Reckless CEOs Getting Booted, Busted or Bailed Out?

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Aug. 29 (Bloomberg) –- Institute for Policy Study’s Sarah Anderson discusses executive compensation, attempts at pay reform and what control shareholders have over pay levels . She speaks with Stephanie Ruhle and Erik Schatzker on Bloomberg Television's "Market Makers." (Source: Bloomberg)

Live from bloomberg world headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle.

Geopolitics and the markets -- what impact will a u.s. attack on syria have on stocks question mark will ask a blackrock money manager.

Red flags in a jp morgan bribery firm -- did they trade jobs for a deal in asia?

A spreadsheet may hold the answer.

He sounds like the guy in the beer commercial -- he surfs that has beers with warren buffett.

Meet the most interesting brazilian billionaire in the world.

You are watching "market makers." spearfishing and surfing -- we have a lot to cover in the next hour, including the brazilian legionnaire and jpmorgan.

Right now, we're going to start with the newsfeed with the top stories around the world.

It would be the biggest deals deals in more than a decade -- verizon is in talks with vodafone about their joint venture.

The price under discussion according to people with knowledge with the matter is about $130 billion area that would give verizon the full ownership of the most wireless company in america.

Mortgage rates have dropped after hitting a two-year high.

Freddie mac says its average for a 30 year mortgage fell from a two-year high.

And the chairman of zurich insurance group has resigned following the death of the company's ceo.

Police say it may be a suicide.

The man's family believes he should have kept his share of the responsibility and ackerman says any allegations are unfounded.

He ran deutsche bank for 10 years before coming chairman of zurich insurance.

My alma mater.

Talking about other bank -- jpmorgan cannot catch a break.

A probe into their hiring practices in china has uncovered red flags all across asia.

Paul miller is a leading back -- leading bank analyst and rates mark -- rate jpmorgan at market perform with a $65 price target.

Also with us is dawn kopecki you broke the story.

Lay out this drama for us.

You know it front and center.

There is a spreadsheet -- the fcc started looking into this inmate -- the sec started looking into this inmate.

The company has undertaken their own internal investigation and they have found more than 200 hires they are looking at all across asia.

They're looking in other continents as well area they found a spreadsheet and other lists as well that detail specific interns with specific deals they were pursuing at the time.

People who were related, either their uncle, aunt, father or mother were related to people doing deals with jpmorgan at the time or who jpmorgan wanted to do deals with.

They found this spreadsheet that lays it out.

Attorneys say that prove some sort of intent, a quid pro quo type of thing.

That is why it could potentially get ugly for jpmorgan.

What do you think about a story like this?

Lots of banks and lots of companies hire interns because it helps somebody out but are they get -- are they getting caught red-handed here?

I think there is a lot to go with this investigation.

But the bottom line is it's not going to mean that much to jpmorgan in the long-term.

It's not going to find its way up to the executive suites.

They will pay a fine and move on.

What's more important is how many of these issues are coming up, it's not just this spreadsheet in asia, the energy department, the department of justice and the mortgage backed securities in the past that are starting to weigh down the stock valuation and you are starting to see the stock underperform the group.

It's almost a death by a thousand cuts.

It's another deal coming out of the woodwork they have to deal with great a thousand cuts for sure, but not quite dead yet.

What does it add up to when you investigate yourself and analyze all the different regulatory analyst -- allegations facing this bank right now?

It's not just jpmorgan.

It's all the big guys.

We have always said these companies are too big to run bio -- to be run by one group of people.

Bank of america is starting to break up slowly, but it should be accelerated.

At some point, jpmorgan will be looking down that path.

Jamie dimon is a great manager, but can someone else run it or does it have to be broken up down the road?

We think all these institutions are too big and that's what causes this type of thing going on in asia across the board.

If that's the case and you are not the only person who has been saying that thomas why is there not more shareholder pressure to that end?

Why aren't more people saying let's unlock the value because the idea is there would be more value to these companies if they were less complicated and they were run on an individual basis?

I think there is more pressure on citibank and bfa varied but when you have jpmorgan that has performed well, portfolio managers want the status quo and don't think he needs to be broken up at this point.

But as you get these other types of problems, maybe that discussion enters the fray.

Right now, jamie dimon is being hero or shipped out there and everyone wants keep the status quo.

It seems like regulators might even have it out for him.

It seems like they really want to go out for him.

The london whale investigation, the one thing that did do is shine a very bright spotlight.

Everyone thought jpmorgan and jb dimon walked on water.

That shined a spotlight said maybe the company doesn't have the total control.

Right now, you're seeing regulators spent more time looking at this company, but what they are finding is they are not making this stuff up rate jpmorgan actually did these things.

Also , other banks, jpmorgan is not the only bank that hired well-connected interns.

You may see other banks taking a look at their internal control as well, all the other banks and if they had any spreadsheets.

Paul, you said you doubt this would go all the way to the top, which is to say all the way to jamie dimon.

But what if it were policy in the bank?

What if it were some of his top lieutenants aware of these type of practices, and only if these practices are proved to have broken any laws.

He's gotten rid of so many executives already, the bench has to be thin.

He can't afford to lose any more top people, can he question mark i agree.

And if it does go to the executive suite, they have some real issues because the fines become much more material and he does lose much more talent.

The people who have left have gotten much better jobs.

It's not that he's getting people, the talent pool is getting weak in the executive suite.

If it does end up there, it's a real issue but that's a long way to go at this point.

Is all of this saying we should be underweight financials in general?

Even the big run-up in stocks we have seen, financial stocks, we believe there should be some profit taking.

You need economic growth to justify these higher rates and if you don't get the growth, we think rates are going to come down and seize valuation will head south.

Thank you for joining us this morning.

That is paul miller and our own bloomberg news reporter, dawn kopecki, who broke the story last night rick when we come back, he's the brazilian billionaire with the all- american for polio.

We will look at the man behind three g capital.

Investors waiting to see what america will do about syria.

How will they respond president obama launches an attack is to will speak to michael frederick blackrock in just a few minutes.

? how do investors stay steady when markets are rattled?

There's a lot of uncertainty right now.

We don't know what the fed is going to about the bond buying program.

We don't even know who will end up running the federal reserve, and we don't know what will happen if the u.s. attacks syria.

The goal frederick from blackrock overseas $15 billion.

What are you seeing right now?

Your your focuses on retail investors more than institutions.

Maybe we will get into the difference between managing money for the two groups in a moment.

But what do you think about those things and what is your posture as you look into the future?

We have all of these things to worry about -- there's the next fed chairman, there is tapering or taper light.

And there is syria.

Serious is the buzzword of the moment.

It certainly is.

These are all short-term factors.

Rates are moving higher and we are in a process of this paradigm shift and we will see where rates level out at.

We are in the process of of a rising rate environment.

Are people not paying attention to those things?

@six months for now, we will have priced in a new level of interest rates.

We will get there, and if you haven't taken steps to hedge your exposure to duration and things like that, it's going to be a painful process.

We have been prepared for this for a long time, so i don't think the pace of tightening or the fed chairman -- will it create short-term problems question mark we don't look at that.

That if people look at their portfolio say things are going well for me -- if they say summers versus yelena -- versusyellin, what do we do?

If you go back to may, they were telling advisers i'm only up x percent and it's been a great year for the equity market.

It's kind of a sign of greed coming back in.

But a lot of that sentiment has been flushed out.

Investors are primarily focused on let's manage volatility.

They don't want to take a lot of risk.

And although the equity markets have done well, i don't think there's a lot of participation in this rally.

You look at these markets and there's clearly a geopolitical risk between these markets and emerging markets.

It happens at a worse case scenario develops and serious?

-- philips in syria?

What if syria and iran all is through on its intent to attack israel.

Or what if the roles take control and there is a flood of chemical weapons going into lebanon?

All of these peripheral effects are difficult to forecast.

I don't think wall street is good at forecasting.

I think you do prepare for these things ahead of time.

We had exposure earlier in the year two emerging markets and it's almost like watching a stock run in rally.

You saw a lot of these interest rate sensitive asset like treasuries have high yields, a lot of these things did really well and they have been struggling with this rising rate environment.

You have to tremble -- you have to channel your inner clint eastwood and pull the trigger quickly when these things start to roll over.

We trimmed along the way and these asset classes that did well, we hedged duration and we hedged with equity puts when it was cheap to do so.

We weathered the storm pretty well.

If you haven't done that, do you cut risk at this point -- there are two sides of that equation.

To be down 10 % -- to be down 10% or 15% -- we put more into covered call equities.

What does that mean?

We are buying high-quality stocks, but we are selling options on certain companies that are out of the money.

We get upside participation but we don't think the market is off to the races.

We think it can go higher but not a lot higher.

We get paid to sell away a lot of that upside.

For clients, we like that risk reward and we have gotten good performance from that part of our portfolio.

Is their demand for the other side of that trade?

Are there people out there who are raging bulls question mark i don't see it in the retail market whatsoever.

I don't see that level of risk tolerance.

It could be our demographic.

Our clients are in retirement or near retirement.

So i don't think you see that in retail.

So what are they doing?

Sitting in cash?

A lot of people are sitting in cash.

The hottest category in retail right now is nontraditional flexible bonds.

All this talk about there is danger in your core bonds and allocation to your portfolio is coming home and being experienced.

If i look across luck rock -- if i look across the luck rock -- think of cash as you are bedrock and you were -- as your benchmark in trying to turn out a return and do it in a tactical way.

These strategies have been popular.

The benchmark is zero percent.

So are you grinding out a quarter?

2 % -- 2% or 3% is the goal.

Compare that to bonds, you're down 3.5% to date.

I don't think bonds are going to fall through the floor but when we talk to financial advisors, the multi-asset income fund is a way to introduce it in a risk- aware way, new sources of income and these high yields with hedges.

Michael, it's great to see you.

Michael frederick of luck rock, the managing director there who runs the multi-asset core income fund.

When we come back, he has been described as part warren buffett am part sam walton.

He's the brazilian billionaire who controls a budweiser and heinz.

In a moment, we'll tell you all about him.

? welcome back to "market makers." i'm stephanie ruhle.

Jorge paulo lemann @three g capital has done deals they gave him control of what wiser, burger king and heinz.

We profiled him in the latest issue of bloomberg businessweek.

He's with us for today's latin america report.

What's next?

The dallas cowboys are the american flag?

They do like american brands and he is someone who has always thought big and always set out to be the best at everything he does.

Anheuser-busch in bev which he shares control over, he started buying a small brewery in brazil in 1989 for $60 million.

Sin others speculation he will use heinz as a platform for acquisitions and their people saying he could end up trying to take over pepsi.

What is it about these and similar brands that appeal to jorge paulo lemann so much?

Fax these are all businesses that have strong, steady cash flow.

That's what he likes best.

He has no affinity for the products he selling.

He is a teetotaler . he prefers to drink a bottle of water and a salad.

After acquiring burger king, he had his first burger king hamburger and apparently commented that he found it too big.

I remember when he did the heinz deal with warren buffett grade buffet was vocal that this is -- he is just along for the ride.

Lemann has pioneered a style with almost a darwinian type meritocracy.

Lowering base salaries and connecting much more of their pay in stock to their performance in the company.

He developed this model at an investment bank in brazil and he said as his model goldman sachs.

But unlike goldman sachs, seniority was never important.

Even if you had been at the bank for years, you had no idea you are going to get a slice of the bonus pool unless you pull your weight.

Has he been getting the attention of investment bankers worldwide for a long time or now that he has pulled the trigger on heinz, is all of the sudden, jorge paulo lemann the first stop for anyone heading to south america or business with good cash flow or consumer franchise comes on the block?

He is a name that , certainly in brazil's financial world, he is an almost legendary figure.

Outside of result's financial world, he is known to investors as a idealist -- eight was cost cutter, very good at picking people.

Outside of that world, he's not very well known.

He's not someone who appears in magazines or in the social pages.

That is mainly where he is a known figure.

That is the opposite of another not so billionaire, batista, who is a bit of a glamour boy.

But he also wanted to create for brazil what he called the brazilian dream, like the american dream.

Is jorge paulo lemann considered a leader to young people in brazil?

He is not exactly a leader to young people in brazil.

Batista, because he appeared in the press and framed himself as the sort of embodiment of entrepreneurial success, he ended up becoming this respected figure as a business leader for the use in brazil.

Jorge paulo lemann is someone that people in brazil's business world, people getting their nba look up to -- people getting their nba look up to.

Thank you so much for joining us from sa o paulo.

We will be back with more in two minutes.

? live from bloomberg world headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle.

What if ceo compensation were a red flag, a sign of risk and possibly recklessness?

That's the sign in a new study -- almost 40% of the ceos of the highest-paid list were booted, busted or bailed out.

Sarah anderson wrote the report for the institute of aussie studies and joins us from washington.

Share with us some of your conclusions.

What did you find when you look at the highest-paid ceos over the past 20 years?

We introduce quite hermetic yardstick for measuring performance.

These ceos really should be the cream of the crop of corporate america and we look at what percentage were either bailed out, booted or busted.

How many of them led companies that wound up getting bailout in 2008, paid massive settlements for fraud, and how many of the ceos actually got fired themselves.

Nearly 40% of the ceos on the top 25 highest-paid list in the past 20 years met that description.

Who is to blame for this?

If the shareholders don't like it, they can dump the stock of the publicly traded company.

It's very difficult for shareholders to walk away from the bodies that have that executive pay practices.

If you wanted to have a portfolio of just companies with pay practices, it would be hard to find enough companies to put in that portfolio.

A lot of shareholders are invested in index funds.

It has been hard for them to influence that.

It's more time for policymakers to step it and encourage more rational pay practices.

In the dodd frank legislation, it was a step forward, but more than three years later, most of those executive reforms are still not implemented because of the backlash from the corporate lobby group.

Why is this important?

This is a free country and in theory, free-market grade ceos should be paid whatever they are worth in theory and in theory as well, is it because the ceos who make most and that doing the most harm question mark -- the most harm?

I think we have a corporate culture that encourages executive behavior that's bad for taxpayers, shareholders and workers.

The financial crisis was the most painful lesson in that.

It's widely acknowledged now that executive compensation encouraged the reckless behavior that contributed to that crisis.

So we all have a stake here.

It's not just the matter of a few guys getting very rich in a way that doesn't affect the rest of us.

If these executives were paid less money, we would not have been in the financial crisis?

If we didn't have an executive pay system that encourages short-term thinking, reckless, high-risk investing in order to boost your own pay package, then we might have seen a different scenario.

Isn't that why shareholders are interested in these types of country -- the types of companies, because they want to gains?

Shareholders have been pretty discouraged about the executive pay situation for a while, they just don't have much say.

Family say on pay vote, but it's nonbinding.

I think it's a broader issue that goes beyond shareholders.

One thing very few people know is that taxpayers actually subsidize executive compensation because there's no real limit on how much companies can did that from their corporate income taxes for the amount of money they are spending on their executive compensation.

If i'm not mistaken, that's only in the case of equity-based compensation, over a million dollars.

To the degree an executive is paid in cash, that's fully taxable.

So much of our executive pay is in the form of stock options and other pay that qualify for the tax seductions.

Illuminate in that loophole for performance-based pay would go a long way toward encouraging more reasonable pay levels and eliminate this taxpayer subsidy for excessive executive pay area what our most talented talented people don't want those jobs?

They be to get the top talent, they have to pay the big dollars.

At the standard response -- we couldn't possibly attract competent ceos unless we offer these pay packages worth tens of millions of dollars.

That's what we heard before the financial crisis when this so- called top talent nearly destroyed our economy.

I think it's an argument that doesn't hold a lot of weight, especially when you look at talented executives in big companies and other countries that don't make anywhere near the amount of money's we see among american ceos.

We want to thank you for joining us at "market makers." what were to happen that's the best people no longer went into corporate america?

They be they would go back to politics.


Sarah would know.

She is down washington.

Members of congress are saying no attack on syria without our approval.

We will hear from a top democrat, coming up next on "market makers." ? the chances of an imminent military strike against syria appeared to be receding.

Both united kingdom and france are saying they would like to wait for the results of the u.n. investigation into the the alleged use of chemical weapons.

In the meantime, president obama is saying although america had concluded the asad regime used those chemical weapons against its own people, he had not decided or has not decided on a course of action.

Julianna goldman is with us now.

What is the latest in washington?

We're looking at a few things to play out over the next 24 hours and next several days.

The question is this u.n. investigation, how that is going to play into factors of when the u.s. would strike if the president does make that decision.

Number one, we know there's not going to be any strike until those investigators leave.

That's probably going to be saturday.

Shortly after that is when we would see the u.n. report.

This u.n. report is important to point out and this is what the u.s. has been saying all week.

It's not going to say whether or not assad's forces used those weapons, just whether or not chemical weapons were used.

Either way, we are saying that france and u.k. want to wait for that report to be published.

Earlier today, chuck hagel said the u.s. is going to act with international cooperation.

All signs are pointing to the u.s. at least waiting for that report to come out.

Iraqi -- memories of -- iraqi, memories of going to war there . memories are fresh here and in britain and france.

There is heated debate on the floor of parliament today.

There's probably not going to be a full vote on whether or not to strike until tuesday.

The question is whether or not the u.s., whether the u.s. would wait for the vote and what position the u.s. is going to be in if they don't have the multilateral coalition that includes the u.k. has a the president painted himself into a corner?

His administration has described the use of chemical weapons is a redline.

Should the regime of bashar al- assad crossett, there would have to be some form of retribution.

The international willingness to cooperate evaporates, what does he do?

They are boxed in.

That's why providing the legal justification is going to be key.

That is part of what is going on behind the scenes, the discussions taking place.

What is most important to be looking at in the next 24 hours, and this is what the administration will be pointing to in terms of intelligence to justify carrying out the strike is the intelligence estimate being put together by the director of national intelligence.

We expect to see a declassified version released to the public this week and consultation with members of congress showing the classified version.

But in every case, the administration is saying whatever is going to happen is going to be limited in size and scope and the goal is not regime change.

A lot of that comes down to the legal justification.

You talk about behind-the- scenes -- who is consulting with consulting with president obama right now?

This is a very tight circle of advisers.

A lot of them over the course of the last several years, going back to the 2008 campaign, have been part of this inner circle, maybe in different roles.

You have susan rice, the president's national security adviser.

She was a key adviser in 2008 and was his un ambassador rice rate his chief of staff, former deputy director on the national security council.

Two other key members of the national security council and then outside the white house, you have john brennan, the cia director who was the president counterterrorism advisor for the last several years and defense secretary chuck hagel and secretary of state john kerry.

Thank you very much.

Our white house correspondent, julianna goldman with the latest on what's happening vis-a®-vis the white house, syria, the french and the british.

It is complicated.

Whether an attack is imminent or not, it is serious business.

Coming up, we will go to the other end of pennsylvania avenue and hear from a top autocrat on the chances for a u.s. attack.

That's coming right up.

Stay right here.

? welcome back.

All makers from both parties are pushing the obama administration to get congressional approval before launching any sort of military strike area chief washington correspondent, peter cook, is on the hill where he just spoke to a top house democrat about syria and some of the other issues waiting for congress to address trade is the president going to have to get a congressional green light to do anything here?

Ask the longer it takes, the louder the calls become from both republicans and democrats.

The president might have to come and get congressional approval.

But we are hearing that from rank-and-file republicans and democrats but we have not heard from the leadership.

I just spoke to chris van hollen.

He's a strong supporter of the president and i put the question to him, does the president need a congressional green light?

I think it depends on nature, scope, and duration of a military strike.

There are lots of examples where presidents have used their constitutional authority to to take very limited strikes.

And if you are going to take an expensive military action or put military personnel in the line of fire, then i think it would be required.

Certainly consultations are called for.

Have you had any consultation so far?

I think he's in the process of meeting today and i have had conversations with senior officials in the white house.

The president will be meeting with top congressional leadership i believe later today.

But everything i see being contemplated relate to a very narrow, targeted kind of strike.

But i should say he for the president undertakes that, it is important the administration put forward clear evidence linking the use of chemical weapons in syria to the asad regime.

Have you seen that evidence yet question mark are you satisfied?

Let me say this -- is is pretty clear chemical weapons were used.

But i think it's important the administration establish a link to the asad regime.

I'm told they have additional information but i have not seen that.

I do believe the administration intends to be forthcoming.

Do you believe of the president presents that evidence and does come to to ask for the use of force and take time to get congressional approval that he would get it?

I don't know the answer to that.

From my perspective, as they clearly establish that link between the use of chemical weapons and the asad regime, think it's appropriate and necessary for the united states to take very limited, targeted military action for this gross violation of international law, the use of poison gas.

But the president has to two very narrowly defined the goal here.

The goal is to deter for you -- to deter future use of chemical weapons by the asad regime or others who may be contemplating that as part of military engagement.

The united states and international community has a strong interest in making sure we do not allow poison gas to be used.

It's a violation of international conventions and it could put u.s. forces in huge harm's way down the road.

Let's switch issues to domestically.

I want to get your take on the fight to come over the budget and debt ceiling.

We had house speaker john boehner say whale of a fight is in store.

Is he right?

I was really disappointed to hear the speaker say that.

He has made it clear in the past that he understands defaulting on our obligations would create economic chaos.

Now he says he wants to have a huge fight over whether or not the united states pays its bills on time.

We are not going to negotiate over the full faith and credit of the united states.

To not pay our bills on time would create economic chaos.

I hope the speaker, rather than fanning the flames for the hotter heads in his caucus would actually try to lower the temperature and not jack up the temperature as he appears to be doing.

, credits will not consider making any changes to the above limitation of the health care law -- democrats will not consider any changes above the limitation of the health care law?

Let's make sure people understand what the debt ceiling is about.

The debt ceiling is the united states pays its obligations that are due and bowed great americans can't get up one day and say i'm not going to pay my mortgage or credit card bills unless i get something for it.

The reality is if the united states were to do that, it would create economic chaos.

We have been very clear and the president has been very clear, we are not going to gamble for the full faith and credit of the united states.

It is reckless and will hurt the economy.

Chris van hollen, talking to me on the hill.

One modest sign of life on the budget negotiations is a small group of republicans continuing conversations with the white house today.

This is part of the diners club, the group the president has been meeting with over dinner at the last couple of months.

No real sign of rye grass, but the fact is lines of indications are open is seen as one sign of life here on capitol hill.

How would one compare the debt showdown today as we saw in 2011 where the u.s. lost its aaa credit rating?

We saw how ugly it was then, but it feels a lot art are now than it did in 2011. there is no clear roadmap in terms of getting to a negotiated settlement and it's not clear how we get there at the end of the day.

What does john boehner get in return for extending the debt ceiling?

There are no clear bargaining chips right now and that's why there are people really fearful about what's going to happen this fall.

I told you in april and i'm

This text has been automatically generated. It may not be 100% accurate.


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