A lot of people have been surprised by the meltdown in corporate ethics that gave rise to Enron Corp., WorldCom Inc., Tyco International Ltd. and so on, but not Michael Birck, the chief executive at Tellabs Inc.
Birck said that anyone who looked could see the corporate disaster coming a few years ago, as compensation for chief executives started to fly out of sight. The big bosses of corporate America got millions of dollars more each year, even when their companies’ performance headed south.
For years Birck has been a public critic of excessive CEO compensation, and he discussed some of his ideas at a recent luncheon address to the Notre Dame Club of Chicago.
“Corporate responsibility starts with the CEO,” Birck said. “If the CEO isn’t ethical, the company will reflect that.”
Most corporate boards think highly of their chief executives, Birck said, and most share the view that “our guy is above average–sort of like Lake Wobegon.”
Board members often agree that the top dog’s compensation ought to be among the highest 25 percent in the country, Birck said, and with a majority of boards doing that, the compensation escalation headed toward the stratosphere.
“Where will it end?” Birck said. “It ought to end as soon as the company’s performance doesn’t match the compensation.”
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At Naperville-based Tellabs, which makes telecom equipment, earnings have been absent and layoffs have been common of late. Executive compensation has decreased accordingly. No bonuses have been awarded in three years, Birck said.
But when he examines proxy statements from firms in which he holds stock, Birck sees the opposite trend in most cases, with executives continuing to prosper even as their company and its shareholders suffer.
“When I see that, I respond by voting against every proposal that the company’s board is backing,” he said. “I don’t know that it does any good, because I don’t own that much stock outside of Tellabs. But that’s what I do.”
Wholesale hitch: It was last summer when the higher-ups at SBC Communications Inc. first revealed their utter horror that government-mandated wholesale rates had put their firm on a path to financial ruin. They said a correction was needed, and pronto.
As part of that reaction, Ameritech Illinois filed a request in September with the Illinois Commerce Commission seeking to double its wholesale rates, from somewhere around $15 per line per month to about $30. But the urgency seemed to have drained away from the matter sometime in October, when Ameritech pulled its request for redrafting.
Now the phone company expects to file its request for higher rates some time in December, said Carrie Hightman, president of Ameritech Illinois.
At the suggestion of ICC staff, Ameritech is assembling a record to support its contention that it loses money selling wholesale service to rivals such as AT&T and MCI. Ameritech’s lawyers are questioning economists and other experts to build that argument before resubmitting its requests to boost rates, said Hightman.
“There’s no lack of urgency,” she said. “But the more complete and unassailable the filing is, the more quickly the issue can get resolved.”
Meanwhile, the Federal Communications Commission also is revisiting the matter of wholesale rates, and SBC executives seem confident of at least some changes out of Washington to their liking.
The matter could turn nasty if federal regulators back away from mandated wholesale rates, as now seems likely, while state regulators continue to back them, as could happen.
Uncertainty and gridlock for the next year or more is seen as the most likely outcome by several observers.