Tuesday, February 10, 2009

Noblesse Oblige

I visited Yahoo's corporate cafeteria last night in San Jose. Last month when I was there I noticed that they had closed the cafeteria for the evening. This time, it appears, they've turned off the heat as well. Well by the end of the evening, the temperature inside had fallen to about 58 degrees. In the midst of this deep freeze, I was reminded me of the disconnect between Jerry Yang and Yahoo shareholders.

Now we all know that Microsoft is the evil empire of the technology company world. And most of us love to hate Microsoft. But what Jerry Yang represents so clearly, is the utter disconnect between CEOs and their fundamental lack of noblesse oblige. The term is french and translates literally to "nobility obligates". I guess too many of today's corporate founders and CEOs were too busy getting through B-School or starting their company's to learn a little humility and the responsibilities of great personal wealth.

As Yang was playing poker with Microsoft in the negotiations last year I wonder if he ever had fallen on his face before? Had he known great failures? The fundamental absence of fiduciary obligation to shareholders, employees and clients on the part of Yang and so many other CEOs, is just appalling.

A fundamental problem with corporate management is that their is economic disconnect between most company CEOs, the Board of Directors, and the regular people represented by shareholders, employees, and clients. When Microsoft generously offered $32 a share, a value Yahoo hadn't seen in years, I can't help but wonder if Yang would have chosen differently, if he didn't have a $Billion in the bank. Had he the necessity of worrying about how bills and mortgages and retirement, like the rest of us, would he have chosen differently? With a billion in the bank, what difference does it make to Jerry Yang, whether shareholders receive the best price for their company: none whatsoever.

If you are a small business person, or anybody making less than about $250,000 a year, you feel every expense, every mistake, every consequence of your economic decisions, and thus, you make better decisions in time. Its a learning curve. With infinite wealth, comes an insulation, that seems, in this day and age, to desensitize company leaders, from their fundamental fiduciary obligation to check their egos at the door, and make decisions for the benefit of shareholders, employees and clients.

John Pierpont Morgan http://www.netstate.com/states/peop/people/ct_jpm.htm, and others, understood the obligation of stewardship that the noblesse oblige demands. But so many of today's titans are driven by an ego, and a disconnect that leads down the path the place where we are today.

As a shareholder, it pains me deeply to witness the contempt with which so many company leaders have acted. In their bubble worlds of corporate excess and personal wealth they are disconnected from the rest of us. John Thain renovating his office for $1.2 million in a time that the U.S. money center banking industry is essentially insolvent. How does a person achieve such success while showing such a poor lack of judgement?

President Obama is right to make a big deal about CEO pay. The current crop of corporate leaders would learn plenty thinking about the legacy and heritage of corporate giants from the past.

Daniel A. Barnes, CFA

Barnes Capital is an independent investment advisor serving private clients in Lafayette, California. We help clients develop a vision for their financial future, embodying their goals, dreams and values. We help them achieve this vision acting as their personal chief financial officer.