TEXT OF INTERVIEW
Kai Ryssdal: Morgan Stanley wrote off $9.5 billion worth of subprime mortgages last quarter. That was on the way to piling up more than $3 billion worth of red ink for the three months that ended on New Years Eve.
It would have been fair to assume management and the board of directors would’ve been in for a grilling today at the company’s annual shareholder meeting, but oh how wrong you’d have been.
Every single member of Morgan’s board was re-elected with more than 90 percent of the vote. So if subprimes aren’t enough to generate some shareholder outrage, what is?
Michelle Leder runs the website footnoted.org.
Ryssdal: Michelle, thanks for being here.
Michelle Leder: Thanks for having me Kai.
Ryssdal: This Morgan Stanley meeting, remind us why it’s important.
Leder: You know, it’s really the first meeting during the annual meeting season where you have a chance for investors to ask questions of some of the people behind the subprime mess.
Ryssdal: Those questions might be what? Where were you guys?
Leder: Where were you guys? Why were you asleep at the wheel? Why weren’t you warning beforehand? Why are you still paying out huge chunks of change for what can charitably be called mediocre performance?
Ryssdal: And then what are the boards of directors going to say in defense of their own actions or inaction?
Leder: Well, it’s hard to say. Depending on the meeting, you know, some directors don’t even have a chance to speak. Usually it’s just the CEO/Chairman that is doing most of the talking. In the past, there’s even been board meetings where none of the directors show up.
Ryssdal: Let me ask you this though: we had this whole Enron thing happen seven years ago…
Ryssdal: …at which point everybody said “Oh wow, boards of directors have audit committees.” Has nobody been paying attention in the past seven years to making sure audit committees do their jobs?
Leder: Well, I think what happened is there was a big push after Enron for audit committees to start doing their jobs a little bit more closely and a little more actively and what you had here is the subprime situation really snuck up on people and caused some very big problems very quickly. One of the other things that’s really surprising to me is I went back and looked at most of these investment banks and looked at how they anticipated the subprime crisis and what was amazing to me is that very few of them used the word “subprime” in their 2006 filings, their annual reports for 2006 and yet in 2007, it was subprime-this, subprime-that, this is the reason we’re going down; unbelievable amounts of reasons why subprime was tied to their problems and it was amazing to me how there’s just no foreshadowing of this. I mean, these people are payed an awful lot of money to get it right.
Ryssdal: And still most of them are going to keep their jobs.
Leder: We saw a couple of high-profile people who have lost their jobs, obviously Stan O’Neil at Merrill, what’s happening at Bear Stearns — a number of those top executives are going to lose their jobs — Angelo Mozilo at Countrywide is stepping down — retiring, whatever phrase you want to use — but yes, most of them are keeping their jobs.
Ryssdal: What’s your sense of investor outrage, I guess, at CEO compensation packages in light of subprime losses and those very subprime losses themselves?
Leder: I think there’s a lot of anger out there. The question is what can really anyone do about it? When you hear how much people like Angelo Mozilo’s making, for example: huge amounts of money and he makes a point of saying well, he was giving back some severance pay that he would have been due for leaving the company. You know, these token give-backs, that’s what a lot of investors are sort of questioning. You know, John Mack, for example, at Morgan Stanley. He said that he wasn’t taking a bonus this year, but he still made a significant chunk of change last year.
Ryssdal: So really, if you’re an irate shareholder, you can show up at these meetings, but don’t expect too much?
Leder: You can show up at the meeting and you can rant and rave, but I wouldn’t expect to change the world as a result.
Ryssdal: If you ever wanted to know what’s in the fine print of those corporate reports, footnoted.org is the place to be. Michelle Leder runs that website. Michelle, thanks a lot.
Leder: Thanks for having me Kai.
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