Barrett Kalellis
Monday, Feb. 3, 2003

Let’s not forget the chorus of boosters of big-government spenders, residing mostly in the Democratic Party, who want to jettison promised across-the-board tax cuts in favor of “soak the rich” tinkering with the tax code. In their heart of hearts, the most brazen of these tax-and-spenders don’t want to return any money to the taxpayers at all, but would rather sanction government spending on “higher priorities,” as they deem them.

These federal and state politicos, who go to bed every night believing government-sponsored social spending is more important than allowing people to keep their own money, in actuality discourage private savings and investment. Beset by wealth-redistributors on all sides, is it any wonder that beleaguered middle class taxpayers have scant resources left to invest for future needs?

All this being said, with their present portfolio value already diminished by half over the past two years, many investors are outraged by the steady drumbeat of stories detailing the cancerous governance of major corporations and other fiduciary organizations that has blindsided investors and caused steep operating losses or even bankruptcies and the consequent devaluing of their stock.

The investor has been hit with bad news on many fronts. Outright fraud and financial improprieties, in the case of the top executives running Enron, WorldCom, Cendant, Tyco, Adelphia Communications and others. Then the scandals of enabling consulting companies — the accounting firms, the Wall Street research houses and the credit-rating agencies — all with conflicts of interest with the very companies for whom they are supposed to serve as watchdogs.

Venal CEOs, CFOs, accountants and stock analysts are not the only concern of the wary investor. Those randy for acquisition like DaimlerChrysler’s Juergen Schrempp, who cleverly blended language with subterfuge to dupe enough Chrysler Corp. execs into believing that Daimler’s buyout of Chrysler would be a “marriage of equals,” effectively turning an American company into division of a German one.

But the worst thing that investors still have to fear is stupidity at the very top. Megalomaniac CEOs and chairmen, along with feeble boards of directors, take formerly profitable companies and run them into bankruptcy.

Consider Kmart Corp., which has to be the monument in corporate stupidity, greed and corruption. Former Chairman and CEO Joseph Antonini misread the market and continued foolish expansion plans laid down by his predecessor and bought all sorts of poorly performing subsidiary enterprises which drove the company into debt, all the while losing sight of Kmart’s primary business in light of its competition.

Saddled with what BusinessWeek called “one of the worst boards in the nation,” Kmart replaced Antonini with a revolving door of top executives, each worse than his predecessor. Futilely beating at the air in a series of misguided moves to stanch the bleeding, these ice-cold red-hot turnaround artists pushed risky strategies onto the company while at the same time insisting on horse-choking compensation and questionable perks for themselves.

Spiraling into bankruptcy, Kmart rewarded 25 of these executives with million-dollar “forgivable” loan packages so they could live in princely splendor in newly built multimillion-dollar mansions. This, while vendors got stiffed for payment and thousands of loyal workers were dumped into the street as hundreds of stores had to be closed.

Kmart is only one of the most glaring examples of corporate stupidity. Auto parts supplier Federal Mogul is another, where boneheaded former CEO and Chairman Richard Snell, on another empire-building spree, recklessly acquired a number of companies with outstanding asbestos lawsuits, leaving the company potentially liable for billions of dollars.

Like the Kmart potentates, Snell was fired, but not without pocketing $4 million in severance, leaving his successors to pick up the pieces. Kmart and Federal Mogul have announced that they want to cancel the value of all outstanding stock and start over by issuing new stock. Thanks, guys.

The stench from these outrages becomes ever more fetid as company after company comes under increased scrutiny. Can you blame people for being nervous about the equities market? They see companies losing money because of poor and/or deceptive management practices, stock rendered worthless, facilities closed and thousands put out of work — all under the noses of feckless boards of directors whose first responsibility is to challenge management and protect the stockholders.

Until the day comes when the average investor can once again be confident that boards will hire CEOs on the basis of demonstrable merit and character, and ensure shareholders that companies are being managed wisely and well, then we would be wise to stay away.

Barrett Kalellis is a columnist and writer whose articles appear regularly in various local and national print and online publications. You may reach him at kalellis@newsmax.com.

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