Remora

The career of a phrase.

Suppose, reader, that you are a brain surgeon. As you come into the operating theater, you lean over your patient, who is about to go under, and you tell him that, under the circumstances, if he pays you a fee on top of the fee you are getting to operate on him -- say about 100% of that fee -- he will promise to align his interests as a doctor with yours as a patient. Or suppose that you are a fireman. You mount the ladder, you meet the hollering woman in the fourth floor apartment, the flames are licking the curtains, and you tell her that for a fee -- say 100% of your current salary -- you will align your interests with her interest in being saved up to and including the promise to try not to drop her on the way down. Or say you work in an assembly line. You go to your foreman and propose that for a fee -- say 200% of your current salary -- you promise to align your interest with that of the company's, insofar as that involves making sure all the car parts are correctly fitted into place.

If you did that, you would lose your licence, as a surgeon, be fired and sued, as a fireman, or simply be dismissed, as a factory worker.

Ah, but if you are a CEO -- if you breathe and eat in that top level strata -- ah, then you are the type who might not really do anything for your salary. You might take your 2 mil a year and go to sleep behind your desk. Or you might take information you are privy to and give it to your competitors. Who knows with you CEOs? Marvelous, god like creatures, you rain and shine on all alike according to your inscrutable will. Or at least that seems to be the theory behind that supremely dumb phrase, "aligning the interests of management with those of the shareholders." If you read the business section, or even the front page of the newspaper, nowadays, you see that phrase thrown around with the utmost airiness, as if it is the most self evident thing in the world. The CEO, or CFO, or whatever, must be given stock options. Why? To align his interest with the shareholders. Here's an example of this kind of madness. It comes from my search for the phrase on Google. It comes from 1999. I wonder if Baxter International, or Deerfield Illinois, knows that they still have this announcement up on the web:

"DEERFIELD, Ill., May 4 -- Baxter International Inc. announced today that
142 senior managers have borrowed a total of $200 million in personal loans
to purchase 3.1 million shares of Baxter stock. The shares were purchased
at Baxter's closing price yesterday of $63.625 per share under a voluntary
plan that directly aligns the management team with Baxter's shareholders.
This shared investment plan was approved by Baxter's board of directors
earlier today.

This is the second time Baxter has implemented a shared investment plan.
In 1994 Baxter became one of the first companies in the world to use this
innovative approach to directly align management's interests with Baxter
shareholders. In that plan, 63 senior managers participated. Since that time,
several companies have implemented similar plans."

I put the phrase in italics, for those of you whose eyes glaze over when perusing the PR of obscure corporations. Baxter, in the annus mirabilis of 1999, was innovating all kinds of alignments of interest between management and shareholders. Here, for instance, is what they did for outgoing CEO Vernon Locke:

"In 1999, as Baxter International Inc.'s Vernon Loucks relinquished his CEO duties after 18 years, directors handed him a special stock-option grant of 950,000 shares "for the specific purposes of motivating" him "to implement a smooth transition of his responsibilities."

Ah, Vernon's successor is a man of sterner ethical character. In a Business Week report on executive compensation for 2001, Harry M. Jansen Kraemer Jr, the current CEO, practically put himself on a diet of bread and water:

Harry M. Jansen Kraemer Jr., CEO of Baxter International (BAX ), voluntarily cut his bonus by 40%, even though his company's stock climbed by 20% in 2001. The reason: Defective Baxter dialysis machines were linked to the deaths of more than 50 people. Kraemer, who earned total cash compensation of $1.6 million plus a grant of 600,000 options, says somebody had to pay the price for the dialysis machine deaths: "Fifty people died. If you have a problem, the buck stops somewhere, and it stops here."

Cutting your bonus -- your bonus, mind you -- down by 40%, while you receive your grant of 600,000 options is practically Christ-like in the world of CEOs, apparently.

So, to sum this sad and shabby tale up: never has piracy, never has the discreet looting of publicly held entities, been so delicately handled as it was in the 90s, and as it still is today. See how Baxter -- that ambiguous entity, that ontological anomoly -- practically glows with satisfaction. Begging their execs, who are probably paid quite a bit more than I am, to borrow money from their cash reserves, no doubt at a very reduced interest rate, and no doubt with some expectation that, if things turn south, all will be forgiven these shareholder aligning managers. Isn't it great to be king? Isn't incentive a wonderful thing, and isn't it to be extolled in 2 million to 4 million dollar houses from the Long Island to the Redwood Forest, as the unfortunately dis-incentivized Woody G. once sang? AH, here at last, we have found what we have been sailing the sea for lo these many years. The thing Marx couldn't imagine. The thing that makes all the U. of Chicago econ department light up like a Christmas tree. The very reductio ad absurdam of managerial capitalism.

LI is thinking of trying to do a more extensive search for the phrase, and selling an essay on that search, to some magazine, thus aligning our interests with those of John Q. Public. If you want to loan us money in the process -- say 50 million dollars -- please write me at RGathman@aol.com.
Hey, I might just accept your loan if the terms are good enough.