Our 'Shareholder Spring'

	May 14, 2012
THIS WEEK
The most expensive Presidential election of all time? That came over a century ago, in 1896, when America’s original Populists endorsed a young Democrat off the Great Plains who had championed a federal income tax on America’s rich. America’s rich would not be amused. They funneled unprecedented millions into the campaign of GOP candidate William McKinley. Of every $1,000 Americans spent for goods and services in 1896 — our gross domestic product — 60 cents went for Presidential campaign spending, most all of that for McKinley. In 2008, by contrast, White House candidates spent just over a dime per $1,000 of GDP. But spending this year may end up rivaling that incredible 1896 level, now that the U.S. Supreme Court has blown away limits on how much the rich and the corporations they run can contribute politically. Just one right-wing political group alone, we learned last week, will likely spend a quarter-billion dollars in 2012. Ironically, this sway the rich hold over our elections for public office is growing at the same time the rich seem to be losing their sway over the balloting that takes place in their own private backyards, at corporate annual shareholder meetings. What's going on here? That puzzle we contemplate in this week's Too Much.
GREED AT A GLANCE
America’s rich, says a top expert on the wealthy frame of mind, are becoming “irrationally defensive.” Last week, at the annual American Express Luxury Summit in Palm Beach, pollster Jim Taylor reported that the Occupy movement and the escalating “divisive argument over economic fairness” have a quarter of the nation’s top 1 percent “worried about being disparaged for being financially successful.” Two years ago, 43 percent of Americans making over $450,000 a year liked having “others recognize them as wealthy.” Today, just 30 percent feel that way. The nation’s rich, laments Barron’s business writer Richard Morais, seem “too afraid to even be seen in public.” The “demonizing of the wealthy,” he's warning, “has finally reached a dangerous tipping point for the nation.” CEOs take risks. That helps explain, they love to remind us, why they deserve all those big bucks. Steve Wynn, the Las Vegas-based chief exec who tops one of the world’s largest gambling empires, should really relish risk. Who puts more at risk, after all, than a professional gambler? But Wynn turns out to be a little bit “risk-averse” — with his own personal future. Wynn’s latest CEO contract with the gaming corporation he runs guarantees him a $258.4 million “golden parachute” if some other gaming company buys up Wynn’s operation and chooses to bounce him as CEO. In 2011, the Las Vegas Review Journal reported last week, Wynn took home $16.5 million, the year’s third-highest paycheck in the Las Vegas metro area . . . Can you be super rich and a couch potato at the same time? The good people at Bang and Olufsson, the luxury electronics company, seem to believe so. They're going after the mega-millionaire couch potato market. B & O is currently hawking a 103-inch plasma TV that targets deep pockets who don’t want to have to move once they’ve plopped down for boob-tube time. This Beovision 4 model rests on a “unique motorized stand,” one reviewer notes, and the unit’s remote lets the user “tilt and turn” the screen “to face you wherever you sit in your room so you don't have to change your seat.” The total package cost: a sweet $104,000.	Quote of the Week “Concentration of wealth yields concentration of political power. And concentration of political power gives rise to legislation that increases and accelerates the cycle.” Noam Chomsky, Plutonomy and the Precariat, The Nation, May 8, 2012
PETULANT PLUTOCRAT OF THE WEEK
Every plutocrat has to start someplace. Tagg Romney's start — as the proprietor of his own private equity fund — came four years ago, right after his dad Mitt’s 2008 bid for the White House fizzled. Tagg back then had no experience in private equity. But he did have access to a nifty Rolodex, and his fledgling Solamere Capital fund — named after the Romney family's Utah winter getaway — speedily collected $244 million from 64 investors, enough to ensure Tagg easy millions in management fees. But Tagg isn't celebrating. Nasty critics are charging that he has parlayed privilege into profit. Nonsense, says the 42-year-old, a former marketing exec with Reebok and the Los Angeles Dodgers. Explains Tagg: “No one we went to as an investor said, ‘Oh, your dad is Mitt Romney, I’m going to give you $10 million.’”	Stat of the Week JPMorgan Chase CEO Jamie Dimon, a fierce foe of tighter federal banking regs, acknowledged last week that “bad judgment” has just cost his bank $2 billion in trading losses. Dimon made $23.1 million in 2011. He’d have to work the next 86 years for free to save his bank that lost $2 billion.
inequality by the numbers
	Take Action on Inequality Celebrate Move Our Money Month. Help move $1 billion off Wall Street! Watch a two-minute video about organizing a local Resilience Circle. Check 99% Power for a 99% Spring local action planned for your zip code. Urge the SEC to require companies to report their CEO-to-worker pay ratios.
IN FOCUS
Will CEOs Outlast Our 'Shareholder Spring'? A string of surprising 'say on pay' votes has some executive pay critics sensing an impending revolution in corporate boardrooms. On every day of the year, save one, America's corporate CEOs can confidently strut about and face no open, unscripted public challenge. That one: the day their annual corporate shareholders meeting takes place. On that dicey day, in theory at least, America’s top corporate executives actually have to face Americans they can’t boss around or defiantly ignore.    All this makes the annual shareholder meetings that blossom every spring a prime stage for political theater, a wonderful opportunity to spotlight corporate greed grabs and the senior execs who make them. Activists of the Occupy Wall Street movement have this spring been seizing this opportunity, week after week, at the annual meetings of companies that have ranged from Wells Fargo and Verizon to General Electric and Bank of America. Their Occupy movement protests have made headlines coast to coast. But some CEO critics this spring have had more than political theater on their minds. They’ve been seeking to actually change corporate behavior, particularly on executive pay, via ballot battles on shareholder annual meeting resolutions. These critics have a new weapon in their arsenal. The two-year-old Dodd-Frank Wall Street Reform and Consumer Protection Act gives shareholders the right to hold advisory votes on top executive pay plans. Last year, the first with this “say on pay” mandate in play, shareholders voted no on pay plans at 36 U.S. companies. Shareholders so far this year have delivered as many as 14 no verdicts, reports compensation analyst Broc Romanek, most famously at the annual meeting of the bailed-out banking colossus Citigroup. These votes, shareholder advocate Greg Ruel claimed last week, have America's corporate elite, running scared. Top execs are “taking the non-binding say on pay vote very seriously” and accepting “undeniable” change in CEO pay policy. Some observers of our corporate world even see a veritable business revolution unfolding right before our eyes. “The weapons might be proxy forms rather than Molotov cocktails, and the rebellions might be staged in hotel conference rooms rather than on the streets,” as Wall Street Journal MarketWatch analyst Matthew Lynn gushed Wednesday. “But there is still a whiff of insurrection in the air.” Other analysts are hearing echoes of Tahrir Square. They've taken to calling the current round of corporate annual meetings our “shareholder spring.” Even Felix Salmon, the widely respected and normally unflappable Reuters financial analyst, is sensing a fundamental shift. Corporate boards, Salmon wrote last week, are now realizing “they answer to shareholders, and that the biggest shareholders — pension plans, mutual funds, that kind of thing — are ultimately representing the interests of the 99 percent.” With shareholders mobilizing, contends Salmon, CEOs who’ve been awarding themselves “ever more obscene quantities of money” now know their “gig is up.” In fact, despite the 'say on pay' hoopla, the CEO “gig” is still going strong. The most notorious of America’s CEOs — the execs who run the nation’s top banks — are doing just fine. Bank CEO pay, reports the American Banker trade journal, rose a median 16 percent in 2011, the first year with “say on pay” on the books and the same year that bank stocks lost an average 23 percent. Overall U.S. chief executive compensation, adds GMI Ratings, jumped over 15 percent in 2011, about 15 percent more than overall share values. And CEO pay down the road, GMI observes, stands poised to escalate even more sharply. Top execs are sitting on a “sleeping time-bomb of stock option grants.” Back in 2009, GMI’s Paul Hodgson explains, corporate boards reacted to Wall Street’s nosedive by showering top execs with “mega” grants of stock options. Execs who had been receiving 200,000 option grants annually when their company shares were fetching $50 would suddenly — with their company shares selling for only $10 — find their pockets stuffed with a million option grants. Today, with those $10 shares now back at their pre-crash $50 level, these fortunate execs now stand to pocket $40 million in profits on their 2009 options. Corporate flacks will no doubt defend those windfalls as “performance” related. Executives who “perform” and raise their share price, the argument goes, deserve all the good fortune that comes their way. The mainstream shareholder activist movement, unfortunately, buys into this “performance” ethos. One shareholder movement stalwart, the advisory firm Investor Shareholder Services, counts as progress any move that ties CEO pay to “performance” — and won’t recommend a no “say on pay” vote, notes analyst Steven Davidoff, if a corporate board has tied most of its CEO pay to a performance “metric,” even if the resulting payout to the CEO could mount into the tens of millions. But not all activists in the shareholder wars are swallowing the “pay for performance” line. True enterprise success, as AFL-CIO president Richard Trumka is emphasizing, hinges on far more than what the “performance” of any single executive might contribute. “If a CEO is treated to a windfall after a profitable year, there is no good reason for others at the same company to be left in the dust with minimal raises or no raises at all,” Trumka observed earlier this month. “Ultimately, the economic prosperity of our country is a shared effort, and it should be a shared reward.” That reward over recent decades, of course, has been anything but shared. Back in 1980, the latest data show, CEOs averaged just 42 times U.S. worker pay. Last year’s average: 380 times. America’s unions and other public interest groups active in Americans for Financial Reform are now pushing to have a “shared success” framework built into corporate compensation. More specifically, they want individual U.S. corporations measured by a “pay ratio” yardstick. This “pay ratio” measuring should already be taking place. The same Dodd-Frank legislation that requires “say on pay” also requires publicly traded corporations to annually disclose the ratio between their CEO and worker pay. This disclosure, notes the AFL-CIO's Trumka, would make for “a simple and easy way to encourage companies to consider CEO pay in the context of their entire workforce and restrain the level of CEO pay.” But America’s power-suit brigades have no interest in restraining CEO pay, and they’ve been feverishly lobbying to derail the Dodd-Frank pay-ratio mandate. The Securities and Exchange Commission, the federal watchdog agency with authority over Wall Street, has so far played along with the derailing, by dragging its feet on writing the regulations necessary to enforce pay-ratio disclosure. The AFL-CIO and other groups are demanding that the SEC move swiftly to issue those regulations and allow the Dodd-Frank disclosure to begin. They’ve organized a public campaign to help speed that demand. And some top media editorial writers are now actively backing the disclosure push. This drumbeat for a pay-ratio standard — beyond the “pay for performance” metrics that CEOs can so routinely game — figures to pound still louder in the months ahead. That's because newly elected French president Francois Hollande has pledged to apply a 20-to-1 ratio between the pay of top executives and workers at corporations where the French government owns a controlling interest. Applying this ratio would drop CEO pay at the French utility giant EDF from about $2.1 million in U.S. dollars to under $700,000. U.S. federal officials, with Dodd-Frank’s pay-ratio disclosure mandate enforced, could easily press for the same standard at bailed-out corporations where American taxpayers still hold a shareholder stake. With Dodd-Frank’s pay ratio in effect, even stronger steps would become feasible. Congress, for instance, could deny government contracts to U.S. corporations whose top executives are taking home over 20 or 50 or 100 times what their workers are making. That sort of move just might give us a real “whiff of insurrection.”	New Wisdom on Wealth Robert F. Kennedy Jr., Petro Plutocracy, May 8, 2012. How the executives who run the fracking industry have flourished through habitual law breaking and political contributions. Bonnie Kavoussi, Rich People Want To Be Praised 'As The Salvation Of The Rest Of Us,' Huffington Post, May 8, 2011. Why the wealthy so strongly back economic theories that praise rich people. Simon Clark, Teacher Taylor Chases Banker Diamond as Income Inequality Widens, San Francisco Chronicle, May 9, 2012. A vivid picture of the inequality that drove a teacher in London to join the Occupy movement. Jay Jochnowitz, Do the wealthy earn their money? Albany Times Union, May 11, 2012. An editorial page editor notes that public spending, not the talents of rich people, drives our progress. Michael Sandel, Too rich to queue? Why markets and morals don't fit, Guardian, May 11, 2012. We're entering a world where everything is up for sale, and that's bad for us all. Matthew O'Brien, The Rise and Rise of the Super-Rich, Atlantic, May 11 2012. A review of the basic stats. End Student Debt! The Nation, May 21, 2012. Students in California are pushing an effort to make college tuition free for students who maintain a solid GPA or do community service. Lost tuition would come from a surtax on income over $250,000.
In Review
An Epidemiological Stopwatch on Inequality Hui Zheng, Do people die from income inequality of a decade ago? Social Science & Medicine, July 2012. Epidemiologists — the scientists who study the health of societies — first began documenting the impact of economic inequality on how long we live a few decades ago. In more equal societies, considerable research since then has shown, people live substantially longer and healthier lives. And this phenomenon, epidemiologists add, doesn’t just involve the poor. If you have a middle-class income in an unequal society, you’re likely going to have a shorter life span than a middle-income person in a more equal locale. Why does inequality undermine the health of people who live amid it? Some scientists have emphasized the political dimension. The more wealth concentrates at the top, these analysts posit, the more the wealthy separate from the rest of society — and the more the wealthy wield their power to feather their own nests at the expense of investments in health and other public services that could help a broader public. Other analysts emphasize the breakdown in social cohesion that accompanies growing inequality, and still others emphasize the constant stress that ever wider gaps in income and wealth invariably create. Those without great income and wealth come to feel under ever greater pressure to get it — and feel increasingly like failures when they don’t. But one nagging question has gone largely unanswered in the epidemiological research: Just how long do the negative impacts of inequality take to kick in? Ohio State University sociologist Hui Zheng has just published new research that takes that question on. He has crunched, over the course of his research, data from two decades of U.S. National Health Interview Survey results and analyzed 79 previous epidemiological studies on income inequality and health. Some of these previous studies, Zheng notes, have attempted to match the timing of spikes in death rates to increases in inequality. But these studies have either allowed a mortality follow-up period “too short for income inequality to exert its impact or too long for income inequality to maintain its influence.” Ohio State’s Zheng has endeavored to avoid these pitfalls and tease out the specific annual impact of growing inequality. And how does Zheng accomplish that feat? If you don’t particularly relish diving deep into data, you probably don’t want to ask. On the other hand, if “time-varying person-specific covariates” do fascinate you, you’ll want to jump into Zheng’s fine print. But Zheng has also taken pains to make his conclusions accessible. The negative health impact of growing inequality in any one year, he sums up, will start appearing five years later. This impact will peak at seven years and then begin to fade at a dozen. Of course, if inequality keeps increasing year after year, the fading will never take place. But inequality doesn’t have to keep increasing. We can indeed reduce inequality — and live healthier lives as a result. We had better start that reducing. None of us, after all, are getting any younger. For more background on inequality and health, including a comprehensive Annual Review of Public Health article published earlier this year, check the resource section of the University of Washington-based Population Health Forum.	Inequality Links Inequality.org Common Security Clubs/Resilience Circles 99% Power United for a Fair Economy