Sunday, December 04, 2005

Over-Compensated American Senior Management as a Source of Competitive Disadvantage

Carl Icahn gave an interview to David Faber of CNBC late last week. Many of Icahn’s remarks were self-serving and postured to support his current involvement in pressuring AOL regarding its current asset divestitures and strategy. He makes no secret of wanting Dick Parsons out. For what it’s worth, I think he is right about that.

However, what really made me sit up and take notice was Icahn’s pointed comment regarding the modern large-cap American CEO. He feels that, on average, and as a group, they are seriously disadvantaging US business relative to foreign businesses. This is a fascinating viewpoint. It echoes my own research, writing and feelings, some of which are found elsewhere on this blog.

Icahn specifically voiced concern that today’s CEOs are so over-compensated that they simply do not pay sufficient attention to maximizing ongoing shareholder wealth. In this, I totally agree ( see my recent post regarding pay-for-performance for large-cap CEOs). He feels that if this trend continues, American business will lose its competitive edge and, over time, fall victim to hungrier, more attentive foreign competitors.

With GM, Ford, UAL, Merck and TimeWarner as examples, it’s hard to argue with him. It is possible that Ricardian economics is responsible for the leadership in steel, airlines and autos going overseas.

But couldn’t these firms have accomplished what Intel has around the world, and remained competitive via global facilities and globally-sourced talent? My suspicion is that Icahn is onto something here. As superior innovative talent in other countries becomes more globally accessible and able to be leveraged, it may signal another round of American industrial restructuring to come on the order of that which we saw in the 1980s and early ‘90s.

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