In the midst of a downturn, the rich get richer. 3/16 ReleVents hed: CEOs siphon stocks dek: In the midst of a downturn, the rich get richer. By James Mathewson
Greed. The word that defined a generation of Wall Street raiders during the last recession is resurfacing in connection with the new economy raiders–high-tech CEOs. According to a Rocky Mountain News story, Qwest CEO Joseph Nacchio had been selling $350,000 worth of his stock every day for the past few months. Does he know something his investors don’t know? Perhaps laying off 10,000 workers was more than just an efficiency move but a necessity.
One of the more interesting aspects of the story is that he had planned to continue selling off tens of thousands of shares per day until June of 2003, which would have nearly exhausted his 6.1 million shares. But U S West shareholders complained to the SEC, which leaned on Nacchio to discontinue the practice. In the midst of it all, the Qwest board gave him an additional 5 million shares. If he hadn’t stopped selling his own shares (a practice he says he will resume soon), he could earn $350,000 per day until January 2006, assuming Qwest’s stock averages out at its current price.
In an even more chilling news story on our site today, Oracle CEO Larry Ellison appears to have pumped and dumped large quantities of his company’s stock. While he delivered rosy earning projections for the third quarter of 2000–projecting 30 percent growth in a weakening market–he was in the process of dumping nearly $900 million of Oracle stock at its peak price of $32 per share.
Just prior to his stock sale, he also said the company saved more than $1 billion with its new suite–Oracle 11i–when in reality it was a 2000-staff layoff that saved the company the money. When the real earnings report surfaced, showing only 9 percent growth, the stock went into a free fall, bottoming out at $16 per share.
Ellison’s behavior has sparked a class-action suit on behalf of all those purchasing Oracle stock between December 15, 2000 and March 1, 2001, charging him with violation of the 1934 Securities Exchange Act. In layman’s terms, he’s accused of insider trading.
I’ve long thought it odd that company executives, whose compensation is heavily tied to stock options, be allowed to trade the stock at will. It seems the very definition of insider trading. Yet, it is an established practice that has never been scrutinized by the SEC, though executives are required to file special forms when they sell large quantities of their own stock.
Incentive-based compensation is still the best way to motivate executives and attract executive talent–the rarest commodity in the tech industry. But something is out of whack when the CEO of a company could earn up to $350,000 per day for several years while laying off thousands of employees without severance.
James Mathewson is editorial director of ComputerUser magazine and ComputerUser.com.