[Fwd: Kudos and questions]

[Paul Prescod]

Jeff Bone wrote:
> 
>....
> 
> Sure, this is *an* analysis.  But a few things:  first, whether you think Dell's a
> smart guy or not, he's surrounded by lots of undeniably smart people inside and
> outside the company.  It would take a fool surrounded by fools to think you can "put
> one over" on your shareholders, esp. in a public company.

"Putting one over on shareholders" is a common meme. For instance there
is the constant controversy over managed earnings, the .coms that
swapped advertising and booked it as revenue etc. Are you declaring this
entire genre of journalism to be useless?

>...
> 
> The behavior that Tom thinks is despicable by Dell himself is assumed in other
> parties.  So what's the issue?  Is it the founder issue?  We don't flinch too much
> when non-founder CEOs do this kind of thing.  

The chairman of the board has a responsibility to set a compensation
package for the president that is as transparent as possible. i.e. cash
is preferable to options, all else being equal. The question of the true
value of options is complicated enough that there is a whole subthread
on it and that Warren Buffet has felt the need to express his opinions
on it. So -- all else equal -- it is more responsible for a company to
pay in cash, not options.

We tend to accept options because they align the president's interest
with the shareholders' interests. If the president's  interest is
already more aligned with the shareholders' interests than the president
wants it to be then why not just pay in cash? 

>...
> Tom's complaint (as you point out) seems to rest on the assumption that the
> shareholders Dell was allegedly trying to "put one over on" weren't the
> sophisticated, larger shareholders, but rather the unsophisticated mom-and-pops that
> own a few 10s or maybe 100s of shares.  

You have a lot of faith in the sophistication of larger shareholders.
Was it only mom and pop paying engaging in "irrational exuberance" these
last few years?

>...
> But Tom isn't doing right by the little guy in making these claims.  What Tom is
> failing to point out is that (a) this is an entirely open, public process with many
> checks and balances, 

Tom IS one of the checks. If the process is open then why would anyone
mind having Tom explore the implications in print?

> ... (b) it's impossible for Dell to "set his own comp" even though
> that's how Tom is painting the picture, as if Dell is somehow raiding the cookie jar,
> and 

It also not as if he is dealing with a bunch of strangers. It is highly
likely that Dell picked the board in the first place. Part of the
process of ensuring that the board respects the shareholder's rights and
not just Dell's is articles that examine its performance.

> (c) Tom doesn't point out the unknown, unquantifiable, and unbounded amount of
> risk to value that they would experience if the company didn't meet Dell's comp
> requirements and lost its eponymous CEO. 

I don't really think that it is Tom's responsibility to point out the
obvious. Would you argue that any article about CEO compensation should
include a sentence: "Oh and by the way, losing a good CEO would be a
major loss for the company and there is some chance of that happening if
compensation is reduced."

It is also questionable whether Dell would really leave the company that
he founded and that bears his name. After all, Tom claims that Dell was
more reasonable the next year with comp and he is still there. If that
is true (I haven't followed the company closely) then Tom's article may
have had exactly the shareholder-value-improving effect that he wanted
it to have.

>...
> I don't see how anybody but a complete moron with no understanding of the workings of
> the public market could've been "fooled" by anything that happened.  Anybody that
> could've been or would've been probably doesn't belong in the equity investments
> anyway.  More and more I come to appreciate the reasons for the SEC "qualified
> investor" rules.  Perhaps they should be expanded to include all equity investment
> activity rather than eliminated as I have previously argued.

Who are you and what have you done with Jeff Bone?

 Paul Prescod