BUSINESS WATCH

A vintage year for greed and stupidity

Companies vanished in the acquisitive rush, salaries spiralled to breathless levels and a lot of prominent people showed their true colors

Peter C. Newman December 25 1989
BUSINESS WATCH

A vintage year for greed and stupidity

Companies vanished in the acquisitive rush, salaries spiralled to breathless levels and a lot of prominent people showed their true colors

Peter C. Newman December 25 1989

A vintage year for greed and stupidity

BUSINESS WATCH

PETER C. NEWMAN

Companies vanished in the acquisitive rush, salaries spiralled to breathless levels and a lot of prominent people showed their true colors

This was the year greed turned into an art form. The race by Canadian corporate executives to serve their selfinterests became a marathon. Corporate takeovers continued at their usual avalanche pace, without even the pretence that any corporate benefits would result— apart from massaging the winning chief executive officer’s ego. Bear hugs, poison pills and Pac-Man defences were the favored buzz words as more and more companies vanished in the acquisitive rush. During the first six months of 1989 alone, there were 250 takeover deals consummated—that’s 31 per cent more than for the first half of 1988. Instead of junk bonds (which lived up to their name), much of the money was now being raised by something called mezzanine financing, a form of high-yield subordinated debt ranking junior to all other claims, which in plain English seemed to mean it was only one step from the basement.

Individual salaries of some of the highest flyers spiralled to breathless levels. Indicted American junk-bond creator Michael Milken declared a personal income of $1.3 billion for the past four years. In 1987 alone, he made $660 million, more than all but 64 American corporations, edging out McDonald’s Corp., which posted a profit of $658 million.

The prime Canadian example of this dubious trend to astronomical salaries was Frank Stronach, the eccentric chairman of Magna International Inc., who wields 61.4 per cent of the votes although he owns only about 2.5 per cent of his company’s stock. The day before, he told his shareholders that Magna had netted profits of $33.6 million on sales of $1.9 billion—and achieved that puny total only by selling off real estate assets. Stronach himself received a 26-per-cent raise which brought his earnings to $1.175-million, plus $250,524 to underwrite his Jife insurance. The company lost $9.9 million in the first quarter of the current fiscal year and does not expect a turnaround until 1991.

The golden parachutes that allow corporate executives to bounce out of their jobs after takeovers to retire with lavish new grubstakes reached obscene proportions. Warner Communications Inc. chairman Steven Ross lined himself up for $180 million in salary, bonus and longterm compensation when Time Inc. completed its proposed $14-billion buy-out. F. Ross Johnson, the Canadian-born former RJR Nabisco chief executive officer, collected $64.5 million for the failure of his self-generated takeover bid of his own company. One of the richest Canadian parachutes was last summer’s $1.8-million bonus paid to William James, former chairman of Falconbridge Ltd., after the Noranda takeover. That was on top of his salary, which totalled $1.7 million the previous year.

Apart from their greed lessons, a lot of prominent people and companies did and said a lot of dumb things. The choice was difficult, but these are my nominations for some of the dumbest:

Dumbest Canadian Corporate Move: Clarkson Gordon, ditching its 125-year-old name, which had become an imprimatur of accounting integrity in this country, for the traditionless and, in Canadian terms, largely meaningless Ernst & Young.

Dumbest Excuse for an Inexcusable Act: Claim by the Iowa Board of Optometry Examiners that one of their members, Gary Fisher, “had legitimate reasons” for making women undress during eye examinations. The board explained Fisher was “simply checking for spine curvatures” related to eye problems.

Dumbest Canadian Political Comment: Any pronouncement by B.C. Premier Bill Vander Zalm. For example, his reason for vetoing distribution of a government-sponsored AIDSprevention video: “This is simply an ad for condoms. Gee, I think if people viewed the ad, they’d be running off to buy a supply.”

Dumbest Canadian Business Comment: Robert Campeau explaining the magic of his financing technique (shovelling out junk bonds) for purchases of all those American department stores—only a few months before his empire collapsed: “If Finance Minister Michael Wilson could balance his budget in this way, Canadians would all be very happy.”

Dumbest Credibility Gap Restorer: The very same week that former Principal Group Ltd. chairman Donald Cormie was charged with seven criminal offences flowing out of the collapse of his financial service conglomerate, he was spending $100,000 restoring his hideaway cottage near Cameron Lake, northwest of Edmonton. As well as owning three other houses worth at least $6 million, Cormie managed to stash away about $5 million in U.S. and Swiss bank accounts before the department of consumer and corporate affairs charged him with misleading representations, which caused 67,000 small investors to lose their savings.

Second-Dumbest Credibility Gap Restorer: Vancouver tycoon Murray Pezim has never had much trouble finding gold mines, but few believed his overblown promotions. In August, after he whipped up a public buying frenzy in his various ventures, including his flagship firm, Prime Resources Corp., stock insidertrading reports revealed that he was simultaneously selling off up to $2.7 million of his own holdings. Now we know.

Dumbest Assessment of Money Invasion by Chinese Investors: “I like them. Most of them are nice, simple people. It isn’t their fault that they’ve got all this money”—Carolyn Feldman, sales consultant with Toronto-based Mister Real Estate.

Dumbest Comment by George Bush: Defending the Alaska oil pipeline against environmentalists who claim it will interfere with caribou migrations: “The caribou love it. They rub up against it and have babies. There are more caribou in Alaska than you can shake a stick at.” Such profundities—and his inability to take hold of world events on the move— have not disappointed his critics. Before he was elected, John Buckley, then press secretary to presidential hopeful Jack Kemp, said of Bush, “When he stands next to Ronald Reagan, he looks smaller than life; when he stands next to Mikhail Gorbachev, he looks like a bonsai tree.” Still, that’s kinder than the description by Texas Agriculture Commissioner Jim Hightower of Vice-President Dan Quayle: “He thinks Cheerios are doughnut seeds.”

It was that kind of year.