Talk about Boards with Conflicts of Interest!
Melvyn D. Magree
Originally published in the
April 27, 2000
Revised October 20, 2006, February 9, 2017
In the last election, some criticized candidates for the school board who were teachers or spouses of teachers. The critics claimed this was a conflict of interest. The same criticism was raised during the contract negotiations in January.
The contract that was signed called for an 11.4 percent or 6.4 million dollar raise over two years. (Duluth News-Tribune, Jan. 25, 2000) Six million dollars seems like a lot of money to most of us, but let’s see what it means to an average teacher. There are approximately 1,000 teachers in the Duluth Public Schools. That means the average teacher would get a $6,400 raise over two years or $3,200 each year. If that is an 11.4 percent raise, then the average teacher got $28,000 per year ($6,400 divided by 0.114 divided by 2 years). For the second year of the contract, the average teacher will receive $34,400 per year.
Is it any wonder there is a teacher shortage? Many college graduates can get that as starting pay in some companies, especially those involved with technology. Why be a math or science teacher?
What does 6.4 million dollars buy in private industry? How about more than ten times that? A single CEO! The CEO of Hewlett Packard, Carleton (Carly) Fiorina had pay of 69.4 million dollars in the fiscal year ending October 1999. (1) Granted her salary is exceptionally high, but many executives take home 6.4 million dollars or more a year. Forbes Magazine published the total compensation of fifty executives this month. (2) Thirty-five of the fifty had compensation for the 1999 fiscal year in excess of 6.4 million dollars.
Well, they earned it because the stockholders decided these CEOs increased the value of the company; at least that is how many justify these salaries. But is it the stockholders that really decide the executive pay? The mechanics are that the boards of directors decide the executive compensation. Who sits on the boards of directors? The CEO who is often also board chair. Academics, foundation heads, former politicians, and executives from other corporations.
For example, the board of Hewlett-Packard includes Philip M. Condit, CEO of Boeing, and Patricia C. Dunn, chairman and CEO of Barclays Global Investors. The board of Boeing includes Lewis E. Platt, former CEO of Hewlett-Packard. Ms. Dunn sits on the Group Executive Committee of the parent Barclays PLC and Barclays Bank PLC. The chairman of the Executive Team is Sir Peter Middleton who is also on the board of Bass PLC. Bass PLC owns Holiday Inns. (3)
I didn’t think the Barclays path would lead to as close ties as the Hewlett-Packard/Boeing tie, and so I decided to try some of the largest Minnesota companies. Wow! What a community!
I started with http://finance.yahoo.com/ and entered the symbols for several of the largest Minnesota-based corporations. I looked at the profile of each company then clicked on the link to their home pages. From the home pages I searched for “board of directors” or worked from investor relations. The only exception was Cargill which is privately traded. For it I went to http://www.cargill.com/ and then searched for the relevant pages. I looked at these pages on March 17-18, 2000 with a few rechecks on April 5, 2000.
Let’s start with Michael R. Bonsignore, CEO of Honeywell, recently merged with Allied Signal. He was listed on the boards of Cargill, The St. Paul Companies, and Medtronic. He was on the compensation committee of The St. Paul Companies and Medtronic. He has resigned from the board of Cargill according to a Cargill press release. The Honeywell 1999 Annual Report lists him as on the Medtronic board.
William W. George is the CEO of Medtronic. He is also on the board of Target. Medtronic’s board includes Richard L. Schall, consultant and retired vice chairman, Dayton Hudson Corporation now known as Target Corporation.
Robert J. Ulrich is the CEO of the Target Corporation. I didn’t find him listed on any other boards, but Target’s board includes Livio D. DeSimone, CEO of 3M; Richard M. Kovacevich, CEO of Wells Fargo & Co. which recently merged with Norwest Banks; William W. George, CEO of Medtronic; Stephen W. Sanger, CEO of General Mills; and Solomon D. Trujillo, CEO of US West. Messrs. Sanger and Trujillo are on the compensation committee.
Charles M. Lillis is an executive vice president of US West. He serves on the board of SuperValu.
Michael W. Wright is the CEO of SuperValu. He serves on the boards of Cargill and Honeywell.
There are more links than these, but your mind is probably boggled by now. Maybe an example line of links would make the kind of relations clearer.
Honeywell -> Medtronic -> Target -> US West -> SuperValu -> Honeywell
I’ll leave it to you to decide if this little network and others like it are “old boy networks” (even if they contain some middle-aged women) and “foxes guarding the chicken coop” (as some critics described teachers on the school board) or if it is merely shared expertise to enhance shareholder value.
(1) Many of the original sources are no longer available online. When I did a search on October 20, 2006, I found only six sites with "fiorina pay '69.4 million'"; only one had much relevant detail -
The Winner-Steal-All Society and the persistence of the CEO-market myth
I also found her employment agreement when she was hired by Hewlett-Packard. You'll have to calculate her total pay for her first year from all the details. Interestingly, she was given 600,000 shares of HP stock at a price determined by the 1995 Employee Incentive Plan. What that price really was is harder to come by. I accessed these October 20, 2006.
(2) Forbes Magazine, April 3, 2000. The online article is no longer available.
(3) Barclays has changed much since I wrote this article. If you would like to do your own tracing, you could start at "About Barclays", https://www.home.barclays/about-barclays.html
©2000, 2006, 2007, 2017 Melvyn D. Magree