January 14, 2002
Tyson Foods Inc. CEO John Tyson blundered badly last year, and the price of the Arkansas-based poultry giant’s stock reflected it. The share price dropped 20 per cent. That ain’t chicken feed.
Nevertheless, Tyson’s board, which by law is supposed to represent the shareholders’ interests and make sure management is making their money grow, awarded Tyson a 2001 bonus totalling $2.1 million. That ain’t chicken feed either. In fact, it’s $1.3 million more than the board’s own guidelines for CEO compensation
The Tyson board’s behavior really ruffled Chicago Tribune business columnist David Greising’s feathers. In his January 6 column he took a sardonic sideswipe at the board for, in effect, bestowing a reward on incompetence.
“Some will see this as another example of executive arrogance and boardroom banditry,” Greising wrote. “…Such criticism is pure poppycock.
“We shouldn’t criticize Tyson’s board,” said the tongue-in-cheek columnist. “Quite the contrary. We should applaud Tyson’s wizards for their originality. For their ostentation. For setting a new standard in a rarely used category of corporate excess: The blunder bonus.”
How exactly did Tyson blunder?
The first screwup came when he backed out of a $3-billion merger with meat-processing giant IBP Inc. after claiming that the target comany had accounting problems. But a judge ruled that the “accounting problems” were bogus and that Tyson had simply gotten a case of cold feet.
And although Greising didn’t mention it, another court decision also cost Tyson a bundle when the company was fined for using a stealth van operation to ferry undocumented recruits from Mexico to its plants in the South and Midwest(a little-discussed but highly successful part of the U.S. meat industry’s union-busting strategy over the last 20 years).
But John Tyson isn’t the only corporate CEO to be rewarded lavishly by a board after screwing up the shareholders’ investments. In 1991, he points out, the late Coca-Cola chairman Roberto Goizueta collected an $81-million stock bonus that the board had voted six years earlier in 1985, the same year Coca-Cola rolled out its “New Coke” formula that some marketing experts consider the business blunder of the century.
Greising says that in order to be considered a genuine “blunder bonus,” the reward money must be paid to the CEO while he or she is still in office. Mattel CEO Jill Barad collected a $50-million present from her board two years ago after she led the Barbie Doll marketer deeply into money-losing territory, but there was a price on board’s largesse: Barad got fired. He reward was actually a “severence package.”
Same for Conseco Corp. CEO Steven C. Hilbert, who in 2000 won the “Overpaid Failure of the Year” award from corporate critic Graef Crystal. The Conseco board fired Hilbert but still sent him on his way with a going-away present of 2 million shares. Not bad. Those shares were worth $10.1 million. But two years earlier, before Hilbert had ruined the shareholders’ equity, they would have been worth more than $114 million.
But Greising reserved the last full measure of his contempt for board of Computer Associates, which set out to award founder Charles Wang a blunder bonus but fumbled the timing and ended up committing a “bonus blunder.” In 1998,when CA’s failures were not widely known, the board awarded Wang and two top executives “a huge grant of 20 million shares.”
Ooops. The $675-million cost of giving away those shares forced the company to report a quarterly loss. The shareholders sued, Wang had to return nearly half his shares and set of a shareholder revolt that nearly cost him control of the company.
