5 Dumbest Things on Wall Street: April 3


GM's Bankrupt Board

There's just one thing dumber than a CEO who watched his company lose $83 billion over a span of four years: A board of directors who leave their dirty work to the president of the United States.

Yes, we're talking about General Motors (Stock Quote: GM) and the ouster—at Obama's behest—of chairman and CEO Rick Wagoner.

Wagoner, the 56-year-old Harvard MBA who spent his entire career at GM until this week, might feel like calling his Ivy League alma mater for a tuition refund. It seems he was unprepared for the mess he got himself into.

GM has not been profitable since 2004 and its bottom line has been sinking for more than half a decade. The axe finally came down on Wagoner this week after he presented a turnaround plan that the Obama administration rejected. GM already received $17 billion in emergency loans from taxpayers and Wagoner was asking for another $16.6 billion.

The Obama administration publicly paraded him down the plank. Or, as Wagoner put it, "requested that I 'step aside,'" as an example of what can happen to executives who run a loose ships, then request tens of billion of dollars in government support.

Wagoner's credibility was already shot after he flaunted his poor judgment by flying to Washington in a corporate jet to make his first plea for government bailout money.

GM's board didn't seem to notice, but then the board members aren't really Mensa material either.

The current roster is comprised of 11 directors who have spent an average of 7.75 years on GM's board. Outside of that, their experience with the auto industry and corporate turnarounds is slim, and provides a shining example of what can happen when directors from healthy blue-chip companies in the food, beverage, drug, photography, computer, payroll-processing and defense contracting industries are charged with overseeing an ailing automaker.

In fact, not only did the board shirk its responsibilities to crack the whip on the CEO, it resisted meaningful change from a major shareholder. GM's board fought tooth and nail to keep former Chrysler CFO and restructuring veteran Jerome York away, despite a push from Kirk Kerkorian - once the No. 3 investor in GM - to add York to the board. While York eventually joined their ranks, he resigned with a fiery letter in October 2006.

"I have not found an environment in the board room that is very receptive to probing much beyond the materials provided by management," York wrote.

Translation: What a bunch of dumb chumps.

By Lauren LaCapra.


Dumb-o-meter score: 95 -- Whether or not GM ends up in bankruptcy, one thing is clear: GM's board is intellectually bankrupt.



One Down, Two to Go

So the Obama administration wants to start canning bailed-out, underperforming CEOs? It's about time, but let's have some consistency with the hatchet.

Two thumbs up to the administration's decision earlier this week to oust General Motors CEO Rick Wagoner. The man presided over the downfall of an iconic American business that saw its stock plummet from above $50 to barely more than an unknown penny stock within the past two years.

But Wagoner's not alone in corporate decimation.

Two who deserve the guillotine: Citigroup CEO Vikram Pandit (Stock Quote: C) and Bank of America CEO Ken Lewis (Stock Quote: BAC).

Lewis and Pandit, like Wagoner, accepted billions of dollars in government aid, only to come back months later asking for billions more. The two bank CEOs each received $25 billion in the original bailout approved by Congress in October, then came back for $20 billion more each, plus billions more in federal backstops on shaky assets. Outside of the woebegone AIG (Stock Quote: AIG), no one else in the financial sector has received that kind of double-dipped aid.

Yet Wagoner is bounced, while Pandit and Lewis remain gainfully employed. What exactly are they bringing to the table right now, except more of the same lame leadership that got their companies into this mess in the first place?

Citi and BofA shareholders already are agitating for change in each company's board room and executive suite. Service Employees International Union President Andy Stern pointed out the inconsistencies in the administration's treatment of GM and the battered banks in a press release Tuesday, in which he called on the government to can Lewis.

"It defies logic, common sense and responsible governance to punish the auto industry while letting financial institutions off the hook," Stern said. "Both Rick Wagoner and Ken Lewis sunk large public companies -- putting thousands out of work and toppling the American economy -- while accepting billions in taxpayer bailouts. Yet only Wagoner got a pink slip."

A little consistency out of government? That would be change we can believe in. After all, this is a recession: Time to cut, time to can.

By Mike Gannon.



Dumb-o-meter score: 85 - Memo to Lewis and Pandit: The next time you beg for bucks from the government, it should be from your place in an unemployment line.

The Dumbest Thing on Downing Street

London's Downing Street isn't exactly Wall Street, but what's been happening there could potentially affect everyone on the planet. Or so we're told.

We're talking, of course, about the G-20 meeting, the gathering where serious leaders from once rich and now cash poor nations talked to each other about how to fix what's ailing the global economy. Let's start by noting that very little is dumber than when important people get together in the same place. Think about the even more selective G-7. Or Davos. Or Congress.

Incredibly though, the dumbest on Downing Street are not the grandstanding global politicians but the anti-capitalism protestors who followed them to London.

We've missed them, and their placards adorned with peace symbols. The nose rings, the spiked hair. They burst on the scene in 1999 in Seattle with a nebulous message about taking back what belongs to us or some such, and they raised quite a ruckus in Italy a couple years later. They've shown up from time to time since, but they've been largely hidden from view lately, probably attending politically charged puppet shows in France.

Now they're back, pitting their Apple iPhones (Stock Quote: AAPL) against the capitalists' RIM BlackBerries (Stock Quote: RIMM).

No doubt they also have a staggering knowledge of credit default swaps and mortgage-backed securities. Our U.K. bureau is on vacation, so we have to rely on fellow journalists who are there to illustrate the point. From The Wall Street Journal:

"The protesters, who gathered for a carnival-like event dubbed 'Financial Fool's Day,' carried slogans such as 'Make Love Not Leverage' and wrote graffiti on the walls of the Bank of England, including 'People will stop robbing banks when banks stop robbing people.'

Look, we all know people who have lost their jobs and substantial amounts of their life savings. Nothing's funny about the billions in taxpayer aid that have gone to the likes of Bank of America and AIG .

The only thing more infuriating is when several thousand rich kids play anarchist in between drum-circle sessions and cigarette breaks.

By Chris Nichols.



Dumb-o-meter score: 80 - If you're so worried about your fellow man, stop protesting and start a business.

Microsoft's Head is in the Clouds

How ironic that Microsoft (Stock Quote: MSFT) is complaining about lack of openness among rivals trying to establish some standards for the latest Internet trend—cloud computing.

How often has Microsoft big-footed the rest of the computer world, trying to force everyone to play its way? This is, after all, a company that ran afoul of antitrust regulators in both the U.S. and Europe.

So where does Microsoft get the moxie to complain about lack of openness among a group of rivals who put their differences aside to create some industry standards for the way virtual resources are shared in the "cloud" (a metaphor for the Internet)?

Clearly, Microsoft is chaffed that it's not the leader of the pack. The open cloud manifesto is being spearheaded by IBM (Stock Quote: IBM). Ouch!

Although Microsoft agrees with the general principle behind the manifesto, the company complained that it had little opportunity to contribute.

"We were admittedly disappointed by the lack of openness in the development of the Cloud Manifesto," wrote Steven Martin, Microsoft's director of developer platform product management, in a blog. Martin said that Microsoft was shown a copy of the "secret" document privately, and told that it must be signed "as is," without modifications or additional input.

IBM says the initial document is just a starting point. "It's purposely a very high-level document because we want a broad group of companies to be able to come to the table -- then we will start the hard work of figuring out what's in and what's out from a technology standpoint," said IBM spokeswoman Kelly Sims.

More than 30 companies and organizations have already signed up to support the manifesto, including big hitters such as Cisco Systems (Stock Quote: CSCO), EMC (Stock Quote: EMC), VMware (Stock Quote: VMW), AMD (Stock Quote: AMD), and AT&T (Stock Quote: T).

No wonder Microsoft is miffed, being tossed in with all the riff raff like that. How insulting!

By James Rogers.


Dumb-o-meter score: 75 -- Big Blue better watch its back.

What Were They Smoking?

Altria—aka Phillip Morris USA—could have settled a tobacco lawsuit long ago for half a million dollars but instead gambled on a Supreme Court review and lost a bundle.

The Supreme Court dismissed the appeal, leaving Altria to pay a $79 million damage award related to a smoker's death. Altria (Stock Quote: MO) has a history of fighting cases and frequently wins lower judgments in appeal, but they got this one wrong in a big way.

Mayola Williams, a smoker's widow in Oregon, was originally awarded a reduced judgment for compensatory damages of $521,000, but the punitive damages were $79 million. The Supreme Court has set the decade-old case aside twice and a trial court reduced the punitive damages to $32 million.

But the state of Oregon would not give up and Altria would not settle since the tide seemed to be turning and courts were beginning to rule in their favor. On top of losing the bad bet, Altria spent $179 million on overall litigation in 2008.

Lawmakers in Oregon also played a dumb hand.

Clearly salivating at the thought of big money, state legislators passed a law requiring that 60% of the award go to the state. Guess they forgot that Oregon took part in a Master Settlement Plan a few years back and is prevented from collecting additional tobacco-related damages. Altria is fighting Oregon over this, and the case is before an Oregon state court.

At least we know what they were smoking in Oregon. The state is considering legislation next year called the Oregonian Cannabis Tax Act that would relax marijuana laws and tax the weed instead. So, in Oregon's mind smoking cigarettes is bad, but lighting up joints is okay.

Looks like Altria just sells the wrong kind of tobacco in Oregon, they might be better off selling "wacky tobacky" instead.

By Debra Borchardt.



Dumb-o-meter score: 70 -- Altria and Oregon are the new Cheech and Chong singing "Up in smoke, that's where my money goes."


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