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How to Make Millions, Losing 45% of Shareholder Money

I started my life in the blogging world three months ago, writing about The New Robber Barons.

In this story I happened to mention a certain CEO for a very large drug company who made a lot of money, but who had, well, not returned the favor to shareholders. They lost about 45% of their money during his reign.

The CEO did better. His retirement package consists of a lump sum payment of $83 million and he also earned nearly $16 million in 2005.

And of course this is embarassing, so this big company CEO has been fighting back every time he meets those angry shareholders and in the press.

This is what he says, "In my business, pharmaceuticals, the medicines we build this year will not make it to market for 12 to 15 years. So what is performance? Is it current share price? I don't think so. It's long-term value."

It sounds a little bit like Bush when he declared that our highest priority was to capture Osama bin Laden, and a couple of years later, when we had failed, it wasn't a priority anymore.

So for this big company CEO share price isn't really that important. It is long-term value. Which we will find out about 12 to 15 years after he retires. But we should pay him for this now.

In his defense, I note that he increased revenue by nearly 10 percent annually, boosted net profit, cash flow and earnings per share by more than or nearly 20 percent a year.

Problem, according to this CEO is not his performance, which was great, problem is that the share price for his company was hyped when he took over. The company traded at a valuation of 45 times earnings. So he said "It's not worth 45 today and it shouldn't have been 45 in 2000 as a result the share price has declined by 40 percent."

He makes a good point. Too bad he didn't tell his shareholders back in 2001, when he took over as CEO, that they had been bamboozled to pay double what the company was worth. After all, he was second in command before becoming CEO and part of the senior management that hyped company stock.


Anonymous Rosethejet said...

So who was the CEO?

OR was this a parable meant to show us the callousness of CEO's and their arrogance when trying to justify their obscene salaries.

Sort of like how Congress justifies their salary increase of thousands while justisfying the refusal to grant a lousy buck or so an hour to working stiffs?

They have no shame and don't really care that they have no shame.

IT's all about the love of money and nothing else. The old saying is very very true.

The root of all evil is the LOVE of money.

Anonymous July17th said...


Follow link in this paragraph:

""And of course this is embarassing, so this big company CEO has been fighting back every time he meets those angry shareholders and [in the press.]""

Anonymous Rosethejet said...

OHDUH, I swear to God, if my head wasn't screwed on I'd lose it.

Sorry about that.

I sort of just glossed over the link and didn't realize it was there.

Hard to believe I actually graduated from USC, with that sort of ability.

Anonymous sunrunner said...

hah! Should read what Warren Buffet (who makes 100,000 per year as CEO) has to say about the "modern CEO." It is in his 2005 letter to the shareholders on the Berkshire-Hathaway website. The whole thing makes for some interesting reading.

There is another article out (I think in the WSJ) which talks about pensions and CEOs -- that the cuts in workers pensions have basically gone into the pensions of CEOs and other "fired" upper management. Buffet comments on how being fired can be such a windfall for these folks.

Anonymous Reaniel said...

While it is not uncommon to have the stock outvalue the actual company value, it is extremly... what's the word... oh yeah, LAME! To use it as an excuse for bad stock performance.

Stock price is usually an indication of future (or, rather, future expectation) of how a company will perform. While the current revenue showed a decent increase, the fact that stock price dropped pretty much says everything: the investors aren't too comfortable with the direction the comany is heading.

In short, this guy is extremly lame to use this as an excuse for his poor leadership.


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