Michelle Leder, of Footnoted, was on NPR’s Marketplace yesterday. The story: the worst examples of agency-costs in footnotes in SEC filings in 2007. (She doesn’t sell it that way, but that’s what it is.)
Bloggers have highlighted a few of Michelle’s “best” finds, including Edward Mueller’s agreement, as CEO of Quest, to permit his family members to use the company plane to travel back and forth to California (where his family was based) to Denver (where Qwest is headquartered.) Although the story was hyped as permitting Mueller’s daughter to commute daily to school — something of a modern-day Leonard v. Pepsico, there is no evidence that the family plans to fly back and forth in this way.
But who cares anyway? Increasing numbers of high-level executives work far away from home, commuting to headquarters for parts of the week. (The consultants’ four day week, but permanently.) Encouraging them to do so maximizes shareholder wealth because it (presumably) allows recruitment of talent that wants to live elsewhere. Now the problem with these schemes is that it is taxing for the executive and her/his home life to be separated from the family. As Professor Joan Heminway explains here, personal turmoil in a CEO’s life can have materially adverse consequences for shareholder value, and well-run companies probably ought to do everything they can to make executives personally happy.
So why not pay for a family to commute back to California, to enable a family member to finish her last year of high school surrounded by friends, while coming “home” to Denver when possible? If that makes Mueller happy, and reduces the chance that he would live in California and commute to Denver, Qwest’s shareholders win. If the argument is simply that the CEO should pay for this travel out of his own pocket, the flight costs will be imputed as income to him under the agreement, so the economics are basically the same. Given disclosure, these kinds of perks should be seen simply as salary-substitutes, at worst, and as ways to reduce the chance of disruption by increasing the CEO’s chance of having a normal family life.
Dailykos (which originally brought the story to my attention) had this to say:
And as this president likes to remind us, this is the ownership society, so don’t be surprised to learn that some of your retirement funds are going to fuel up that jet so an execu-kid can zip off to the prom.
But this is plainly silly. Would we prefer that Qwest simply paid Mueller more money? Or not disclosed the behavior?