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Business
Liquidate your company and make millions
At its meeting on August 31, 1999, the Board of Directors
of Phœnix International adopted a clause calling for a
bonus of $4.13 million for its new Chairman in the event
the company was taken over or merged. Less than six months
later, Phœnix was gobbled up by a competitor, and John
Hooper, Chairman of the Board and Chief Executive Officer,
retired with his bonus.
A rare case? Not at all. When the President of Biochem
Pharma, Francesco Bellini, sold his company to the British
based Shire Pharmaceutical in 2000, he made sure that he
had what is commonly called a “golden parachute.” The clause
stipulated that Bellini would receive three times his salary
and various bonuses if he concluded a sale. When the transaction
went through, he pocketed an extra $5 million.
According to HEC Montréal student, Karine Houle,
who has just submitted a master's thesis on pay packages
for business leaders, the chief executives of 33 of the
58 Canadian companies listed on the Toronto Exchange that
were acquired by another company between 1990 and 2000
had set up golden parachutes for themselves. “It is a controversial
phenomenon in the business world,” the student explains.
For some people, the golden parachute is compensation to
executives who are out of work as a result of a merger
or sale. For others, it is more of a bonus for poor management,
because companies experiencing difficulties are often open
to takeover.”
Golden parachutes may take a variety of forms. The most
common is a salary bonus. Karine Houle's master's thesis,
which studies Canadian companies taken over in transactions
valued at over $10 million, shows that the average bonus
was $1.3 million. Another widely used form of golden parachute
is the stock option. The executive is given the option
of buying and reselling shares in the company if their
value increases. In short, it is a risk-free operation
for him: if the value of the shares drops, the executive
does not lose a cent.
In a context where there is more and more talk of good
governance and ethical management of businesses, do executives
deserve millions of dollars for steering their companies
off the map? “Canada currently has no laws to control this
kind of policy,” laments Sylvie Saint-Onge, professor at
HEC Montréal and Karine Houle's thesis director.
Even the Securities Commission remains silent on this issue,
contenting itself with proposing guidelines.”
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