Healthy Skepticism Library item: 7494

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Morgenson G.
FAIR GAME; A Lump Of Coal Might Suffice
The New York Times 2006 Dec 24
http://select.nytimes.com/search/restricted/article?res=F10A11FA3A550C778EDDAB0994DE404482

Abstract:

HERE’S hoping that Hank McKinnell, the former chief executive of Pfizer, chose a giant Sequoia for his Christmas tree this year, because there is no way he could fit the $200 million gift that his old board gave him a few days ago under a mere Fraser fir.

Since Pfizer dumped Mr. McKinnell last July, we have been awaiting the details of his severance arrangement. We guessed it would be dizzying — his pension alone had been estimated at $83 million.

But after the company said late last Thursday that the terms of the package would soon emerge — on a day when shareholders, distracted by holiday shopping, might not notice — we knew the amount would be odious.

Here’s how Mr. McKinnell’s $200 million package adds up. First is his pension of about $6.65 million a year for as long as he lives. The company estimates its value at $82.3 million. Sweet.

Next comes $78 million in deferred compensation, which includes $67 million in pay that Mr. McKinnell has set aside over the years. Then there is an estimated $18.3 million in performance-based shares. Given Pfizer’s recent results, perhaps it would be more accurate if these were identified as failure-based shares.

Tack on $12 million in severance, vested stock grants worth $5.8 million and a $2.15 million bonus and Mr. McKinnell has all the makings of a very, merry Christmas. But that’s not all.

Mr. McKinnell, 63, also received $576,573 worth of medical, dental and life insurance as well as the unspecified value of continued medical and dental coverage under Pfizer’s retiree plans for him and his partner, Joanna Slonecka. Included in this pot is the cost of financial counseling programs. (Maybe he can dip into that amount to help line up some therapy for Pfizer’s board.)

The most curious figure of all, though, is $305,644 — rounded up to the nearest dollar, presumably — that represents the value of Mr. McKinnell’s unused vacation days.

‘‘The Pfizer board of directors has been inept,’‘ said Frederick E. Rowe Jr., a money manager in Dallas and president of Investors for Director Accountability, a grass-roots organization that organized a vote against directors at Pfizer’s shareholder meeting last April. ‘‘Over a long period of time, it has obligated Pfizer shareholders to pay Mr. McKinnell staggering sums for continuous, unmitigated failure. This is nothing other than a betrayal of Pfizer employees and shareholders.’‘

Paul Fitzhenry, a Pfizer spokesman, said Friday that the payouts to Mr. McKinnell were the company’s obligation under an employment contract struck in 2001 when Pfizer shares were at $46, far above the $25.97 at which they closed on Friday.

‘‘The stock had risen more than tenfold over the preceding 10 years and Hank McKinnell played a large role in increasing Pfizer share value during that period,’‘ Mr. Fitzhenry said. None of Pfizer’s directors, including Mr. McKinnell, were available to discuss the exit package, Mr. Fitzhenry added.

According to the regulatory filing that outlined Mr. McKinnell’s take, the package was priced as of Dec. 13 and his resignation letter was signed Dec. 18. But the company waited until late on Dec. 21 to file the terms of the deal with the Securities and Exchange Commission.

The $200 million that Mr. McKinnell walked away with is also indicative of how much executive compensation can remain hidden from shareholders’ ken. Recall that Pfizer has prided itself on being an enlightened corporate champion of full disclosure and transparency; its proxy statement last year provided significantly more details on pay than is typical.

Still, that proxy was silent on the $78 million in deferred compensation owed to Mr. McKinnell. This means shareholders can assume that the amount and nature of what was under wraps at Pfizer is not an exception but rather the rule across corporate America.

Mr. McKinnell’s $200 million is even more disturbing when put next to the roughly $137 billion in market value that vaporized on his watch. That Mr. McKinnell forced his shareholders to pay $305,644 for his unused days off after draining them of $137 billion is downright stupefying.

But this is how too many leaders behave in 2006. They give large numbers of pink slips to employees. They create really big losses for their shareholders. But they make sure they chisel the company’s owners for every nickel and dime, including dental coverage, unused vacation days and financial counseling programs.

Contrast Mr. McKinnell with James E. Burke, the former chief executive of Johnson & Johnson, who led that company through the Tylenol crisis of 1982, when every bottle of the medicine had to be recalled after seven users were poisoned in Chicago. The brand not only survived, it thrived. And Johnson & Johnson went on to become the dominant health care company in the United States.

Back in 2003, Mr. Burke was honored by Harvard Business School, his alma mater, with an Alumni Achievement Award.
‘‘Remember that being a business leader is about giving — not taking,’‘ Mr. Burke said in an interview at the time, which is archived on the school’s Web site. ‘‘We’ve corrupted the system by hiring boards of directors that feel beholden to the C.E.O.,’‘ Mr. Burke said, adding that business executives need to ‘‘recreate a trust agenda.’‘

Mr. Burke’s views resonate even now, three years later, but the lessons were clearly lost on Mr. McKinnell. And Mr.
Burke’s thoughts are especially meaningful given that many executives are lobbying hard in Washington and elsewhere to recreate the pre-Enron ‘‘trust me’‘ agenda.

At least there is this: while Mr. Burke is recognized as one of the greatest business leaders of all time, Mr. McKinnell will go down in history as something else: the quintessential me-first executive, mismanaging the company and then wringing from his shareholders every penny possible on his way out.

Lest Mr. McKinnell’s accomplishments be forgot, Mr. Rowe said Investors for Director Accountability has decided to create an annual prize, beginning in 2007, to recognize the public company board that has enabled the most self-serving performance by a chief executive in America. It will be called the McKinnell Award. Stay tuned to see who the recipient is.

In the meantime, Merry Christmas, Hank. From the shareholders who lost $137 billion on your watch and the workers who will lose their jobs because of your stewardship. We hope you enjoy the money piled under your tree.

Every last nickel.