CEO Pay: "No Easy Answer on Greed"

Corporate-governance expert Dick Mahoney talks about where boardroom reforms stand and where they still need to go

As the CEO of Monsanto (MON ) during the 1980s and much of 1990s, Richard J. Mahoney is no stranger to controversy. He was on the hot seat as head of the herbicide and agricultural seed giant when concerns began to grow about genetically altered foods. He served on Monsanto's board for a year after he retired in 1995, and as a board member of Union Pacific, the world's largest railroad, he now heads its governance committee, where he has a bird's-eye view of how Corporate America is dealing with the ongoing calls for reform of corporate governance and CEO pay. His experience doesn't end there: He was a board member of New York-based Metropolitan Life for 17 years.

Mahoney recently spoke with Beth Belton, news editor of BusinessWeek Online, about the controversies surrounding corporate-governance issues. Here are edited excerpts of their conversation:

Q: Richard Grasso's recent ouster as chairman of the New York Stock Exchange brought the issue of reform back into the headlines. How is Corporate America doing on reforming governance?


The call to reform remains absolutely critical because there are still some glaring errors. Enron's name continues to be uttered in every boardroom. And there are statutory things that need to be done at corporations because of what's called for in the Sarbanes-Oxley law and the NYSE rule changes.

But if that's all a corporation does, they haven't done the job. What worries me is that the attention span of Corporate America has a lot of competition. My great concern is that when this [issue] gets out of the headlines, the attention to it will drift away.

Q: What do you think about Grasso's defense of his $148 million pay package?


The Grasso situation was outrageous. What he did was accept what the board gave him. But I find it outrageous that their compensation wasn't transparent. I was astounded to find out that they had never revealed compensation publicly before. How do I know they weren't giving a bonus based on whether a company can hide fraud or not. It was stupidity on the part of board, the exchange, and Grasso. And he's not a dumb guy.

Q: Has the NYSE done enough to deal with the problem?


I think the board ought to resign en masse. But that would be difficult for the exchange. Maybe half should resign now and half next year. That's what would be fair. But that won't happen. John Reed is the perfect guy for the job. He was a director of mine at Monsanto. He won't be holding press conferences. He'll go in, do the job, and get out when the time is right.

Q: Are the reforms called for by the Sarbanes-Oxley law enough to fix the situation, or is more legislation needed?


Like so many other things, people will fill in the [regulatory] forms. There's a long laundry list of things [to comply with], most of which are formulaic and not of much interest. What's important is that the law doesn't hurt. It may not help much. That's my first question when I look at something coming out of Washington.

On balance, Sarbanes-Oxley isn't a bad piece of work. The major thing out of it is that it energized the Securities & Exchange Commission to do its job.

Q: What about the NYSE rule changes put into effect for companies that trade on the Big Board. Will they have an impact?


Some of them make good sense. For instance, they require that you have a genuine financial audit expert on the audit committee of your board. It can get tricky making sure the person qualifies under the definition. Some of the other things aren't so helpful. For example, everybody has to sign an ethics statement, but what good does that do if the CEO is a crook?

Q: You've noted that crooks in Corporate America may be few and far between, but did CEO greed get out of hand over the past few years?


There's no easy answer on greed. There's nothing set in stone that a CEO should become fabulously wealthy or own huge chunks of the company he works for. Having said that, it's easy now for people to forget that these CEOs were becoming wealthy at a time when the stock market tripled. Anybody in the market was becoming wealthy rapidly [during the boom].

These guys aren't entrepreneurs, they run companies. If you're an entrepreneur and you take on that kind of risk, God bless you. You deserve the wealth. But if you're a paid employee, there should be limits on what you earn because after all, you may really just be presiding over what your predecessor set in motion.

Q: Where should corporate-governance reform go from here?


The new trend toward stock grants and away from stock options is good. It's not that success or wealth is a bad thing. Look at Bill Gates or Warren Buffett. You don't hear people complaining about how much money they've made. But we got into a situation where the CEOs abused the environment. We need to move back applauding performance without indulging it.

Maybe CEOs now have less respect than used-car salesmen, but I also think a lot of people would still be perfectly happy to have their kids grow up to be CEOs. That says a lot right there.

Edited by Douglas Harbrecht

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