While I admire his luckbox talent in getting YHOO to wildly overpay for his internet radio idea, his blog often contains utter nonsense.

'Every fund,...or interested party who buys the stock is doing everything they can to get the stock of the company to go higher. They don't really care how you run the company'

Absurdly false and trollish.

'Heck, even if they did care, shareholders don't really own anything and have zero say in the company'

Obviously untrue and more stupid of him to say otherwise. I mean, Mike Eisner left of his own accord, right? Shareholders had nothing to do with firing a guy who had made the stock go up well over 15-fold due to him being overpaid, right?

'the stock market over time will go up 7pct per year. All you have to do is diversify and hold onto your stock long enough. For better or worse, everyone believes it.'

I don't know ANYONE who manages money who believes that. Not one person.

'However, unlike lottery tickets whose value goes to zero when you dont hit the number, the CEO equity positions retain their upside'

Now we're comparing 2x weekly PowerBall drawings to ownership in a firm like GE or JNJ? Makes sense....

'Unfortunately, what this really means is that everyone who works for that company is at risk. At risk of losing their jobs, benefits, raises, you name it. Its at risk.'

Clearly not everyone. Some people.

And, OH NOEZ, people get fired in recessions. ZOMG!!

'Those in the cash zone always take the first hit. People,places and things that consume cash are the first things to go because cash expenses immediately reduce earnings.'

False as he admits in the next sentence. I consume cash. But I generate earnings/reduce costs in a variety of ways. So my job is safe.

If you neither generate profits nor reduce costs....why am I employing you again? Hope you like Mumbai.

'most of us would choose to hold on to our shares and accept a [different] PE for some period of time in exchange for people keeping their jobs.'

Hahahahahaha, hilarious. When given this very choice with $Billions of his own money, Mark immediately sold. Where was he using that money and equity to keep people employed at the companies he owned?

Not just a hypocrite, but a liar as well. Standard for egomaniacs like him.

'Personally, Im willing to give a higher multiple in exchange for saving people's jobs. At least once.'

Oh one quarter? Two quarters of 'saving jobs?' What if 'saving jobs' pushes the firm into bankruptcy - salary and benefits and insurance and taxes don't come cheap. How many years of rope do you give before you realize you needed to cut costs?

But Mark did the opposite of what he preaches, and *already* has his winning lotto ticket that he cashed in, rather than employ more people. Stunning in his utter hypocrisy here.

'make them buy it either on the open market, or as part of the programs that make stock available to every company employee, on the same terms.'

What a brilliant idea! No wonder several hundred companies *already* do this! Now n00bs will talk about how ohsosmart Cuban is.

'They are getting paid enough in cash'

According to who? Mark?
He unilaterally will determine what 'enough' is for all firms? Is 'enough' the same in LA/NYC as Omaha/Dubuque?
Do all CEO's get a private jet like him and some other famous CEOs he respects? [hint - No.]

'Shareholders tend to ignore how much stock is given to management,'

Another absurdly false and ridic strawman. This is like saying fireman tend to ignore arson, or cops ignore Crips with AK-47s. No professional investor ignores stock and option grants to CEOs.

'The rich can still get richer, but everyone shares in the risk.'

With stock holdings, we already share the risk of a decline/increase. That's the entire point of stock-based compensation. Everyone does NOT share the risk if we increase cash compensation. This point argues against himself. Employees who don't own stock in NTRI/CROX/JSDA/MER are getting the same or higher cash in the past 1-2 years, it's mgmt who took the huge financial hit.

I am unclear on what your quibble is here, unless it's some kind of nit. Are you referring to dollar-cost averaging? Don't like the 7% figure? Black swan events?

a) not quite sure. maybe he read it to mean "stock will go up 7% per year"

b) why are you taking issue w/ such a small point. the whole post was great and a perfect counter to the arturiusX (i think it was his) post about how great mark is.

ty 4 teh postings NoD.

Barron

Sounds like Mark is feeling a bit guilty about something.

Reminds of an interview I read in which Madonna talks about how we all need to love and respect each other. Meanwhile, when she was struggling, she would've clawed your eyes out to get ahead, but, now that she has all the money, we all have to be nice.

While it is you who are being nitty, I will answer. I am referring to his nonsensical claim that 'everyone believes you can get 7% a year if you hold on long enough.'

In other news 'everyone' believes the Jets will win the Super Bowl, Big Brown will win the Derby and the CIA created teh superAidz.

lol has your account been hijacked by bill o'reilly?

your whole post is a giant strawman. you are leaving out direct rebuttals to your arguments that can be found before and after each passage you quote, then blatanly ignoring any implied deviance from literal meaning.




"Every man, woman, child, fund, index or interested party who buys the stock is doing everything they can to get the stock of the company to go higher. They don't really care how you run the company and they care less about the results of the company than they do about the performance of the stock. Heck, even if they did care, shareholders dont really own anything and have zero say in the company. If you really dig into it, its the ultimate in social networking. Everyone who owns the stock belongs to the fan page or group for the stock and they are telling everyone they can how wonderful the company is and why the stock will go up, all while praying it does so."
------
he's clearly referring to mostly professional fund managers who have teams that research companies 16 hours per day.



"However, unlike lottery tickets whose value goes to zero when you dont hit the number, the CEO equity positions retain their upside and history has shown us that if they go far enough underwater, they will get repriced and /or reissued. All in the name of keeping the CEO happy. So while CEOs may get "less rich" for awhile, the game is stacked so that a downturn gets them happy real fast when the upturn comes."

{we're comparing 2x weekly PowerBall drawings to ownership in a firm like GE or JNJ? Makes sense....}




"Those in the cash zone always take the first hit. People,places and things that consume cash are the first things to go because cash expenses immediately reduce earnings. If you or anyone like you consumes cash, unless someone upstairs thinks you generate a straight to the bottom line return on the cash expenditure, you are about to become a corporate ghost."

{If you neither generate profits nor reduce costs....why am I employing you again? Hope you like Mumbai.}
------
repeat: STRAIGHT TO THE BOTTOM LINE. anyone and anything that produces for the long-term is not straight-to-the-bottom line. obviously his near-explicit implication is that as part of the jettison process, a lot of long-term +ev employees will have to be cut, simply due to lack of objective evaluation methods. losing longterm ev is bad for the longterm shareholder.




"most of us would choose to hold on to our shares and accept a [different] PE for some period of time in exchange for people keeping their jobs."

{Hahahahahaha, hilarious. When given this very choice with $Billions of his own money, Mark immediately sold. Where was he using that money and equity to keep people employed at the companies he owned?}
------
obviously the #1 reason he sold was diversification, closely followed by lack of upside utility. this is undeniable, given it was around 99.9% of his networth. beyond this, plz explain how the choice of eliminating long exposure to Yahoo+Nasdaq has anything to do with a SHAREHOLDER VOTING proposal on costcutting and employees. in 1999, this was not a topic too many people were concerned with afaik.

Michael Eisner ran a legal monopoly with extremely high returns on equity that was destined to appreciate close to 15 fold whether he ran it or not. They started him on an excellent comp plan that allowed him to get rich only if he outperformed similar companies and competitors. But by the end he was a horrible CEO who took credit for everything, ran off top talent, bought lesser businesses and diluted Disney's profitability, and ended up taking home humongous paychecks just because the stock went up, which was a slam dunk, because of their great core businesses. His behavior became such an embarrasment that usually entrenched board members even turned on him. He also wasn't helped by the fact that Disney had a large individual shareholder on the board.

At the end, Eisner was such an awful CEO that as much as Buffett loved the business (being a shareholder in the 1960s as well) that he dumped all his shares as fast as he could.

No money manager would admit what is common knowledge, that 90% of money managers and hedge funds trail index funds over long periods.

You are right. Powerball drawings aren't the product of a corrupt system that allows bad CEOs to reprice options so they can make a fortune even if shareholders lose money.

Are you talking about when Mark was an EMPLOYEE of a business was run by some morons? He didn't own Yahoo, or have any say in how it was run and was smart enough to know it was hugely overvalued enough to collar his position.


Smart guy, options aren't stock. They are options. They can be repriced when the stock price goes down. That's not sharing the risk. Go read a few Warren Buffett shareholder letters so you can understand what a real shareholders perspective is. I'm happy with restricted stock, or outright stock grants. Not options where no employee has any risk, just a lottery ticket which is almost guaranteed to pay off in a market that typically increases in value an average of 8-9% per year (not sure where Cuban got 7%).

Do you understand how to value options at all? Do you understand how much it would cost you to buy 10 year calls on KO in the option market, exercisable at current market prices? Without running any black scholes I'd make a guess they'd be worth close to $100 per share. That means that a KO exec who gets 1 million options was just gifted close to $100M just for matching the market. And this doesn't factor in the extra value coming from the implied "repricing" option.

You and others with your viewpoints have such a nuanced view of the arguments here, usually such sophisticated arguments aren't found outside of editorials written by the likes of Rush Limbaugh, and Molly Ivans.

No, seriously you don't understand that while much of the backlash against CEO pay is driven by a bunch of left leaning unionists and socialists, there are many hard core capitalist investors who have real concerns about the structure of modern public boards and the restrictions that have been put in place to entrench management and their cronies on the board.

Mark seems to make a lot more sense than you to be honest.

Most of your points are extremely petty, and not well supported.

[/thread]

Barron

Wow, this is shockingly stupid. If you really think anyone with half a brain will immediately accept your analogy of the belief in backtested returns of equities being the same as a belief that a sports team will win a sporting event, then you're wrong.

If, however, your argument against Cuban's statement is that it's only extraordinarily likely that equities will generate 7% plus per year instead of guaranteed, then you're just being a nitty troll.

Boy, you people are slow.

I'll try again. Cuban says 'EVERYONE BELIEVES.'

This is wildly false, and takes maybe ~2 phone calls to large investors to demonstrate.

DC, stop being blatantly trollish. I wasn't talking about your stupid strawman of saying he was CEO of Yahoo! when we both know he wasn't.

No ****, sherlock. I was talking about stock, I didn't mention options once in that are of the post. You bring up another strawman rather than address the point. Next you'll probably say something boring and irrelevant involving Buffett. It's a shame you can't read for content.

My very-educated guess is I read them long, long before you did. Of course, that was after I read the source material by Ben Graham. WEB simply has copied from the master[s.] And some of us don't need financially complex topics dumbed down they way you seem to. [does not apply to discussions of insurance operations for non-experts in insurance.]

Yes, oh-so-stupid troll who attacks other posters because he is jealous & incapable of addressing their points in a valid fashion, I've been structuring and pricing and trading options for 15 years now - in literally every asset class. I got an II Deal of the Year award for a fixed income product I helped create and price on a half-billion deal. But thanks for asking!

Then I left the sell-side and I've worked on the buy-side for years now. So lowering the expenses of firms I invest in is of quite a bit of interest to me [and my clients].

LOLLLLLLLLLLLL. Now take your irrelevancies and go home. The ignorant, boring drivel you've repeated here is beyond tiresome, and it's clear you misunderstood virtually everything I wrote, either through ignorance, or you're just intellectually dishonest and incapable of addressing other POVs.

Here's what I said about using stock NOT options since you lack reading comprehensions skills available to an army of fifth-graders:

'make them buy it either on the open market, or as part of the programs that make stock available to every company employee, on the same terms.'

What a brilliant idea! No wonder several hundred companies *already* do this! Now n00bs will talk about how ohsosmart Cuban is. '

I didn't bring up options AT ALL in my post except to say, 'No professional investor ignores stock and option grants to CEOs. '

I'll even repeat my conclusion again:
'With stock holdings, we already share the risk of a decline/increase. That's the entire point of stock-based compensation. Everyone does NOT share the risk if we increase cash compensation [for CEOs].'

Cuban's remarkably stupid and illogical conclusion of increasing CASH compensation argues against the rest of his thesis. It's prima facie wrong.

Jeremy Grantham's latest Q-letter may prove illuminating here for the slow kids in the class. And those of any number of other investors.

EP made some relevant comments:
'The background that underlies corporate structure is specialization. Those with capital don't always possess management expertise. Those with management expertise don't always possess capital. This is a critical concept. Let me say this again in another way, because it really is critical. Just because you are rich, doesn't mean you are smart. In fact, there might be a negative correlation. (See e.g., Mark Cuban).

We solve this problem today via a corporate form that separates ownership from control. Generally, this is a "good thing." With a healthy market for corporate control and general liquidity of investment, capital holders have a wide variety of options in which to invest....

There are, of course, complications related to the separation of ownership and control. Agency costs, as they are known, are perhaps the most thorny. Simply put, how can we be sure that the agent is acting for the principal, rather than in self-interest? The modern answer is that we impose some duties on the agent. The duty of care. The duty of loyalty. As a result the playing field looks like this:

Capital holders have a variety of fairly liquid options and a variety of illiquid options in which to invest. They go into these investments knowing that they are appointing agents to mind their capital and direct it. There should be no surprise to the holder of a public security that they do not have much power over the decisions to manage the firm. They can vote on a variety of corporate actions including the election of directors. Their vote is proportional to their holdings. Some votes are binding. Some are not. All of this is fairly carefully laid out in the by-laws and other charters of the corporation. It is not a mystery that compelling the management to change the color of the walls because you read a recent study that indicates off-pink increases productivity is not in the cards. This arrangement is what Justice Scalia is famous for calling "The Deal." The arrangement between holders of capital and management talent. Don't like "The Deal"? Don't buy the stock. Today, with the many information sources (like ISS and such) on corporate governance and control provisions there is no "ignorance" excuse left.

Enter the market for corporate control. Occasionally, we come across holders of significant capital who also possess superior management acumen. Today, through the market for corporate control, these capital holders can wrest from existing managers control of the corporation. This gets easier when management performs poorly and control (in the form of reduced stock price) gets easier to acquire. This is the check on management incompetence. Shareholders can vote with their feet, move their capital into another investment (creating a lower cost for the acquisition of corporate control by new managers- wonderful thing capitalism, yes?) or band together and oust the current leaders. Very democratic, really. Also remember, no one requires shareholders to invest in these public firms. So long as there is liquidity there are a wealth of other opportunities.

Now enter the complications and interference. There are a variety of modern constraints on the market for corporate control. Usually, calls for these constraints are shrouded in evil characterizations of the character of aspiring candidates for corporate control.

Then, there are daft holders of capital like, say, Mark Cuban, who seems to believe that if you permit management to run the company in which you hold shares you are, to put it a brand of eloquence unique to him, "a Corporate Ho." As morons go Cuban is on a roll. He's got his own radio program on satellite now. A bigger microphone to distribute his drivel on corporate America. I suppose there might be someone less qualified to criticize "windfall profits" but I'm not sure who it is. I guess I don't know why Cuban doesn't just mount some hostile takeovers if he is such an outstanding manager.

See, to Cuban your interest as a shareholder extends to a variety of things over and above providing capital for other managers and voting with your feet if your profits are low. Things like "corporate responsibility," a term which has a meaning that varies depending on what is convenient to the speaker, and denying your shares to other capital holders who want to short the company you are invested in. I constantly marvel at those who are all for free markets when they rise but whine about the inequity of short sellers when they fall. But then, these things are to be expected from people who don't understand corporate law or the separation of ownership and control or why it is a good thing. People who, in the manner of as many spoiled brats, want to buy shares under one set of assumptions but then change the underlying restrictions intrinsic to the corporate form once they own them. They want to be owners and managers, suddenly.

Are they willing to forgo limited liability protection as well then, I wonder? If they want to be managers so bad why not spur a shareholder revolt, or sell their stake and found their own corporation. (Bet you my last dollar they will resort to the public equity markets to fund this corporation and then whine about shareholder activism too).'

More yummyness from EP, [from several months ago:]

'I would respond to Mark Cuban, but given the total lack of content or facts in his (still remarkably long) blog entry on CEO compensation, I don't really know how to begin. But we can't really blame him. He pulled substantially all of his multi-billion in net worth out of the single dot-bubble sale of Broadcast.com ...Still, given his position it is strange that he seems to think shareholders have it tough. Then again, if Yahoo! or Broadcast.com actually had strong management teams back in 1999 I doubt Cuban would be a billionaire today. Strong management teams aren't rewarded in Mark Cuban's world. Lucky shareholders are. Internet spin doctors are...

And if I'm supposed to be impressed with Cuban's management acumen, shouldn't the Dallas Mavericks have done better than a $17.8 million EBITDA loss in 2005 and a $36.0 million EBITDA loss in 2004? And this with a 35-40% debt load? Only the Portland Trailblazers had greater losses in 2005. Portland. Population ~500,000. Dallas. Population ~1.2 million. What does that tell you? And guess who owns the Portland Trailblazers? I'll give you a hint, his performance since his one-trick has flagged too.

Thank god Cuban has got an investment newsletter targeting the "little investor." I'm sure his years of experience in that category guide his scintillating advice. Or maybe anyone with real money won't touch his advice with a ten foot pole.

Well you have to give the guy this, he's having fun with his money.

You see a lot of this lately. The return of the internet spin doctors. After 6 years they are bored. Some are broke. People, they hope, have forgotten. It was so long ago, after all, that whole "bubble" thing....

They don't own internet companies anymore, of course. They are pretending to be managers though. You can recognize them because a lot of people think they are cool, and want to hang out with them or go to their parties, (they are talented speakers, the top of the bull**** salesman foot chain; that's how they snowed everyone in the 1990s... What have they been doing? If they got lucky back then, or got fired and cashed all their options before the crash, then they have probably been spending a lot of money. They also love to hold themselves out as authorities on everything from social policy to international relations to, yes, CEO pay. This despite the fact that they might have sunk a big piece of their net worth into something stupid and they might not even have a college degree.

I am going to start calling these people "Bono." (I was going to use Tom Cruise and call them Cruisers, but "Larry (Ellison) and the Cruisers" just seemed too spin-doctorish). Managers because they could afford to buy a firm and run it poorly and unprofitably for years without wincing. Able to afford it only by fluke. Authorities on everything, lack of knowledge notwithstanding. Celebrity is their asset.

Attention span is their leveraged finance. But their significant use of attention leverage means you have to service the quarterly attention debt payment. No wonder they all have blogs now, are getting slapped with record amounts of fines from their sports leagues owing to their "straight talk," or buying toilet companies to be outrageous. Attention.'

What happens when you buy stock in a company with a rational board that represents shareholder interests, and over time, board members leave and are replaced by new board members who represent management interests. You of course object, but the new mgmt directed board simply tells you to shove off because you don't have enough shares for control, and you don't have enough money to launch a highly expensive proxy contest.

Mgmt then converts all their cash compensation into options, knowing that will increase their compensation by at least 10x over the next ten years given even subpar price appreciation.

Is that the deal? That control of your company can be stolen by the agents for their self enrichment and you are supposed to just sell your shares in response and take a loss? Nice deal. Historically perversion of the agent's responsibilities was held in check by hostile takeovers, but management led counter-attacks have created huge barriers to any takeovers that aren't "management approved".

And remember, no shareholder can vote for directors of their choice without spending millions for a proxy battle. Realistically they can only vote for directors chosen by management and other directors. That's is the crux of the problem and how the agents have stolen the corporation from it's owners.

And don't confuse what Cuban's saying about cash compensation. Cash compensation can be linked to performance. it's also linked to reality, it's virtually impossible to give CEOs hundred million dollar paydays in cash or restricted stock, you need funny money options for that.