Press enter to search

Too Big to Fail: An Executive Suite Story

Research & Commentary
February 26, 2012

by Sam Pizzigati

If a blunder you committed cost your employer $4 million, how long would you stay employed? In America today, a CEO can cost his company $4 billion and still collect both a paycheck and a bonus.

People in America get fired all the time. Break too many plates as a dishwasher, lose too many games as a coach, miss too many deadlines as a reporter, you’re going to be history.[pullquote]To create and sustain excellence, no society can hold only some people accountable — and give others a free pass. [/pullquote]

We need this accountability. We couldn’t function, as a healthy society, without it. But accountability has to be universal. To create and sustain excellence, no society can hold only some people accountable — and give others a free pass.

Yet some societies — deeply unequal societies — do give out free passes. All the time. In these unequal societies, grand accumulations of wealth translate into grand accumulations of power. The powerful make their own rules. They rig daily life’s games. They come out winners no matter how poorly they play.

Consider Randall Stephenson, the chief exec at telecom giant AT&T. Stephenson had a bad year in 2011. A really bad year. His decisions cost AT&T over $4 billion. What price did Stephenson pay for this debacle? Last week we learned that price — and much more about the dysfunction that defines us.

Our story starts back last March when CEO Stephenson triumphantly announced that AT&T had just closed a deal to buy T-Mobile, the American wireless phone subsidiary of Germany’s Deutsche Telekom.

Stephenson clearly wanted T-Mobile in the worst way. The $39 billion purchase price he agreed to pay for the wireless carrier amounted to almost double the $23.2 billion value that analysts on Wall Street had placed on the company the previous December.[pullquote]With a Capitol Hill lobbying army over 90 power suits strong, AT&T boasted one of the nation’s ‘most muscular’ political operations.[/pullquote]

Stephenson also agreed to pay Deutsche Telekom a $4.2 billion “break-up fee” should his deal for T-Mobile fail to gain the necessary antitrust approvals from the U.S. Department of Justice and the Federal Communications Commission.

That fee amounted to a substantially greater share of the T-Mobile takeover price than the typical break-up fee in a major acquisition deal. Stephenson must have figured that AT&T couldn’t possibly fail to gain a green-light from regulators.

His optimism did make a certain sense. AT&T had been working hard to tip the eventual regulatory decision. With a Capitol Hill lobbying army of over 90 power suits, including former GOP Senate leader Trent Lott, AT&T boasted what the Washington Post called one of the nation’s “most muscular” political operations.

Stephenson had a line into the White House as well. Bill Daley, then White House chief of staff, had been both a top exec at a phone company that merged into AT&T and an executive with JPMorgan Chase, the Wall Street bank that stood to make hundred of millions in fees from brokering the T-Mobile takeover.

That takeover, once approved, would instantly make AT&T by far the nation’s largest wireless carrier — and ensure Stephenson one of the largest payday windfalls in telecom history.

But both the Justice Department and the FCC would balk at the takeover as public — and rival corporate — pressure against it mounted. This past December, Stephenson folded and took the takeover offer off the table. AT&T would swallow hard and pay out to Deutsche Telekom the $4.2 billion break-up charge.[pullquote]Imagine a terribly disgruntled AT&T employee out to inflict as much damage on the company as he possible could. [/pullquote]

The enormity of “billions” can be difficult to comprehend. How much in real assets did Stephenson’s T-Mobile fiasco cost AT&T? Try this analogy.

Imagine a terribly disgruntled AT&T employee out to inflict as much damage on the company as he possible could.

This troubled employee picks up a sledgehammer and walks up and down the aisles of an AT&T mobile phone warehouse, smashing one $100 phone box after another. He can smash 10 boxes a minute, 600 an hour. After an eight-hour day, he has inflicted $480,000 worth of destruction.

How long would this destructive demon have to keep that sledgehammer swinging to do as much damage to AT&T’s bottom line as CEO Randall Stephenson’s $4.2 billion T-Mobile merger break-up? Another 8,749 days.

The disgruntled employee in this parable, needless to say, would be fired — and spend no small amount of time in prison. The actual penalty on Stephenson? Did he lose his job for costing AT&T all those billions?

Not even close. Stephenson, AT&T corporate filings revealed Tuesday, didn’t even lose his bonus. AT&T paid the CEO, for his 2011 executive labors, $1.6 million in base salary, $3.8 million in cash bonus “incentive award,” $12.7 million in stock compensation, and enough other goodies to value his total pay at $22 million.

“AT&T is committed to paying for performance and the compensation reflects that,” the telecom’s McCall Butler told reporters last week after the release of Stephenson’s pay figures.

How could a $22 million take-home reflect an appropriate reward for a “performance” that cost AT&T $4.2 billion? The AT&T board, company flacks explained, did absolutely penalize Stephenson for his performance. The board reduced his bonus $2.08 million from what the top exec could have received.

Interesting penalty. Stephenson saw his pay drop less than 9 percent for an executive performance that dropped AT&T annual earnings by 52 percent.

AT&T shareholders can’t be too happy about that. But other stakeholders in AT&T also have reason these days to feel a bit out of joint. Customers, for instance.

In Connecticut last year, the state Department of Public Utility Control levied a $1.1 million fine against AT&T for poor customer service. Last fall, AT&T customers in Connecticut went up to six days without phone service after a “Nor’easter” blew through the state. Why the delay? Telephone workers had to be called up from the South to make the necessary repairs.

Sign up for To MuchAT&T in Connecticut, notes local AT&T union president Bill Henderson, has cut more than 2,500 positions over the last four years.

 AT&T layoffs have spread beyond Connecticut. In Georgia earlier this month, phone workers and Occupy Atlanta activists joined to stage a sit-in to protest 740 layoffs AT&T’s Atlanta office had announced in December.

AT&T officials say the layoffs in Georgia — and elsewhere — simply reflect the falling market share of landline phones. CEO Stephenson had one of his vice presidents tell protesting Atlanta workers that “like any responsible business, we must work consistently to match our workforce to the needs of the business.”

Workers, in short, must be accountable to the marketplace. The way of an unequal world. Somebody has to be accountable.

Sam Pizzigati, the co-editor of Inequality.Org, also edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up here to receive Too Much in your email inbox.

Explore More


On Taxing the Rich, a Top Politico Breaks Ranks

March 4, 2012



Should We Reduce the Corporate Income Tax?

February 23, 2012

by Salvatore Babones

Stay informed

Subscribe to our weekly newsletter