Money for Nothing

Money for Nothing

Money for Nothing

Moneybox
Commentary about business and finance.
May 17 2001 11:30 PM

Money for Nothing

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In my very first"Moneybox," more than a year ago, I wrote about a top corporate executive who, despite a checkered past, always seemed to land on his feet. The tale served as a kind of counterpoint to the idea, cited frequently by top executives who make a tremendous amount of money, that the business world is cutthroat and unforgiving of failure and that a tremendous amount of money is the only fair way to offset the risk of terrible and merciless failure.

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The chances are I could have written a similar story about the rather astonishing lack of dire consequences for extreme failure in corporate America about once a week since then. But I didn't. Now, however, I feel compelled to bring this issue up again in light of the news that George Shaheen will be making $375,000 a year for the rest of his life (as reported earlier this week by CNET.com).

Shaheen, famously, is the guy who left one of the corporate world's most prestigious jobs, heading Andersen Consulting (now Accenture), to run Webvan, the Internet grocery startup. He joined the firm shortly before its IPO. He left last month ("A different kind of executive is needed to lead the company at this time," he, uh, explained). Over the course of his tenure, WBVN did go public and, of course, subsequently plummeted to around 15 cents a share and is on the road to delisting.

Like everything else about Webvan, this variation on the golden kiss-off is truly spectacular. How can a less-than-two-year tenure during which shareholder value was relentlessly destroyed result in a $375,000 lifetime salary? (Forget its top stock market capitalization, Webvan is now valued at about a third of the valuation that it fetched during its second private round of financing.) Bear in mind that shareholder value as a yardstick of CEO success is not something that I made up—it's the measure that is most popular among CEOs themselves, or at least it became that way over the course of the bull market. By that yardstick, is there any way that things could have gone any worse for Webvan? I mean, really, what does a CEO have to do to avoid getting a sweetheart deal? Kill shareholders with his bare hands? Is there a remotely plausible rationale for Shaheen's deal?

Shaheen himself, in an earlier interview with CNET, defended his Webvan tenure: "I'm proud of my contributions, and I came in and worked hard on a business model that was difficult to execute." He worked hard. This is something we used to hear a lot during the "instant millionaire" period—beneficiaries of this or that IPO home run were always pointing out that they worked hard. Unlike anyone else in America, I suppose. Now perhaps the notion will make a comeback to justify sweetheart arrangements like Shaheen's. Of course, I haven't quite had time to crunch all the numbers, but I think that of, say, the 800 people Webvan has recently laid off, the number who "worked hard" is higher than the number receiving lifetime salaries from the company.

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Anyway, Shaheen also noted that "this whole space got clobbered. No one foresaw what was going to happen." In other words, hey, it's not his fault, it was just bad luck! The forces of chance only become relevant to highly paid executives when their luck is bad. In a parallel universe in which investors were still enthusiastic about WBVN and Shaheen's stake in the company was worth tens of millions of dollars, then of course the official line would be that such massive sums are not only perfectly justified but that it's only the prospect of such a payoff that would lure a quality executive like Shaheen to stomach the downside risk involved.

And what's the downside risk again? It's $375,000 a year for life. That's the worst-case scenario. That's the pit of snakes. That's the horrible consequence of failure. So if there exists a person out there who wouldn't be willing to take a career "risk" knowing that this is as bad as it could get (whether you continue working or not), then please let me know.

Meanwhile, the $375,000 question is what will happen should Shaheen outlive Webvan. A company spokesman answered a Wall Street Journal query along those lines by saying that Webvan has "no intention of going out of business." Let's hope he's right, for George Shaheen's sake—the man has suffered enough at the hands of this cutthroat, unforgiving business world of ours.