat their top executive. If there is a massive compensation gap between a CEO who is living like royalty and employees who are living like serfs, if he has a girl on each arm and isn't married to either of them, if he seems to burn through money like it was toilet paper, then consider how he will be with your assets, how you'll have to explain yourself if and when these CEOs eventually get shot, and what your plan be will be if the problem cripples the vendor because of some discovered financial or personal scandal cover-up.

 

In short, perhaps we should look at the companies we work with from the top down and choose to let the problems associated with excessive executive compensation and executive royalty land on someone else's desk by choosing another vendor. And by doing so, perhaps we can push back on this trend of excess before it cripples our own company and forces us to seek premature re-employment.

 

While some do argue this practice of excessive compensation is destroying the country, at least you can work to make sure it doesn't destroy you or your company. And if more of us did that, maybe much of the problem would stop being a common practice.

 

Working for or with an ethical company has its rewards. Ethics start at the top and excessive compensation appears to be ethical kryptonite. Investors may want to avoid these firms as well. Something to think about.



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