http://www.atimes.com/atimes/Front_Page/JG15Aa01.html
With friends like these …
HONG
KONG – You can tell a lot about people by the friends they choose. For
candidates in the United States presidential race, that goes double for
their political friends. Last week, Republican nominee-in-waiting Senex
hp ceo carly fiorina ator John McCain got a double whammy from two key
allies he has chosen.
Former Texas senator Phil Gramm and former
Hewlett-Packard chief executive Carly Fiorina both shot off their
mouths inopportunely. Gramm declared the US is in a “mental recession
… we’re becoming a nation of whiners”. McCain said he completely
disagreed and suggested that Gramm, touted as a potential McCain
administration secretary of the Treasury, was more likely to be
banished to an ambassadorship in an obscure former Soviet republic.
Fiorina
griped about insurers not covering birth control and told women voters
McCain would change that. But McCain has voted against that very item
on at least two occasions. When questioned about it, McCain was struck
speechless before pleading memory lapse on the votes. Even painful to
watch, it had to rank among his top 10 most uncomfortable moments since
the Hanoi Hilton.
In the bigger picture of McCain’s campaign for
the White House, what Gramm and Fiorina said matters last week less
than who they are and what they’ve done in their respective careers.
My way or the HP way
Fiorina
was the first woman chief executive officer of a Dow Jones Industrial
Average firm when she took the reins at HP in 1999. Aside from the
first layoffs in company history, Fiorina used dubious arguments and
trashed Hewlett-Packard’s founding families and its “HP way” culture to
engineer a dubious merger with Compaq.
The move, announced in
2002, was designed to make HP the world’s largest manufacturer of
personal computers. The company that invented Silicon Valley after
Stanford University graduates David Hewlett and Bill Packard built a
precision audio oscillator in a Palo Alto, California, garage (now a
state historic monument), would stake its future on the low-margin
business of grinding out a commodity product. HP shares fell 18% on the
day the merger was announced.
The Compaq merger decision came
after HP had failed to partner with a business consulting firm and move
the company more heavily into that space. IBM, which sold its PC
division to China’s Lenovo, has just done that with great success. In
2002, HP was the dominant player in computer printers, and, opposing
the merger, board member and founder’s son Walter Hewlett urged focus
on that very profitable segment. But Fiorina was following the Vietnam
War strategy of destroying the village in order to save it. She wanted
HP to unmistakably bear her stamp, one way or another. On this matter,
and all others, those disagreed with her, well, they were simply wrong.
Fiorina
got her merger but the results were predictably disappointing. In 2005,
Fiorina got the ax, with a US$21 million severance package. Since she’s
left, HP has also prospered. It has firmly taken the top spot in PC
market share and acquired EDS, a leading computer services provider.
The stock price, which rose 7% on the day Fiorina was fired, has more
than doubled. In an unintentionally comic turn, Fiorina said in an
interview last week, “My choices and my leadership had been completely
validated by what happened from the moment I left. And by the way, the
best legacy of a leader is what happens after they go. That’s how you
know the kind of foundation they put in place.”
Selective legacy
So
Fiorina is taking credit for the progress HP made thanks to her firing.
However, she’s not taking credit for what happened after she left
Lucent, the telecom equipment maker spun off from AT&T, where she
ran global sales. A darling of Wall Street in the late 1990s, the
company imploded amid irregularities in sales reporting and accounting
during her watch. (Nice hire, HP.) Lucent shares lost more than 99% of
their value, the company sold off various pieces, and finally, in 2006,
sold itself to Alcatel.
Fiorina’s autobiography, Tough Choices,
recounts an episode where she stuffed socks into her crotch and
declared, “Our balls are as big as anyone’s in this room.” That would
explain what can be charitably characterized her conveniently selective
memory in misrepresenting McCain’s position on insurance payments for
birth control.
While Fiorina wants to bring her brand of
corporate megalomania to the political arena – in addition to
speculation she could be McCain’s vice presidential choice, Fiorina is
considered a potential candidate to succeed Arnold Schwarzenegger as
California’s governor – Phil Gramm has gone the other route, bringing
his extraordinary political ego to the corporate sector as a vice
chairman of Swiss banking giant UBS. But Gramm realized early on that
there was no need to have a corporate job to be on corporate payroll.
While
railing against government involvement in the economy, Gramm’s entire
career has about been making his involvement in government personally
profitable. His “mental recession” remarks fit a long-running pattern:
Gramm and his wife, Wendy Lee Gramm, embody Washington insiders
brazenly feathering their own nests and letting the public eat cake.
While
gutting the rules that kept banking, securities and insurance separate
as a senator, Gramm took more than US$1 million in contributions from
the financial industry. Eliminating restrictions on financial services
companies has enabled them to become behemoths. It’s also ensured that
a problem in banking or insurance or mortgages isn’t a sectoral problem
but a threat to the entire US economic system.
Senator from Enron
Gramm
was also known as the senator from Enron, but he didn’t do that job
alone. Wendy Gramm headed the Commodity Futures Trading Commission,
where she approved many of the controversial strategies that Enron
employed to make its name synonymous with corporate malfeasance. Her
government work done, she went directly from her commission chair to a
seat on the board at Enron. Phil Gramm then picked up the torch,
co-sponsoring the Commodity Future Modernization Act that gave Enron
even more scope for the fraudulent behavior that brought it down,
costing shareholders billions while executives escaped the carnage.The
Gramms, each with a doctorate in economics, kept their Enron money.
From 1999, Wendy Gramm refused to accept Enron stock as payment for her
work as a director. With an audacious lie that would make Josef Stalin
blush, she declared that holding Enron stock created a conflict of
interest for her as a director, so she cashed in her stock and took all
further payments in cash. Corporate directors, by law, have a fiduciary
duty to act in the best interest of shareholders. Any economist not
named Gramm will tell you the best way to ensure they do that duty is
to give directors the same financial interest as shareholders, ie that
directors should be shareholders, preferably substantial ones.Gramm’s
statement was complete and utter nonsense, the equivalent of declaring
only foreigners should vote since residents’ choices would be impacted
by having to live with the outcome. If Gramm actually believes her
conflict of interest argument, then she can’t believe in democracy or
representative government. But what matters is that she avoided getting
stuck with worthless Enron shares when the crash came. Her rake as an
Enron director reportedly totaled $2 million.The Enron episode reveals
much about Wendy Gramm’s character. As a government official and in her
current position as a chairman of Regulatory Studies at George Mason
University’s Mercatus Center (to which Enron was a donor), Gramm
champions the rough justice of markets to determine winners and losers.
But as a director at Enron, she found a way to insulate herself from
not just the market, but from the consequences of her own inadequate
oversight as a member of Enron’s audit committee.To investors she was
duty-bound to protect, Wendy Gramm still preaches that Enron’s demise
was a triumph of market freedom (so quit whining).Phil Gramm is just as
hypocritical but perhaps even less competent. His job at UBS entails
lobbying Washington and providing the bank with perspective on US
regulations and markets. You’d think the former chairman of the Senate
Banking Committee would have foreseen the subprime mortgage debacle and
steered UBS clear of it. Instead, UBS has been hit with losses
estimated as high as $45 billion, and its shares have lost 70% of their
value. Ask your bosses and shareholders whether it’s all in their
heads, Phil.In Phil Gramm and Carly Fiorina, John McCain has a pair of
economic experts who last week showed they can’t talk the talk and over
their careers have demonstrated they can’t walk the walk. Yet McCain
hasn’t cut either of them loose. With so many experts out there, McCain
needs to explain to voters why he chooses to listen to what Gramm and
Fiorina have to say.