Look who has jumped into the debtor-in-possession lending business in connection with making a $36 million loan in the Trump Hotels & Casino Resorts chapter 11 case — Dallas-based Beal Bank and its poker-playin’ owner, Andrew Beal.
I guess that’s one way to increase one’s tab at the Trump Casinos.

The MSM is atwitter today with news about the release of a previously confidential report that details former New York Stock Exchange CEO Richard Grasso‘s compensation and perks as head of the NYSE and paints the Big Board’s directors as clueless as to how much compensation they were approving for Mr. Grasso during his eight years as Big Board CEO. New York attorney general and Governor-in-waiting Eliot Spitzer — who has sued Mr. Grasso and Wall Street financier and former NYSE compensation committee chairman Kenneth Langone over Mr. Grasso’s compensation issues — is quite pleased with the publicity, thank you.
Of course, the MSM is self-righteously indignant with the corpulent details of Mr. Grasso’s perks, including $193 million in annual pay, early pension payouts and estimated interest earned on those payouts from 1995 through 2003, as well as the $240,000-a-year secretary, two $130,000-a-year drivers, access to a private plane, and club memberships. Relying on compensation experts, the report — which was commissioned by the Big Board directors only after they had approved all this compensation for Mr. Grasso and Mr. Spitzer started snooping around — opines that the compensation represented about $100 million in “excessive” pay for Mr. Grasso.
Interestingly, the report notes that former NYSE director Carl McCall, the former New York state comptroller who headed the NYSE board’s compensation committee in 2003 when it approved Mr. Grasso’s most lucrative contract, signed the document without reading the damn thing. Despite this rather amazing disclosure and the fact that Mr. Spitzer has sued Mr. Langone (who was Mr. McCall’s predecessor as NYSE compensation chairman), Mr. Spitzer did not name Mr. McCall as a defendant in his lawsuit against Messrs. Grasso and Langone. I’m sure the fact that Mr. McCall, like Mr. Spitzer, is a prominent New York Democrat, while Mr. Langone is a prominent Republican, had nothing to do with that decision.
As expected in such misguided squabbles, both Mr. Spitzer and Messrs. Grasso and Lagone stated publicly yesterday that the report supports their respective positions in the lawsuit.
Alas, what is completely lost in the MSM treatment of Mr. Grasso’s pay and Mr. Spitzer’s Robin Hood lawsuit is the real issue, which is the failed corporate governance model of the NYSE. For insightful analysis of that issue, check out Professor Bainbridge here and Professor Ribstein here. Although arguably not be as entertaining as gossiping about how Mr. Grasso’s country club buddies lined his pockets or how Mr. Spitzer is going to be the next “Peoples’ Lawyer,” their recommendations have a much better chance of remedying the problem of oblivious directors and overpaid executives than a hundred Spitzer-type lawsuits would ever have.

The Wall Street Journal’s ($) Holman Jenkins, Jr. notes in his Business World column today on the big mergers announced over the past week (P&G-Gillette, SBC-AT&T, and MetLife-Travelers) that management is coming up with ever more creative pitches to use a company’s retained earnings for anything other than paying it to shareholders:

Procter & Gamble and Gillette spent as much effort on getting the incentives of key players right as they did on touting “synergies” and the like.
Take Gillette’s biggest shareholder and presumably the biggest beneficiary of P&G’s willingness to buy the company for an 18% premium: Berkshire Hathaway chief Warren Buffett committed a novel act when he made a video to be distributed on P&G’s Web site not merely praising the merger as a “dream deal” but vowing to increase Berkshire Hathaway’s stake in the combined companies.

Mr. Jenkins goes on to note that Gillette CEO James Kilts — who is making a cool $185 million on the merger — provided further enticement for P&G shareholders by promising not to sell any shares of the merged company for two years after the deal closes. And, if Messrs. Buffett and Kilts assurances are not enough, P&G management also promised that it would spend $18 to $22 billion over the next year and a half in buying back P&G shares.
So, what on earth is going on here? Mr. Jenkins thinks he knows:

[H]aving large amounts of cash around is also deemed a temptation to management to engage in undisciplined spending. The message here: If shareholders would kindly approve the deal, management will keep itself on a short leash in the future.
Alas, none of these gestures managed to stop Procter & Gamble’s stock price from falling off the table in the manner typical of companies announcing costly acquisitions.

Mr. Jenkins goes on to note that the market requiring incentives rather than empty promises to approve a deal is a step in the right direction in the business of selling mergers to the investing public. However, as with Hewlett-Packard’s acquisition of Compaq and Comcast’s failed bid for Disney, is the acquisition price for Gillete so high that, as Professor Ribstein might observe, it takes a near-delusional synergy theory — plus Mr. Buffett’s promotion of the deal — for P&G management to justify it?
By the way, Mr. Jenkins takes note of the unusual nature of Mr. Buffett’s involvement in selling the Gillete deal to P&G shareholders, and observes:

Mr. Buffett is famous for keeping his stock-buying intentions under wraps, knowing that his legion of fans might otherwise move the stock against him, so this was a first.

That said, we wonder what Pandora’s Box Mr. Buffett has opened. The role of big shareholders is to ride herd on management, not to peddle the goods to shareholders of acquiring companies as ally and agent of the acquiring company’s management. Having put himself in the position of selling the deal to P&G’s investors, is Mr. Buffett now obliged to warn them in the future if he intends to dump the stock?

Indeed, in addition to P&G shareholders, perhaps Mr. Buffett should also call Eliot Spitzer if he plans on dumping any his stock involved in this deal anytime soon.
Update: In commenting on Mr. Jenkins article, Professor Ribstein’s notes that the deals may be a positive sign that the takeover market is combining with the trend toward more productive distribution policies to produce real corporate governance reform, and then adds:

It’s worth noting that none of this has anything to do with Sarbox.

Following on this post from last week, the boards of San Antonio-based SBC Communications Inc. and AT&T Corp. approved a mostly stock deal under which SBC will acquire AT&T for roughly $16 billion.
SBC’s board approved the transaction Sunday evening, while AT&T’s board approved it just before 1 a.m. Monday. The acquisition remains subject to approval by AT&T’s shareholders and regulatory authorities, and is expected to close by the first half of 2006.
The deal would create the nation’s largest telecommunications company. The merger will end AT&T’s 130-year remarkable run as an independent company, which began with the invention of the telephone.
Meanwhile, the Wall Street Journal ($)is reporting this morning that MetLife Inc. is close to striking a deal for Citigroup Inc.’s Travelers Life & Annuity Co. in a deal that would probably be valued at around $12 billion.
Consolidation within the life insurance industry has been predicted for some time, but the predicted consolidation has not taken place as quickly as many have predicted. If the MetLife-Travelers’ deal makes, that could trigger the predicted round of consolidation in the industry. The theory of the MetLife-Travelers’ deal is that insurance companies can generate better profit margins by serving larger numbers of customers with essentially the same back-office systems and only incrementally larger sales forces.
Both these deals signal that the markets are coming back to the type of big-scale merger deals that had largely disappeared from the business landscape over the past three years.

Following on a thread that involved earlier posts here and here, Professor Ribstein expands in this post on his proposal for reforming corporate governance:

My solution to the problems of corporate governance is to put pressure on managers to distribute excess cash by increasing owner distribution and liquidation rights. Ironically, it is the corporate form’s elimination of these partnership-type rights that Margaret Blair argues made modern business possible. I dispute that proposition here. In that article I also argue that thick sophisticated markets have made the giant corporation no longer as important as it once was.
You might well ask, if this is such a good idea, why haven?t we seen more of it ? e.g., partnership type provisions in corporate charters that mandate distributions? Why not more publicly traded LLCs?
My explanation is that the corporate tax and the ?double? tax imposed on corporate distributions reduce owners’ incentives to insist on distributions even if requiring distributions would efficiently reduce managerial agency costs, and therefore be value-increasing in the absence of this tax. So I propose eliminating the bias favoring retained earnings inherent in the our current tax system. Firms would then be freer to move toward more efficient governance forms.

Professor Ribstein’s focus on the detrimental effects of the double taxation of corporate profits raises an interesting incongruity of the related political issue.
The anti-business crowd rails against removal of the double taxation of corporate profits as an unfair concession to the rich capitalist roaders. However, the retention of corporate profits contributes to corporate blunders (such as HP’s acquisition of Compaq) and Enron-type scandals, which the anti-business forces attempt to remedy through bigger government — that is, shareholder lawsuits in the civil justice system, criminalization of questionable corporate actions in the criminal justice system, and greater governmental control in the regulatory system (i.e., Sarbox).
Thus, the anti-business crowd’s opposition to removal of the double taxation on corporate profits has the unintended consequence of promoting bigger businesses and bigger business blunders that, in turn, require bigger government to control. I’m not sure where the anti-business forces want to go with all of this, but my sense is that “bigger in everything” is not the destination that they have in mind.
Also, check out Professor Bainbridge’s additional cogent thoughts in this post on corporate governance issues, and also Professor Ribstein’s follow up post. Likewise, Professor Bainbridge passes along this site where you can download the papers presented at a conference over the weekend that addressed these and other corporate governance issues. These are great resources.

In this earlier post on the corporate case of the decade, it was noted that the outcome of the Disney-Ovitz trial may provide yet another reason for competent businesspersons to avoid serving as independent directors on boards in a business climate that already makes it increasingly difficult to find qualified board members. My own anecdotal experience is that businesspersons are avoiding board membership in droves.
This timely Wall Street Journal ($) article confirms my experience as business leaders converging on Davos, Switzerland this week for the World Economic Forum tell the Journal that they are increasingly saying “no thanks” to serving as independent members on outside boards of public companies:

Such anecdotal evidence is borne out by some hard statistics. In 1997, the chief executives of S&P 500 companies served on average on two outside boards, . . . Today, that number has fallen to an average of less than one, or 0.9%, outside board seats, . . . Until recently, about one in four companies had policies limiting the number of boards their CEOs served on, . . . Today, more than half of companies have such policies, . . .

One of the examples that the article uses for explaining the reasons for declining independent board membership is the experience of Michael D. Capellas, the former Compaq Computer Co. CEO who served on the Dynegy, Inc. board while at the helm of Compaq:

Mr. Capellas’s experience on the Dynegy board is a telling example of the changing dynamic of being a board member. While a director from May 2001 to June 2002, he recalls “we met four times a year [and] far less preparation was required. In fact, I would read the material the night before.”
Today, Mr. Capellas says, “if you are going to be on a board, you have to attend many more board meetings” and the reading material is “much more voluminous.” For example, the Dynegy board meets every other month, not counting about two other meetings via telephone, according to the company. What’s more, Dynegy’s current board members receive annual performance reviews by other board members.
Meanwhile, Mr. Capellas’s compensation as a Dynegy board member paled when compared to his salary as Compaq’s CEO. As a Dynergy director in 2001, he received an annual retainer of $30,000, plus $1,500 for each board meeting and $1,000 for each committee meeting. The same year, he was paid $3.8 million as Compaq’s CEO.
And the risks were increasing. In September 2002, Houston-based Dynegy, among the energy companies caught up in the corporate scandals of recent years, paid $3 million to settle civil charges brought by the U.S. Securities and Exchange Commission over irregular energy trades and some financial transactions that had been used to burnish the company’s financial results.
Though no directors were charged by the SEC in the September action, some current and former Dynegy directors have been named in related class-action lawsuits. Mr. Capellas, who quit the company’s board three months before the SEC settlement, isn’t a defendant in the class-action lawsuits. Since then, Dynegy has almost completely revamped its board, with 10 of its 12 directors joining over the last three years.
Mr. Capellas says he believes he and other Dynegy directors lived up to their responsibilities as board members. “I don’t believe there was any lack of preparation,” he says. “There were four board meetings scheduled but the board actually met many, many times. It’s just that to do the bread-and-butter stuff today, you have a lot more work to do.”

It is a sad commmentary on the state of American corporate governance when the main reason for declining board membership is that directors are concerned that they are not going to have the protection of the business judgment rule even after expending an inordinate amount of their time on the board matters.