Kodak CEO Antonio Perez and CFO Antoinette McCorvey got an early Christmas present from U.S. Bankruptcy Judge Allan L. Gropper. The U.S. taxpayers - including thousands of employees of the once great iconic American company - got a lump of coal (with no hope of a carbon credit for not burning it this winter during those long, snowy Rochester nights). And, for those of you who struggle to put the interlocking pieces of the jigsaw puzzle together, this is a case where the assumption that somebody, somewhere is looking out for "us" has been proven horrendously flawed.
First, a few facts. Antonio Perez is a model for the failure of the U.S. public company leadership paradigm. After over two decades at HP, his wholesale abdication of candor and critical thinking as CEO steered the once great brand into bankruptcy and, all the way into his Captain Edward Smith impression (think April 14-15, 1912 and an iceberg), he evidenced a complete disregard for any sense of stewardship. Not surprisingly, while he presides over the demise of his company and in the face of illiquid pension commitments and countless bank covenant violations, his demands for his 'bonus' are an offense to all sensibilities. In 2006, Mr. Perez foolishly bet on film's slow demise rather than it's meteoric fall. In a world where he could have easily added telecommunications to digital cameras, he steered Kodak into the teeth of the commodity printer business where Kodak had no advantage. Despite having no finger on the innovation pulse of the company, he explicitly chose business strategies where Kodak had the least proprietary lead. And, ironically, in its death, he misled bankers, the markets, and now the Pension Benefit Guaranty Corporation (PBGC) assuring them that the very patents he ignored in management would be the safety net to cover Kodak's financial woes. Wrong again. Turning to charlatans - a favored source of confirmation for his delusions - he was certain that bidders would value the digital imaging patents at nearly $2.5 billion. When the 'market' leaked its opening bids - bids not from manufacturers but from patent litigation protection rackets - they were down by an order of magnitude.
Citigroup has a lot to lose. With its collateral interest against its $950 million loan to Kodak, it would love to see more than a few hundred million from these patents. And the pension liabilities for the workers for whom Perez had (and continues to evidence) contempt are becoming more and more likely the unlucky windfall for PBGC. The trouble is, the PBGC, lured into the same illusion of the value of patent protection racket fueled speculation and advised by the same court jesters who misled banks and investors, has blindly ignored its fiduciary obligation to the public and the Kodak pension holders, and has chosen to take a path of willful ignorance to its own detriment. Best of all, they did so in writing!
Which leads me to the reason for choosing this topic for today's blog post. I have pointed out the egregious error of the corporate model shielding individuals from liability. Perez can be reckless in his tenure as CEO, crash the company sticking it to the creditors and pension holders, and, all the while insist that he is necessary to preside over the autopsy for the murder! Nothing like having the perp explain the crime scene. And his bonus, approved this week by the bankruptcy judge, is viable because his employment is worth more than the thousands of jobs erased by his mismanagement.
Perez is at the helm and the ship is on the ocean floor. He sank the company. His shield from responsibility - courtesy of the nature of corporate law - gave him license to his reckless behavior. And in its collapse, the system propping up this social contrivance is demonstrating that it provides NO oversight to interdict or remedy against incompetence. Nothing about his role required him to think strategically. Nothing about his selection as CEO was based on any evidence that he could build a new future for an iconic, technologically advanced brand. No, he was 'credentialed' by title, not by evidenced innovative thinking. And he now is added to the annals of the throngs of those credentialed by virtue of being in large corporations who are neither wise enough to discern their own capabilities, nor accountable enough to dismiss themselves when they're in over their head. And nothing about a liability shield serves any benefit - either to these ill-placed leaders or the companies that they destroy.
We'll be paying for Perez's carelessness. PBGC will inherit illiquidity and, one way or another, the assets of a great brand will be squandered and We the People will be left holding the bag. This was an avoidable collision. And if we're going to get it right, we need to start by holding our leaders accountable - at every level.
So here's a crazy idea. Occupy Wall Street Occupites are seeking their idea of economic justice. Citigroup was misled into a credit facility by an opaque financial condition reported by an incompetent CEO. Both parties stand to lose big time! So why don't both parties evidence their Common Wealth by working together to shed light on - and reverse the bankruptcy abuses by - the veiled corporate malfeasance being evidenced by this week's endeavors. If we're serious about getting it right, then let's bury some axes and start pulling out the weeds!