Corporate Governance And CEO Compensation Collide At Abercrombie & Fitch

Written on April 15, 2010 by
Abercrombie & Fitch store

Source: CBS News

CEO compensation once again reared its head in the corporate governance debate.  This time, corporate governance and CEO compensation collided over Abercrombie & Fitch CEO's use of the company's private jet.

Troubled clothing maker Abercrombie & Fitch paid CEO Mike Jeffries $4 million to end his jet perk.  Jeffries can no longer use the Abercrombie & Fitch (NYSE: ANF) company jet for personal use.  Abercrombie reported the $4 million lump sum buy out in its 8-K filing with the SEC on April 12, 2010.

Sean Gregory, the reporter who wrote the TIME magazine article on the Abercrombie CEO jet perk, interviewed me for my thoughts on this corporate governance matter:

Abercrombie's move has corporate governance experts shaking their heads. ... And after so many missteps, you can't help but wonder if Abercrombie will ever get [common sense] back. "I just thought, what are they thinking? Really?" says Douglas Park, a Silicon Valley-based consultant. "Customers aren't happy with them right now. Investors aren't happy. You have to wonder what is going through their minds."

Yes, Mr. Gregory accurately quoted me.  That quote is only a snippet from our conversation.  I also gave my thoughts on:

1. Why investors care about CEO compensation packages and perks.

2. Why consumers care.

Abercrombie has received a lot of negative publicity over its alleged discriminatory hiring practices against racial minorities, women, and religious minorities and discriminatory treatment of a customer with autism.  In 2004, Abercrombie settled for $50 million a lawsuit that alleged the company systematically discriminated against minorities and women in its hiring.

3. Why boards of directors continue to make CEO compensation decisions that damage their company's reputation with investors and consumers.

I wrote about this issue in a post concerning new SEC rules regarding the disclosure of compensation packages. In that post, I contended that reputation risk is one factor boards of directors should consider in deciding what to disclose in SEC filings about the riskiness of their compensation packages.  The Abercrombie case presented a strange twist on compensation:  Abercrombie paid the CEO to give up a perk, when the CEO should have reimbursed the company for his use of the company jet for personal purposes.

Conclusion

The CEO jet debacle comports with Abercrombie's inclusion on CR Magazine's "Black List" of the 30 least transparent companies with respect to corproate governance.  Corporate governance can get complicated, with myriad strategy, risk management, and securities law considerations.

However, making decisions that reflect common sense should not be difficult.  Sometimes it takes an outsider's perspective to help the directors understand how their decisions will affect the company's reputation with investors and customers.

Douglas Y. Park

Twitter: @DougYPark

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23 Comments - Leave a comment!
  • Sapna Sinha

    Douglas, Sorry, I could not go into details of the news because of time constraint but many Congratulations to you. IT is an Honour to be interviewed by the Time Magazine. And I did notice that you are into many other activities too.

    My Good Wishes to you for future.

  • Sapna Sinha

    Douglas, Sorry, I could not go into details of the news because of time constraint but many Congratulations to you. IT is an Honour to be interviewed by the Time Magazine. And I did notice that you are into many other activities too.

    My Good Wishes to you for future.

  • http://www.dypadvisors.com Douglas Y. Park

    Hi Sapna,

    Thanks for reading. I hope that you will continue to read the blog and offer your comments.

    Best,
    Doug

  • http://www.dypadvisors.com Douglas Y. Park

    Hi Sapna,

    Thanks for reading. I hope that you will continue to read the blog and offer your comments.

    Best,
    Doug

  • BJ Penne

    Good to see your name in the Time Magazine piece.

    Good insight.

    BJ Penne

  • BJ Penne

    Good to see your name in the Time Magazine piece.

    Good insight.

    BJ Penne

  • http://www.dypadvisors.com Douglas Y. Park

    Hi BJ,

    Thanks for the comment and for reading.

    Best,

    Doug

  • http://www.dypadvisors.com Douglas Y. Park

    Hi BJ,

    Thanks for the comment and for reading.

    Best,

    Doug

  • BJ Penne

    Dr. Park:

    What do you think about the SEC charges against Goldman Sachs?
    What roles do lawyers play in these types of deals. If GS's lawyers OKed these deals, does this mean the lawyers should also be charged?

  • BJ Penne

    Dr. Park:

    What do you think about the SEC charges against Goldman Sachs?
    What roles do lawyers play in these types of deals. If GS's lawyers OKed these deals, does this mean the lawyers should also be charged?

  • BJ Penne

    part II:

    according to abovethelaw, richard klatch of sullivan & cromwell is representing the Goldman Sachs exec. named in the SEC charge. Does this mean that sullvan & cromwell did not advise Goldman Sachs on these transactions?
    Also, according to NY Post, the named exec was relatively low ranking and some of the decision most likely required OK from higher-ups. What do you think about all this?

  • BJ Penne

    part II:

    according to abovethelaw, richard klatch of sullivan & cromwell is representing the Goldman Sachs exec. named in the SEC charge. Does this mean that sullvan & cromwell did not advise Goldman Sachs on these transactions?
    Also, according to NY Post, the named exec was relatively low ranking and some of the decision most likely required OK from higher-ups. What do you think about all this?

  • http://www.cluehut.com Genyfer Spark

    Doug, you so brilliantly expressed what so many of us are feeling and thinking. Hopefully, your words will inspire all of us to express the same concerns and make positive changes to the current environment.

  • http://www.cluehut.com Genyfer Spark

    Doug, you so brilliantly expressed what so many of us are feeling and thinking. Hopefully, your words will inspire all of us to express the same concerns and make positive changes to the current environment.

  • http://www.dypadvisors.com Douglas Y. Park

    Hi Genyfer,

    Thanks for reading and for your comment. Certainly many aspects of business can be improved. Having more common sense CEO compensation and corporate governance policies are two of them. And more power to you as you try to make a positive difference in people's lives.

    Doug

  • http://www.dypadvisors.com Douglas Y. Park

    Hi Genyfer,

    Thanks for reading and for your comment. Certainly many aspects of business can be improved. Having more common sense CEO compensation and corporate governance policies are two of them. And more power to you as you try to make a positive difference in people's lives.

    Doug

  • http://www.dypadvisors.com Douglas Y. Park

    Hi BJ,

    I could write forever about the SEC's charges. It is worth noting that he SEC's complaint is short for a securities fraud case. One explanation for the complaint's brevity is that the SEC does not have to prove reliance or loss causation, while a private plaintiff would have to do so.

    It is unclear whether Goldman's lawyers approved the deals. Even if they did, it is difficult to charge the lawyers under Rule 10(b)(5) because of recent Supreme Court pronouncements about the liability of actors in a scheme to defraud.

    Doug

  • http://www.dypadvisors.com Douglas Y. Park

    Hi BJ,

    I could write forever about the SEC's charges. It is worth noting that he SEC's complaint is short for a securities fraud case. One explanation for the complaint's brevity is that the SEC does not have to prove reliance or loss causation, while a private plaintiff would have to do so.

    It is unclear whether Goldman's lawyers approved the deals. Even if they did, it is difficult to charge the lawyers under Rule 10(b)(5) because of recent Supreme Court pronouncements about the liability of actors in a scheme to defraud.

    Doug

  • http://www.dypadvisors.com Douglas Y. Park

    Hi BJ,

    Sullivan & Cromwell did in fact advise Goldman Sachs on the disputed transactions. It appears that there is no conflict barring S&C from representing Tourre, since S&C represented the company and not Tourre on the transactions.

    Further, it is highly likely that Tourre did not have ultimate authority to approve the transactions. Some of speculated the Goldman Chairman and CEO Lloyd Blankfein specifically knew of, and perhaps even approved, the deal structure. But this will come out during discovery and trial, if any.

    Doug

  • http://www.dypadvisors.com Douglas Y. Park

    Hi BJ,

    Sullivan & Cromwell did in fact advise Goldman Sachs on the disputed transactions. It appears that there is no conflict barring S&C from representing Tourre, since S&C represented the company and not Tourre on the transactions.

    Further, it is highly likely that Tourre did not have ultimate authority to approve the transactions. Some of speculated the Goldman Chairman and CEO Lloyd Blankfein specifically knew of, and perhaps even approved, the deal structure. But this will come out during discovery and trial, if any.

    Doug

  • Anonymous

    Hopefully, your words will inspire all of us to express the same concerns and make positive changes to the current environment. Certainly many aspects of business can be improved. Having more common sense CEO compensation and corporate governance policies are two of them.

  • http://www.dypadvisors.com Douglas Park

    Hi,

    Thanks for your comment. It is important to recognize how business can be improved, and even more important to promote improvements.

    Doug

    Doug

  • http://www.abercrombieseller.com/ abercrombie polos

    Well it is probably supposed to be like tat.