Help Wanted: A major financial organization is seeking an experienced executive to serve as chief executive officer. The ideal candidate will have extensive experience and a proven record of success in the financial industry, will be willing to accept a salary and benefit package that will be substantially less than the compensation and benefit packages normally provided to chief executive officers of similar companies, will have limited authority to develop and implement the short- and long-term strategies for the organization, and will be willing to testify in televised hearings before Committees of the United States Congress and accept blame for policies forced upon the organization by the executive or legislative branches of the United States Government. All persons wishing to apply for this position should send their resumes to President Barak Obama, 1600 Pennsylvania Avenue, Washington, D.C.
If you had the qualifications and experience for the position described above, would you be interested in applying for it? If your answer is no, then you are not alone. Even at a time when many experienced financial executives have lost their jobs, it seems that candidates are not lining up outside the White House to apply for positions with the various financial organizations now owned or controlled by the United States Government.
Let’s take the Federal Home Loan Mortgage Corp., which is better known as Freddie Mac. Freddie Mac is one of the financial institutions taken over by the government. The current Chairman of Freddie Mac is John Koskinen, who is also serving as the interim chief executive office and the interim chief financial officer because both of those positions are vacant. The position of chief operating officer is also vacant. Mr Koskinen has a very difficult job. His most difficult assignment is finding qualified candidates who are willing to serve as chief executive officer, chief operating officer, and chief financial officer. Mr. Koskinen is being paid $290,000 a year for serving as Chairman of Freddie Mac, but he is not receiving any extra compensation for serving on an interim basis as chief executive officer and chief financial officer.
The Wall Street Journal this week cited several reasons why the vacant positions at Freddie Mac are difficult to fill. One reason is that the pay will be “comparatively modest.” Another is that federal regulators “now have veto rights over major decisions.” One former Wall Street executive told The Wall Street Journal that he was approached about the CEO position at Freddie Mac but declined because he envisioned working for minimal pay while getting “raked over the coals” by lawmakers for matters beyond his control. Another experienced executive declined the position because he felt he couldn’t “move the dial” at the company in the face of significant government intervention.
Mr. Koskinen agreed to become Chairman of Freddie Mac last year out of a sense of civic responsibility. He became interim CEO in March of this year when the then CEO, David Moffett, resigned after only six months on the job because of his frustration with government control. He became the interim CFO in April when the then CFO, David Kellermann, tragically committed suicide after serving in the CFO position for approximately eight months. Of course, it is impossible to know why someone chooses to commit suicide. In an article published on April 22, 2009, The New York Times reported that Mr. Kellermann had been working nonstop and had told friends “it seemed impossible to appease everyone—regulators, lawmakers, investors and other executives—given their competing demands.” Mr. Kellerman was also despondent because he and others had become the focus of intense scrutiny over bonuses that had been promised to them. The New York Times reported that reporters and camera crews had descended on Mr. Kellermann’s house in an affluent suburb of Washington, D.C. in their effort to get a story about Mr. Kellermann’s bonus. Mr. Kellermann’s wife reportedly was concerned about her safety as a result of the unwanted attention her husband was receiving.
Similar problems have surfaced at other financial institutions owned or controlled by the government. The Federal National Mortgage Association, which is better known as Fannie Mae, has had three CEOs since the government took control of the company last September. After taking control, the government immediately replaced Daniel H. Mudd, who had served as CEO since 2005. Then Treasury Secretary Henry Paulson persuaded Herbert M. Allison, Jr., who had previously retired after a distinguished career as a financial executive, to become the new CEO of Fannie Mae. Like Mr. Koskinen with Freddie Mac, Mr. Allison accepted the position as Fannie Mae’s CEO out of sense of civic responsibility. A few months later, Mr. Allison was moved to the Treasury Department to run the government’s financial bailout efforts. The government then named Michael J. Williams as the third CEO of Fannie Mae in less than a year. Mr. Williams, who had been employed by Fannie Mae since 1991, did not get a pay raise upon his promotion to CEO. He does not have the authority to make any major decisions without the government’s approval.
CEOWORLD Magazine asked Mr. Mudd, the former CEO, if he made any mistakes while running Fannie Mae. Mr. Mudd responded, “I wish I’d said no to more of the things the company was asked to do. We were asked—or required—to expand lending, to conserve capital while providing liquidity, to meet housing goals for the underserved, to serve shareholders and homeowners alike. … I wish I had gone to the government and gotten a clear answer to the question: What do you want: more capital or more lending?”
Then there is American International Group, Inc., or AIG, which is also now owned and controlled by the government. Edward M. Liddy, another experienced financial executive, was drafted last year to serve as CEO of AIG after the government took control of AIG. He agreed to take the job for $1 per year. Mr. Liddy now wants out, and the sooner the better. He has submitted his resignation to be effective as soon as his successor can be found, which won’t be easy. In an article dated May 22, 2009, The New York Times said, “Mr. Liddy took the job of chairman and chief executive of the insurer as a form of public service, but he ended up being castigated by members of Congress who seemed unable to separate him from the financial turmoil he was brought in to calm.” In an interview with The Wall Street Journal, Mr. Liddy discussed his testimony before Congress regarding the payment of bonuses that had been promised by AIG before Mr. Liddy became CEO. Mr. Liddy said, “Except for the day my mother died four or five years ago, it was probably the worst day of my life.”
Do you see a pattern here? No good deed goes unpunished. The government brings in a civic-minded executive who is willing to work for little or no pay to clean up a mess caused in part by government policies. Members of Congress then publicly castigate the civic-minded executive while refusing to take any responsibility for their role in creating the problems the executive is trying to solve.
Is it any wonder that ten large banks this week couldn’t wait to repay $68 billion of federal bailout funds? The ten banks repaid the government bailout loans in order to get out from under the government’s thumb. Many of the banks had been forced to accept the government loans against their will. Ironically, during the same week the banks repaid the bailout funds, the Obama Administration announced extensive new regulations to which the banks will be subject in the future. President Obama’s “compensation czar” will also be keeping an eye on the banks even though they have repaid the government loans.
There is no doubt some financial companies have made serious mistakes that have contributed to the current financial crisis. There also is no doubt many of these same companies paid excessive and even obscene compensation to their senior executives. For me, however, I would have more confidence about the future if the government would allow these companies to fix their own problems rather than subjecting them to increased government control. When the government gets involved, bureaucrats and politicians who have never run so much as a hotdog stand are doomed to make every mistake possible.
Many years ago, I read an article entitled “Hire People You Can’t Afford.” The article, which was written by John Malmo, Chairman of Archer-Malmo Advertising, Inc., was designed to provide advice to new entrepreneurs. Mr. Malmo wrote, “The very first time you have to hire somebody to help, you hire cheap. Because you’re probably poor. So you hire the only people you think you can afford. It takes a year or two to find out you can’t afford the people you could afford. You’re working harder with them than you were without them, because you’re doing your job and their jobs, and you’re paying them, to boot. …. You have to do this at least twice before you realize that the only people you can afford are the people you didn’t think you could afford.” Mr. Malmo added that a sure road to success for an entrepreneur “is to make it a point to always try to hire only people you think are better than you are, or at least have the potential to be better than you.” He could have added that after hiring these people you should give them the freedom to do the job you hired them to do.
Successful businesses are not run by politicians or by people who are hired by politicians to do whatever the politicians want them to do. Mr. Malmo in his article observed, “It’s hard to remember a company chock full of talented, smart and motivated people that failed.” Unfortunately, many “talented, smart and motivated people” are not willing to work for a business owned or controlled by the government. Our recent history shows it does not take long for a talented person who agrees to work for a business owned or controlled by the government to get frustrated and resign.
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