Barnevik's Ethical Dilemma

02 March2002

In today's sometimes, cut-throat competitive corporate world, an executive is regarded as being only as good as his future accomplishments! A brilliant past performance or a good run of management successes are applauded and rewarded briefly and at that point in time.
But quickly they become history and get into the corporate archives. Thereafter and therefore, they are of little interest either to the shareholders or the employees. Perhaps this syndrome has something to do with the email and media onslaught and the hectic 'day' trading and 'instant-coffee' syndromes of the 20th /21st century work-styles.

The shelf value of anything good seems to be short-lived and you are forever moving on to the next set of stimuli. In such a culture and climate, strong institutions of the likes of yesteryears are very difficult to build. Industries and institutions do have long gestation periods, require plenty of hard work and often present no immediate prospects of reward. Unlike the traders' delights, when the deals are done and the profits are booked immediately, industries require patience and stamina staying the course. These phenomena thus explain as to why, in the most industrialized world, the service sector is dominating the economic activities. They have a much shorter turnaround time. Both the business cycle spans and the results are a lot quicker. In a sense, this is a sad reflection of how the world has evolved in terms of misplaced risk and reward priorities.

It is in this context that Percy Barnevick's recent predicament is poignant. The man who was lauded, applauded and hailed as the 'European businessman of the year' for several years, is suddenly in the midst of a raging controversy; for awarding himself, as alleged, a generous pension of a hundred million Euros (Swiss Francs 148 million). Barnevick perhaps felt justified as having earned a good golden handshake for invigorating ABB, after the mega-merger between the Swedish Asea and the Swiss Brown Boveri and for converting it into an engineering giant in the 90s.

However as he celebrated his sixty first birthday last month, he must have rued the fact that he took a pension and that this matter has been raked up only to tarnish his image. He had put in quite a bit of intellect and efforts into turning ABB into a globally admired company and one of the best managed multinationals of the world but alas public and corporate memories are short. That is why they say cash is better than credit. Much may be creditable but ephemeral.

One is almost reminded of Robert Brownings' famous poem about a hero whose victorious path was 'myrtle, mixed with madness' i.e. drowning in roses one day and then within a short time, dodging stones thrown at him. Metaphors apart, Barnevick was perceived as a leader par excellence and renowned for preaching good corporate governance, transparency, disclosure etc.

But this is what happens, when a company falls into troubled times. Everything suddenly becomes a problem i.e. ghosts are seen even when there are none. ABB has recently witnessed board room acrimony after its profitability took a beating and it is facing insurance claims with regard to asbestos matters in the U.S.

The current directors of Asea Brown Boveri have convenient amnesia and forget that Barnevik was the man who had created a hundred percent increase in the shareholder value of the two merged companies and was chosen as the CEO and Chairman of Europe's 'most respected company' for four years by the Price Waterhouse survey in the Financial Times.

It highlights the possibility / risk that if you are not at the helm of affairs, your successors are quick to pin a lot of the company's woes on to you. In this instance, the arguments are that Percy Barnevick had helped himself to a hefty pension and also pampered Mr. Goran Lindahl, the Group CEO that he groomed. The latter reportedly received benefits aggregating to about Swiss Francs 85 million. In isolation, one cannot but conclude that these huge amounts, appear quite unjustified. But the dilemma for every senior corporate executive is to determine as to how much he or she is personally worth in corporate compensation terms.

What is the contribution to performance and who should make such decisions?, Should it be a governance committee or the full board of directors? Barnevick now claims that these performance rewards were and properly documented, based on actuals / achieved financial results. Mr. Martin Ebner, the Swiss enfant terrible, is now a member of the ABB Board and is its second largest shareholder. He is accused of witch-hunting and the brain behind the smear and vendetta campaign. His equation with Barnevick had soured when his huge shareholding, bought at a considerable cost in earlier years, fell in value.

This is where often the cricket or sports syndrome of a player retiring at his peak, may well need to find its way in the corporate and political worlds. When the going is good, that is the time to hang up your boots. The 'batsman walked' approach is best.
You retire when people ask why and not why not! If one were to go after the chips are down, there can be indiscriminate, unjustified and often arbitrary accusations hurled at you that you are not in a position to defend or respond. Similarly some Third World politicians would rather hang on to power and die in office, entitling them to state funerals! Many corporate captains also never know when to quit.

The Chairman or CEO of the corporation is usually best placed to decide as to what is a reasonable reward for all the hard work that he and his team of senior executives put in. It does not help to regard these as excessive; with hindsight vision of 20:20. If the foreign exchange or option trader can get multi-million dollar bonuses during their hey days and others get stock options, surely the CEO and the Chairman is entitled to provide for his nest eggs by way of pension and end-of-service benefits.

In this instance, it is the fatal combination of the company's fortunes plummeting and the seemingly enormous pension arrangement that rankles the outside observer. Nevertheless, Euro 100 million is but a fraction of the multi-national's profits! In the U.S., a hundred million dollars for a lifetime devotion to a corporation would not attract the same level of attention. Barnevick would be faulted however, in not disclosing it properly.

He must have agonised over what the best course was - whether to speak loudly about his pay packet or to follow the letter of his contracts. He did not anticipate that a disgruntled shareholder would re-open the Pandora's box. In absolute numbers, the payout is decidedly on the high side.

The egalitarian Sweden with its socialist bent, could not obviously stomach the high reward, high penalty policy i.e. the happy and harsh treatment meted out to corporate executives, depending on their performance and contribution. Therein perhaps lies the cultural difference that is now threatening to be an ethical quagmire for the likes of Barnevick. For those that know him, that is really a tragedy of epic proportions for its sheer ethical implications.

(The author (sureshk@emiratesbank.ae) is a General Manager in Emirates Bank Group. The views expressed in this article are not necessarily shared by the Bank.

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