Wall Street Managers, Vilified for the Financial Meltdown and Bonuses, Are Baring Teeth
"Civil War" is not a term normally expected in a headline to come from a conference of Wall Street big wigs. But there it was in The Wall Street Journal this morning: "On Wall Street, Talk of Trust and Civil War," with an account of a Tuesday "Future of Finance" conference, organized by the paper.
The Civil War reference came from conference attendee Glenn Hutchins, co-chief executive of private equity firm Silver Lake. "Washington and Wall Street," he said, "are the equivalent of Gettysburg and Antietam right now…. To point the finger at one group means, No. 1, you're not understanding the problem, two, you're stretching our social fabric thinly, and you're throwing the baby out with the bathwater…. Trust goes both ways." Former Securities and Exchange Commission chairman Arthur Levitt, also speaking at the conference, said the public and political bashing of Wall Street has become "an issue of 'we' and 'they.' … Compensation is a part of it, but a symbolic part of it. We are a centrist nation…. We're now shifting to the left pretty far in terms of business-bashing and it has reached extremes of incivility that are intolerable."
And in an eye-opening op-ed article for The New York Times, Jake DeSantis, an executive vice president of the American International Group’s financial products unit, shared the letter of resignation he had sent to AIG's government-appointed overseer, Edward M. Liddy. "I am proud of everything I have done for the commodity and equity divisions of [AIG]," DeSantis wrote. "I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung AIG. Nor were more than a handful of the 400 current employees of AIG. Most of those responsible have left the company and have conspicuously escaped the public outrage." DeSantis wrote also that, like Liddy, he had agreed, "out of a sense of duty to the company and to the public officials who have come to its aid," to work for an annual salary of $1. He and his colleagues were told they would be rewarded with bonuses — apparently in lieu of salary — in March 2009. Because of government efforts to reclaim the bonuses in the face of widespread public outrage, DeSantis wrote: "…we in the financial products unit have been betrayed by AIG and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself."
Has the public's animus toward leadership on Wall Street and the rest of the financial sector become an unfair witch hunt? "That's a difficult and complicated question," said Wharton management professor Mauro Guillén, who directs Wharton's Joseph H. Lauder Institute for Management & International Studies. Generally, Guillén said, he cares little about the size of executive bonuses. More important, he suggested, is the structure of the bonus: What is the time period in which an executive's performance is measured, and what are the metrics on which performance is gauged?
But when the taxpayer is a major shareholder, Guillén noted, other factors come into play. Bonus obligations to executives at any government-rescued company should have been and should be closely scrutinized by the government officials leading the rescue. Even when bonuses are awarded based on the most appropriate criteria, "it's going to rub people the wrong way when on the one hand, you have taxpayers seeing their money go into a company and, on the other hand, bonuses are being paid to company executives."
When the bonus contracts have been reviewed and approved by government-appointed overseers at rescued companies, said Guillén, "obviously the rule of law is very important…. Respecting contracts is a very important thing. Without them, we'd have a real mess."