The Executive Compensation Controversy - Fondazione Rodolfo ...

THE EXECUTIVE COMPENSATION CONTROVERSY: 24 MAY 2010A TRANSATLANTIC ANALYSISBetween 1994 and 2002, Messier had transformed a recently privatized water utilityinto one of the largest media conglomerates in the world through over €70 billion inacquisitions. Once France’s best-known and most-admired businessmen, Messier wascriticized after relocating to a €13 million apartment in New York City purchased withcorporate funds (following Vivendi’s acquisitions of Seagram and Universal). 71 After a€13.6 billion loss in 2001 (the largest in French corporate history) and a credit downgrade tonear-junk status, Messier was pressured to resign from the company on 1 July 2002. 72 Aspart of his agreement to leave, Messier reputably broke his public promise and negotiated acontroversial severance package worth €20.6 million, signed on behalf of Vivendi byMessier’s close associate and chief operating officer. Reports of the severance pay caused anuproar in France, and Messier’s successor at Vivendi ultimately refused to pay it, claimingthat the agreement wasn’t valid because it hadn’t been approved by the full board or byshareholders as required under French law. 73 Messier sued the company for the severance,which in turn countersued Messier for damages. Finally, as part of a $51 million (€36million) civil fraud settlement with the SEC against both Vivendi and Messier, Messieragreed to pay $1 million of the $51 million in fines and forgo his severance claim againstVivendi.In the midst of the public dispute over Messier’s severance pay, shareholders and morethan 2,000 employees at Alstom – the recently privatized manufacturer of France’s highspeedTGV train – held a rally demanding return of the “scandalous” €4.1 severancepayments received by ousted CEO Pierre Bilger. Bilger had been removed from his post inMarch 2003, after being placed under judicial investigation for embezzlement and after hiscompany lost €1.4 billion in the prior year, and 90% of its market value over the prior twoyears. In August 2003, the French government bailed out the company with a €2.8 billionrescue package in return a 31.5% stake in the company. Less than two weeks later, Bilgeryielded to increasing public criticism and returned the €4.1 payment (which had been beenfixed in 1999), explaining that he did not want to be the “subject of scandal.” 74In Sweden, perceptions of exorbitant pension pay ruined the reputation of PercyBarnevik, who had led the Swiss-Swedish engineering giant ABB from 1988 through 2001.71 Carreyrou, “A French CEO's Taste For America Is Hard To Swallow Back Home --- Move to New YorkWas Faux Pas For Vivendi's Mr. Messier; A Rocker's Hail to the Chief,” Wall Street Journal 2002), p. A1.72 Johnson, “Messier under pressure from board to resign,” Financial Times (July 1, 2002), p. 1.73 Carreyrou (2003a); Carreyrou, “Vivendi, Messier to Pay $51 Million to Settle Charges,” Wall StreetJournal (December 24, 2003b), p. A3.74 Harrison, “Ex-Alstom chief waived severance pay for “honour”,” Reuters News (October 22, 2003).-56-