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Rel228weekfive - REL 228/MGT 228 Business Ethics and...

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REL 228/MGT 228 Business, Ethics, and Society Prof. Douglas Lamont WEEK FIVE: LECTURE/DISCUSSION Theme for the week: Corporations are social institutions. If they don’t serve society, they have no business existing. The changing role of corporate governance in the life of American capitalism. Henry Mintzberg, professor of management at McGill University, Montreal, Quebec, Canada. I. An emasculated government and social sector has resulted in untrammeled corporate power and widespread corruption . Enron is the tip of the iceberg. The cult of shareholder value has given top executives license to do as they wish and they show little sign of changing. Base salaries at companies rose 8.3% in 2003, to an average of $818,000 for top executives. Annual bonuses climbed 13% to $1.06 million. But the median value of stock options that were exercised surged 53% to $8.3 million. Executives get about one term in office, sometimes two, and that leads to a strike-it-rich mentality. Executive compensation is the hot button going forward. Michael Eisner and his fellow CEOs are boys in a luxurious bubble. Coddled and controlling CEOs still don’t think they need to change their mercenary ways. Now that Eisner is out as chairman of the board his continued role as CEO becomes a game close to a spectator sport. Disney was paralyzed because everyone was afraid of making a decision until Michael Eisner weighted in. Disney is too large to be micromanaged. Eisner was responsible for the Jeffrey Katzenberg and Michael Ovitz fiascos. The former was not made president and given the number 2 job at Disney. The latter left after 18 months with an enormous severance package: $38 million in cash and shares valued at around $100 million. Some say he should get back on the horse and make Disney a performance leader once again; others say he should take his money and leave quietly or be driven out of town with pitchforks. Corporate governance . Irregularities in executive compensation ( Disney, Hollinger, and MBNA) , cozy relationships with investment banks ( Parmalat and Bank of America) , fraudulently favorable research on stocks ( Merrill Lynch) , and conflicts of interest ( Tyco and Adelphia) . Need for independent boards of directors . Charles M. Cawley and MBNA . Cawley earned $50 million in 2002 and 2003. He was an imperious CEO, and directors were alarmed by the post-Enron call for accountability. Cawley was behaving as if he were still running a private 1
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company: He borrowed two of MBNA’s jets to ferry a group of friends to Spain and Italy.. He used $3.5 million of MBNA’s money to buy a painting from Andrew Wyeth. He took his executives to MBNA’s hilltop campus in Maine for a private meeting that cost the company $1 million. The board of directors resisted his executive compensation plan for 2004, and he retired with an undisclosed consulting fee, two full-time personal assistants, and access to the company’s planes for him and his wife for the rest of their lives. The relationship between the credit king and the board of directors had changed.
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