This is exactly what’s wrong with big business

by Sunny Bindra on October 22, 2012 · 5 comments

in Business Daily

“Air carriers may be flying through rough weathers, but their top executives have got handsome pay hikes, including the Chief Executive Officer (CEO) of crisis-ridden Kingfisher Airlines, who has emerged as the second-highest paid among all his peers at the Vijay Mallya-led UB Group.

Among the country’s three listed airlines also, Kingfisher CEO Sanjay Agarwal’s pay package was the second highest in the last fiscal ended March 31, 2012, as per the remuneration details provided in their annual reports.”

www.ndtv.com (8 October, 2012)

A few weeks ago I highlighted the precipitous decline of Kingfisher Airlines, India’s once-high-flying carrier, on this page. Since then things have only got worse for the stricken airline. It is now grounded, after staff unrest, bouncing cheques and worse. As I write this, India’s civil aviation minister has warned that the carrier faces imminent cancellation of its license. (Note: the license was subsequently suspended)

Everyone involved in Kingfisher has suffered for quite a while: its employees, its customers, its shareholders, its partners, its suppliers. All except, wait for it, one key element of the ecosystem. The clue is in the excerpt shown. Yes, that’s right, amidst all this turmoil, the airline’s CEO actually received a pay hike.

I have spent much of my life working with, or thinking about, big business. There are days when I still wonder when this has been a sad waste of time. I feel great passion for businesses and businessfolk being better and doing better. But way too many of them have no interest in the nobility of enterprise. They merely want to line their own pockets at every opportunity.

The report quoted revealed that the Kingfisher CEO’s remuneration doubled from 2010/11 to 2011/12, to the equivalent of more than KShs 60 million.

In other news, Rebekah Brooks, former chief executive at the beleaguered News International group, may have received as much as £7 million as a payoff for resigning last year (let’s not even translate that into shillings). This for a lady who presided over the worst newspaper scandal in recent history, involving rampant law-breaking and unforgivable invasions of privacy.

In yet other news, Vikram Pandit quit as head of Citigroup this week. Or was pushed, depending on whose reports you believe. Details of his sendoff package have yet to be revealed, and I am not looking forward to knowing. But we do know that Pandit joined Citi after selling his hedge fund to the group for $800 million in 2007 – and said fund was shuttered by Citi the following year. We do know that during his tenure, Citi’s share price lost nearly 90 per cent of its value. And we do know that he may have nonetheless earned north of $200 million in his time at the big bank. Again, no currency translations necessary.

Yes, yes, CEOs, I know. These executives may not have been responsible for the declines in their businesses; they have been doing their best in testing times; companies have to pay competitively or lose talent, blah blah. Tell it to the birds.

For me, business life is rather simple. If you create great value for everyone, you should receive great value in turn. If, through your own failings or not, you bring your corporation to its knees, you have no business escaping with millions and billions. You suffer alongside everyone else.

Sadly, only the Japanese seem to understand this principle. Only they require executives and directors to take pay cuts when staff are being asked the same. For most others, business is one big crap shoot. Throw the dice, maximize your take, and get out grinning with your cronies giving you high-fives.

No wonder truly great business leaders and truly great businesses are thin on the ground.

See you on this page next week. Perhaps I’ll remember again what the cause is.

Related posts:

  1. How a flamboyant airline fell to earth
  2. When the founder becomes the problem in the business
  3. Bankers beware: a new era of regulation looms
  4. Danger always lurks in the procurement function
  5. To really understand a business, don’t talk to the CEO

{ 4 comments… read them below or add one }

1 mmnjug™ October 22, 2012 at 7:06 pm

The same case happened at Kenya Airways. Pay hikes for CEO and top management as workers were being sent home! Very unfortunate.

[Reply]

2 Kimenyi Waruhiu October 22, 2012 at 7:07 pm

Mr Bindra

As always, a great read. I think that exit-pay machinations haven’t truly hit us in Kenya because our ‘big business’ is hardly in the league of that seen elsewhere – even other third world countries like India.

However, we’re a growing economy, and few places in Africa are enjoying our rate of growth; the relative size of our economy meaning that even in low growth years, we expand so much more than our regional neighbours. As our economy and businesses grow, with it will come the inevitable mischief.

Recent big paying exits that made news in Kenya – Koome Mwambia’s high profile and shrewd (and well deserved, it should be added) exit from Ogilvy East Africa being a case in point (KES 20 million + 3 million ScanGroup shares – http://goo.gl/ofon4) – indicate exit-pay becoming significant. As you point out, it’s only a matter of time before the crap shoot you so aptly describe starts happening. Let’s hope that the crap players (pun intended) take a while to cotton on.

Kimenyi

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3 Adam October 23, 2012 at 2:29 am

This is the story of our time. So little is appreciated of the historical confluence of our societal and ethical breakdown all around us and the global debasement of money. Seen in that timely context, one can understand and somewhat better digest the ubiquity of the conflicts of interest, the moral hazards, and the “privatized-profits-while-socializing-losses” business models that seem rampant in our corporate landscape. We live in a time of “frenzied finance” as Thomas Lawson would say. His book, “Frenzied Finance” written in 1909 echoes the familiar complaints of a financial system rotten and plagued with just the sort of conflicts of interest that we now deem as normal in our society. In our business environment, replete with all the legal and financial machinations and semantics at our disposal, whether it is provisions within the corporates’ limited liability status or other measures taken to guarantee protection for management’s personal assets from any probable negative outcomes; companies, like the Kingfishers and the Enrons, unabashedly occupy our stock exchanges and the private holdings in much greater numbers than ever before. Confidently brandishing “AAA” credit ratings and supposedly “clean” audit reports from similarly compromised businesses, whose very business models involve furnishing objective evaluations (with huge economic implications in the markets) from the very customers responsible for their compensation. Moreover, just a brief survey of the histories of the big banking houses in the world today, would retrospectively demonstrate their purposeful embrace and transition over from partnerships into the corporate form, and how that naturally made way for the concurrent divergence between their managements and their shareholders’ interest. Suffice it to say, the other industries were not ones to be left behind.

In 2010, a Washington Post article by Jim Grant, my favorite Wall Street commentator, eloquently echoed similar sentiments in relation to his suggestion for financial reform for bankers. He says, “The trouble with Wall Street isn’t that too many bankers get rich in the booms. The trouble, rather, is that too few get poor — really, suitably poor — in the busts. To the titans of finance go the upside. To we, the people, nowadays, goes the downside. How much better it would be if the bankers took the losses just as they do the profits.” Well, there’s no argument from me. Problem is, this is happening everywhere and in every sector and in every country. Some would cite that as a coincidence, but I would politely disagree.

These several cases of corporate malpractice and malfeasance just over the past 10 years alone suggest a deep problem of global epidemic proportions. It’s the story of modern finance and money. The very fact that our society, and most ashamedly our economic intelligentsia and business men alike, regard money as a noun rather an adjective should serve as a warning sign of the level of influence a couple of decades of a globally orchestrated monetary debasement can effect on societies. We all think short-term, we all want fast cash, we all want to be rich in money terms yet we don’t know why. We confuse more money with progress. We don’t question why a million in any currency just doesn’t cut it anymore. Our ability to make a distinction between creating wealth and making money has been lost, just as it did for French during John Law’s period and just as it did for Americans during the 1920s. We now rush to accumulate money rather than wealth. Unfortunately this is the case among all levels of society and not just the Kingfishers and the Enrons.

Thank you Sunny for bringing this problem it to the fore. This topic definitely hits a nerve with me.
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/22/AR2010042204208.html
http://www.charlierose.com/view/clip/12003 ( the late Ted Forstmann’s wise diagnosis of the times)

[Reply]

Sunny Bindra Reply:

Adam:

Money is not progress and money is not wealth. Agreed wholeheartedly.

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4 Larry Mvoi October 23, 2012 at 9:42 am

Spot on! Well our politicians have learnt the same including civil servants its appalling that they earn such huge salaries none of there jobs rate such payments and even the standard of living doesn’t justify it …they could live well enough earning 200,000 ksh to 300,000 ksh and not the Millions of shillings they are earning no wonder our rate of inflation is not getting better nor our taxes going down the masses feeding the few ..I pray that God gives them a conscience and shame for there undeserved pay and greed

[Reply]

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