So, here's a question: if you were being paid 737 times what an average worker makes in a year, do you think you could foot the bill for your kid's birthday party?
The CEO of Dow Chemical apparently didn’t and there’s a fascinating Reuters report I came across that tells the story I’m summarizing here. (http://www.reuters.com/...)
Most of the blatant acts of executive entitlement happen behind closed doors. But sometimes there’s a lawsuit that gives a glimpse of the innter workings, as this one does. The good news here is that there were people within the company trying to hold the CEO accountable. The bad news is that the ones we know of have all left.
The special investigative report, entitled “Dow’s top auditor challenged CEO on spending for years” found that at least four employees raised concerns that CEO Andrew Liveris “used his position to finance his lifestyle, favor his family or boost a charity that burnished his fame in Greece.” Each of these employees, including the company’s most senior internal auditor, has since left the company, and much of the data in the report became available based on a Sarbanes-Oxley whistleblower protection lawsuit filed by internal fraud investigator Kimberly Woods. (This law enables employees who believe they’ve been fired for speaking truth to power to seek compensation. Many – including this one – are ultimately settled with gag orders in place.)
Woods lawsuit claiming she was fired in retaliation for raising such concerns has been settled by the company for an undisclosed sum. In her complaint Wood “claimed that internal auditors identified $13 million in cost overruns on the renovation of a company-owned hotel involving the CEO’s wife, Paula Liveris. And Wood alleged that Dow was using its $16 million contract with a consulting firm to channel money to a charity co-founded by Liveris.”
Initially after she raised the concerns internally, the chief auditor of the company actually conducted an audit of the mysterious “Customer Events” department and found a propensity to paying for events which no customers attended. It paid, for example, to have the CEO and friends travel to Barbados to see a cricket tournament. So under some pressure, the CEO paid the company back for some of these items. ny Dow’s 2011 proxy statement notes that Liveris had “promptly reimbursed” the company $719,923 in 2011.
But the reality was that it wasn't so prompt, and the disclosure about it was weak and misleading. This was covered in a memo the company’s cheif auditor Doug Anderson wrote in 2013 -- right before he left the company -- titled “Dow Confidential,” that raises concerns on “errors in tax and proxy reporting.” Reuters sets up a sentence by sentence comparison between proxy language and Anderson’s deposition, in two matching columns, that provides a crystal illustration of how language of proxy statements is used to obfuscate rather than inform. Among other things, that proxy statement blames a lack of sufficient guidance for earlier failures but Anderson counters: “Knowing that the company shouldn’t pay for your son’s birthday party” should not require specific guidance.
If you have interest in corporate culture on any level, I urge you to read the full report, because it is fascinating. It shows that people of integrity exist within organizations, and the challenges they face.
As the case was unfolding and Liveris suggested that it was time for an executive who had raised concerns to retire, Dow’s chief counsel, Charles Kalil, responded with an email to Liveris: “Remind me never to piss you off.”
From the perspective of a shareholder, or any of the stakeholders of a company, the primary goal of the chief counsel should NOT be keeping the CEO placated. But Kalil’s compensation for 2014 was over $9 million, significantly above that of General Counsel’s at similarly sized companies. Kalil also realized an additional $9 million in value of exercised stock options.
Kalil’s pay was small compared to what the CEO made. His total disclosed compensation increased from $20,452,877 to $26,698,372. This amount is twice the average CEO pay, based on data released this week by the AFL-CIO, and 737 times that of the average worker.
The birthday party, by the way, was held at a private suite at the Detroit Pistons. I’m sure everyone had a wonderful time.