I’m a Tucson Arizona lawyer (business, real estate and probate law) and a Licensed Fiduciary (Personal Representative, Trustee and Guardian/Conservator). I also spend part of each day volunteering and helping raise money for good causes. At night I write!

Thursday, December 25, 2008

Isaac Toussie

Isaac Toussie is hardly a household name in our country, but he's getting his 15 minutes of fame as a result of a pardon taken back. Mr. Toussie was convicted in 2001 and 2002; both convictions related to fraud arising out of home loans to poor people. Apparently, the pardon was granted before the White House knew Mr. Toussie's father had donated $28,500 to the Republican Party and $2300 to John McCain. (These donations would mean less if Toussie pere had been a regular donor to Republican causes; apparently, he wasn't.) Allegedly, when the President learned about the donations, he said: "not on my watch."

The people who talk and write are in an uproar, comparing this event to the Marc Rich pardon at the end of the Clinton Administration and other pardon scandals. (With the nomination of Eric Holder--who played a role in the Rich pardon--to be Attorney General, the Rich situation was already getting plenty of attention.) Lawyers are debating the right to withdraw a pardon, referencing a case from the 1860s and debating the interplay between the Constitution and a pardon "bureaucracy" the Constitution never contemplated. Others focus on the political aspects, with one observer believing Karl Rove must have played a role in the "do over," as message control hasn't been what it was when Mr. Rove ran things.

With respect (the commentators get paid to comment and I don't), the noise machine is missing the point. Who cares, really, that the Bush Administration is mopping up a mess less than four weeks before Barack Obama takes over? And, while the legal issues are interesting, Mr. Toussie has already served his sentence and, thus, who really cares if he goes through life as a convicted felon or not?

The real issue here relates to priorities. This Bush Administration has been more parsimonious with pardons than any recent President who served more than one term. (Ronald Reagan used the power rarely, as compared with his predecessors, yet he granted more than twice as many pardons and commutations as has President Bush.) Yet the powers that be decided, in the face of what looks like the worst financial crisis since the Great Depresssion, to pardon a man whose crimes relate directly to the primary cause of the fix we're in: the housing bubble and dishonest lending. Mr. Toussie roped poor people into bad loans with lies and, to make matters worse, they got houses that were falling apart. Bear in mind, in all of this, that he was prosecuted by the United States of America while the Bushies were in charge. This guy must have been a bad dude to be noticed by an Administration committed to the free market and caveat emptor.

In sum, the noise about withdrawing a pardon dominates, while we really ought to be asking this question: Why, with a group of people in charge who see little reason to forgive anyone, did someone/anyone think Isaac Toussie deserved a Presidential pardon?

Wednesday, October 8, 2008

I wrote this essay in the summer of 2007, when corporate greed seemed like not much more than an irritant. Now, knowing what we know about the recklessness on Wall Street that went hand-in-hand with the greed, and now that we know the greed involved truly unfathomable sums of money, the essay seems quaint to me.

Does it seem like there’s an awful lot of “me” and not much “us” in the world today? People rally around when there’s a crisis, of course, but those situations pass quickly and people move on. Where’s the follow-through? And, in normal times, where is the concern for others? And the shame?

Imagine yourself as the Chief Executive Officer of a public company. You are a man. (Only 10 of the 2006 Fortune 500 companies had female CEOs.) You are well-educated. Tall. (In 2005 the average Fortune 500 CEO was 6' tall, 3 inches taller than the average American male. 90% of corporate CEOs are of above-average height.) Middle-aged. Advantaged in every respect, even if you might have come up the hard way. Oh, and rich! How rich? Rich beyond the dreams of Croesus.

According to the Economic Policy Institute, in 2005 the average CEO of a public company earned just less than $12,000,000 per year. That is a sum 262 times greater than an average worker’s wages (and 821 times more than a minimum wage worker’s wages.) Think for a moment about this disparity. In a 250 day work year, the CEO earns the average worker’s annual salary in less than a day, and the minimum wage worker’s annual income in less than 2-½ hours. Before he’s gotten through the e-mails that piled up over the New Year’s weekend, the CEO has earned more than the night watchman will earn in a year.

This disparity has not always been a part of our economy. In 1965, the average CEO earned 24 times more than an average worker. That CEO had to work until January 15 to exceed his average worker’s annual salary.

As a CEO your income will come from multiple sources. Your salary will only represent a small share of everything you make. Stock options will provide the bulk of the total take. Of course, some of this money is dependent on the company’s performance, as stock options only have value if the stock reaches a certain price. So you’ll only get paid if you perform, right?

Well, sort of! Your workers will generate the profits, with the guidance and smart moves that may be your contribution. Or, maybe, you’re a guy who’s simply smart enough to stay out of the way. Regardless, if we blame you when things go wrong we should credit you when they go right, right? In principle, sure, but it’d be nice to see more companies blaming the boss when things go badly before they are so quick to credit him when the company’s performance is better than average.

So, without regard for what you do, the company will still need to have a good year if you expect your stock options to make you lots of money. Actually, no! With an assist from the Chief Financial Officer–who is also probably dependent on stock options for a big share of his income–you can monkey with the books. By the time anyone catches on (and earnings have to be restated), y’all will probably have moved on to another company. (Think I’m kidding? In 2002, a record 225 public companies restated earnings. Funny, too, how those restatements never seem to involve increases in income.) Stock options and bonuses have been paid, so what’s the diff? (Unless you are dumb enough to be really greedy, you won’t have to worry about Justice Department prosecutors, and shareholder suits–with a little help from your friends in Congress and the White House, these suits are much tougher to bring–will be handled by the company or your insurance carrier, whose premiums the company paid.) And if monkeying with the books doesn’t work? You and your friends change the date on the options to improve your take (or simply make sure you’re getting the package to which you know you’re really entitled.)

Well, of course there are taxes, which reduce the $12,000,000 to something almost paltry. Not always, though; your company, like many others, might “gross up” some wages and benefits, so that you get to keep almost everything you make. Regardless, the share of your taxable income that you’ll pay to the government will likely be much smaller than you think (and almost surely less than the amount you rant about up at the club on Saturday morning with your golf buddies.) Warren Buffet reports that he paid taxes of 17.7% on his $46,000,000 of taxable income in 2006, while his receptionist paid taxes equal to 30% of her very much smaller taxable income.

And what about your company’s workers. Globalization has sent many of the jobs–not the workers, just the jobs–to places beyond our borders. And those Americans who still have jobs? They’re working, increasingly, in service sector positions that offer smaller salaries, fewer raises and less stable health care benefits. Always, there is the increased risk of a job loss. Not to worry, though, as this is just “part of the deal” in the modern economy.

The CEO’s salary is always inconsequential when it is measured against labor costs for a company employing tens or hundreds of thousands of workers. But it would be nice, every once in a while, to see a CEO acknowledge that the workers contribute greatly to the company’s profits, that times are tough, and that he can get by on $1,200,000 per year, as opposed to $12,000,000. What a fantasy! People happily running companies for $1.2 million per year

I am obliged to note the fact that many CEOs are fine people who work hard, care about their employees and contribute to their communities. Facts are facts, however, and just because there are plenty of exceptions, no one should ignore what are clear changes in our corporate ethos.

I also need to be clear about one thing: I have no problem with someone making lots of money. Much of what I do for a living involves helping people, many of whom are wealthy, maximize their profit. My quarrel–quibble doesn’t begin to do justice to how strongly I feel–relates to hired help who pack their boards of directors with friends and pay themselves as if they own the joint! When people own the company and make plenty they should enjoy their success, but when the money belongs to the shareholders and the CEO is taking it because he wants it, shame on him.