Destructive Achievers in Corporations

     Bear in mind that articles just like these have been appearing in our most prestigious financial publications over the past 25 years (as documented in the Class War in America book).

From The Wall Street Journal, July 10, 2003.

Firms Had a Hand
In Pension Plight

A lot of big companies call it a looming crisis: They suddenly need to pour millions of dollars into their pension plans, because there isn't enough cash in them to meet the legal requirements. Now Congress is moving to offer companies relief, and the White House is planning a remedy of its own.

But what companies aren't saying is that some of them contributed to the problem themselves. They did so through a variety of strategic moves to plump up earnings or cut costs, at the price of reduced funding for their pension plans.

Over the past decade, U.S. companies have siphoned off billions of dollars in assets from their pension plans. They've used the cash to pay for retirees' health coverage, the costs of laying off workers and even fees to benefits consultants….

One way some companies eroded or reversed their onetime pension surpluses was by tapping the pension assets to pay for staff reductions. Lucent Technologies Inc., the big maker of telecom gear, used about $800 million in surplus pension assets to pay termination benefits as it cut 54,000 employees from its payroll in 2001 and 2002. The Lucent pension plan, meanwhile, went from having $5.5 billion more funds in it than legally required on Sept. 30, 2001, to being $1.7 billion "underfunded" on Sept. 30, 2002….

In the 1990s, many employers began offering departing employees their pensions in lump sums instead of monthly payments. Some used this to spur staff reductions, giving workers who weren't planning to retire the option of a lump-sum pension, but only if they left early. But thanks to the abstruse economics of pensions, lump sums could sometimes have the effect of eroding pension funds -- even as they helped companies boost their bottom lines….

In many cases, conversion of a traditional pension plan to the cash-balance variety initially renders the plan in surplus. That makes it possible for the employer to draw out some pension assets for another corporate purpose. With consultants' help, companies found myriad ways to tap pension surpluses during the late-1990s bull market….

Employers also contributed to today's underfunding by lobbying successfully to ease funding rules a decade ago. Then as now, they fretted that their pension liabilities were made high by a combination of low interest rates and a weak stock market. Congress in 1994 softened funding requirements so company pension plans needed to be funded at only 90% of government-required levels, not 100%.

Voilà: Many companies' underfunded pension plans suddenly appeared better-funded, and the companies were able to pour less cash, or none, into their plans….

The only provisions employers seek that would preserve pension assets would work to the detriment of some employees. Employers want Congress to let them change the way they calculate lump-sum pensions, using a rate that would result in smaller payouts. They're seeking, as well, the right to stop offering lump-sum payouts at all if their pension plans become underfunded.

Besides other ways companies have tapped surplus pension assets, they've used some assets to hire the very consultants who taught them how to tap. For instance, Internal Revenue Service filings show that International Business Machines Corp. used $18.4 million of pension assets in 2001 to pay fees to Watson Wyatt, a consulting firm that helped it convert to a cash-balance plan. This was seven times the fee Watson Wyatt got when it first began working for IBM in 1995. In comparison, investment-management fees paid out of IBM pension assets declined about 5.5% over the period….

     Destructive Achievers reek throughout this article. The entire focus of the corporations described here is:

     The corporate executives undoubtedly congratulated themselves for being brilliant managers (leaders?), even though:

     Of course, the Destructive Achievers will be fabulously rich and long gone before full effects of their actions are realized.

     This is yet another article in the Journal that illustrates Wall Street's country club of "good ol' boys," who look out for each other's financial interests, and at the expense of the investing public. Still want to privatize Social Security?

From The Wall Street Journal, August 1, 2003.

NYSE's Corporate Governance
Is Harshly Criticized in Report

The New York Stock Exchange is coming under intensified attack for weaknesses in its own corporate governance.

The Council of Institutional Investors, a powerful pension-fund group, will release a report Friday harshly criticizing the nation's biggest securities market for shortcomings in governing itself and disciplining the brokerage industry. The 46-page report cites extensive conflicts of interest involving officials and board members. Among them: an arrangement where the co-chief operating officer of the not-for-profit exchange also has been running a for-profit supplier of technology to the Big Board that is two-thirds owned by the NYSE.

The New York Stock Exchange "is not well-governed," its conflicts of interest are "surprising and disappointing," and its disciplinary structure doesn't protect investors adequately, said Sarah Teslik, executive director of the Washington-based council. The council represents 130 pension funds with $3 trillion of assets. In June, the Big Board unveiled a slate of governance changes and invited proposals about further steps. The council's report undoubtedly will inflame debate over how much further regulatory overhaul the exchange needs….

The council report also criticizes business relationships among several NYSE board members, suggesting that someone with such a tie "may be reluctant to oppose that director" and members with multiple connections "may fail to be an independent check on the system."…

     With Destructive Achievers like these in charge of our securities markets, how can anyone seriously claim that Social Security should be privatized.

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