Richard Fuld, Chairman & CEO of what is left of Lehman Brothers Holdings (LEHMQ) is currently testifying before the House Oversight Committee.  whether you have ever seen anyone look caught off guard in defending their compensation while a massive entity floped and went bankrupt, Fuld’s answers and demeanor nowadays may offer some valuable lessons for future CEO’s and executives who have to testify in front of oversight committees when their companies are failing or are in trouble.

We do not really subscribe to the notion that executive compensation is the major issue in troubled institutions nor do we subscribe to the notion that executives should generally be slammed by their compensation packages.  Even whether our markets are arguably no longer purely free markets, we are not yet in the world of pay caps. 

Henry Waxman was grilling Fuld by his compensation more than anything
at first.  Congressman Waxman questioned Fuld about his total compensation of some $400 million.  Waxman famous executives taking personal
helicopters to work, a $14 million home in Florida, million dollar paintings in his collection and much more.  Fuld has blamed bare short selling and rumor mongering by
leverage and regulation by the failure of such a large and historic
financial institution such as Lehman.  Fuld
nowadays discussed selling stock and stock options and said he did not know
the exact number of shares currently owned.  He did note the number of
around 8 million shares nowadays rather than 10 million which had been discussed.  Fuld additionally hinted
that he had far less influence by the compensation committee at
Lehman than he did compared to the 1990’s.  But even as the questions
came, Fuld seemed rather unprepared for the questions of his
compensation.

What is interesting here is that that new environment of Uncle Sam
bailing out entities is possibly going to

set the precedent for many
hearings in front of oversight committees.  Executive compensation is
going to be a part of the new bailout package.  It seems that more and
more CEO’s of failing financial institutions or of institutions that
are in need of help are going to get to reply one key question up
front each and every duration they are in front of oversight: "Sir, how
much have you made at that company?"

that won’t come in the mold of "How much are you making right now?"…
CEO’s and other executives are going to have to reply for the past as
well. Even for when things were running great.  Frankly, the magnitude
of such issues is very scary whether you believe in free markets or whether you
believe in quasi-free markets.  How far that is allowed to go is still
unknown.  We have yet to have any real government buying of securities
with that new $700 billion off the printing presses.  So we in turn
have no real notion of what to expect on that front.  The main issue
ahead seems to be on golden parachutes for executives even when
institutions fail or become troubled.  But whether you listened to
Congressman Waxman nowadays, you might start to wonder whether things will be
allowed to get much broader in scope or whether that is just a sideshow before dealing with issues which directly lead to failure.

Fuld really didn’t seem prepared for some aspects of today’s
questioning.  For executives of financial firms in trouble, there are
some obvious lessons to be learned from today’s testimony.   

Jon C. Ogg
October 6, 2008