[Fwd: Kudos and questions]

[Jeff Bone]

Paul Prescod wrote:

> "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?

I'm not to that point...  yet.

;-)


> 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.

Actually, it's the responsibility of the whole board, and is generally (a) actually
determined, negotiations conducted, etc. by a duly constituted compensation committee of
the board, and (b) is voted on by the whole board.  And though we've had this argument
before, I would suspect that CEO comp packages are one of the few items that generally get
unanimous consent.

> You have a lot of faith in the sophistication of larger shareholders.

I'm not sure how you came to that conclusion, but yes, I do think that it's reasonable to
expect better (more informed, more quantified) decisions most of the time from larger
shareholder viz smaller ones.

> Tom IS one of the checks.

Ahem.  I meant checks and balances with vested interests.  I don't know whether Tom is a
shareholder or not, so I don't know if he *is* one of the checks or not.

> If the process is open then why would anyone
> mind having Tom explore the implications in print?

I don't "mind" this, however let's be clear that there's a significant different between
having a vested interest in something and trying to sell copy / opinion.

> It also not as if he is dealing with a bunch of strangers.

So?

> It is highly
> likely that Dell picked the board in the first place.

Surely you actually understand the process by which boards are constituted and evolve or
time --- at least better than this implies --- right?  If you really believe this, then
sorry, I don't know that I can really work this one.

> > (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.

No of course not.  That would be objective, unbiased fact-based journalism rather than
sensationalist pot-stirring.

> 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."

No, I'm merely arguing that Tom, along with pointing out the dilutionary effect on
shareholders of option based comp, should explain to his more naive listeners that (a) this
isn't that uncommon, and is de rigeur for non-founder CEOs, (b) has very little absolute
effect on the value of their holdings, etc.  I.e., tell the whole story, not just the
angle.

> It is also questionable whether Dell would really leave the company that
> he founded and that bears his name.

Who are you to speculate about this?  I don't know whether he would or wouldn't, and like
you I doubt that he would --- indeed he didn't when he took action to shut down the
punditry --- but that's irrelevant, isn't it?  You have to examine the scenarios in all
their configurations.

It's very easy to armchair quarterback.  Lot harder to create and run a multibillion dollar
company.  Between Tom and Michael, or Paul and Michael, I'll give Michael's own decisions
the greater benefit of the doubt.

> 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.

Again, this is speculative.  Maybe Dell isn't in the office as much anymore because he's
improperly incented.  Maybe his heart just isn't in it as much, and he's not adding as much
value.  Who knows what effect this might have had on shareholder value?  Nobody does ---
and nobody can.

jb