Wall Street Managers, Vilified for the Financial Meltdown and Bonuses, are Baring Teeth
Civil War is not a term normally expected in a headline to come
from a conference of Wall Street big wigs. But there it was in The Wall Street Journal this morning: On Wall Street, Talk of Trust and Civil War, with an account of a Tuesday Future of Finance conference, organized by the paper.
The Civil War reference came from conference attendee Glenn
Hutchins, co-chief executive of private equity firm Silver Lake.
Washington and Wall Street, he said, are the equivalent of
Gettysburg and Antietam right now.... To point the finger at one group
means, No. 1, you're not understanding the problem, two, you're
stretching our social fabric thinly, and you're throwing the baby out
with the bathwater.... Trust goes both ways. Former Securities and
Exchange Commission chairman Arthur Levitt, also speaking at the
conference, said the public and political bashing of Wall Street has
become an issue of 'we' and 'they.' ... Compensation is a part of it,
but a symbolic part of it. We are a centrist nation.... We're now
shifting to the left pretty far in terms of business-bashing and it has
reached extremes of incivility that are intolerable.
And in an eye-opening op-ed article for The New York Times,
Jake DeSantis, an executive vice president of the American
International Group’s financial products unit, shared the letter of
resignation he had sent to AUG's government-appointed overseer, Edward
M. Liddy. I am proud of everything I have done for the commodity and
equity divisions of [AIG], DeSantis wrote. I was in no way involved
in -- or responsible for -- the credit default swap transactions that
have hamstrung AIG. Nor were more than a handful of the 400 current
employees of AIG. Most of those responsible have left the company and
have conspicuously escaped the public outrage. DeSantis wrote also
that, like Liddy, he had agreed, out of a sense of duty to the company
and to the public officials who have come to its aid, to work for an
annual salary of $1. He and his colleagues were told they would be
rewarded with bonuses -- apparently in lieu of the salary -- in March
2009. Because of government efforts to reclaim the bonuses in the face
of widespread public outrage, DeSantis wrote: ...we in the financial
products unit have been betrayed by AIG and are being unfairly
persecuted by elected officials. In response to this, I will now leave
the company and donate my entire post-tax retention payment to those
suffering from the global economic downturn. My intent is to keep none
of the money myself.
Has the public's animus toward leadership on Wall Street and the
rest of the financial sector become an unfair witch hunt? That's a
difficult and complicated question, said Wharton finance professor Mauro Guillén, who directs Wharton's Joseph H. Lauder Institute for Management & International Studies. Generally,
Guillén said, he cares little about the size of executive bonuses. More
important, he suggested, is the structure of the bonus: What in the
time period in which an executive's performance is measured, and what
are the metrics on which performance is gauged?
But when the taxpayer is a major shareholder, Guillén noted, other
factors come into play. Bonus obligations to executives at any
government-rescued company should have been and should be closely
scrutinized by the government officials leading the rescue. Even when
bonuses are awarded based on the most appropriate criteria, it's going
to rub people the wrong way when on the one hand, you have taxpayers
seeing their money go into a company and, on the other hand, bonuses
are being paid to company executives.
When the bonus contracts have been reviewed and approved by
government-appointed overseers at rescued companies, said Guillén,
obviously the rule of law is very important.... Respecting contracts is a very important thing. Without them, we'd have a real mess.