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 user 2008-07-17 at 12:10:27 pm Views: 64
  • #19905

    With friends like these …
    HONG KONG – You can tell a lot about people by the friends they choose. For candidates in the United States presidential race, that goes double for their political friends. Last week, Republican nominee-in-waiting Senex hp ceo carly fiorina ator John McCain got a double whammy from two key allies he has chosen.

    Former Texas senator Phil Gramm and former Hewlett-Packard chief executive Carly Fiorina both shot off their mouths inopportunely. Gramm declared the US is in a “mental recession … we’re becoming a nation of whiners”. McCain said he completely disagreed and suggested that Gramm, touted as a  potential McCain administration secretary of the Treasury, was more likely to be banished to an ambassadorship in an obscure former Soviet republic.

    Fiorina griped about insurers not covering birth control and told women voters McCain would change that. But McCain has voted against that very item on at least two occasions. When questioned about it, McCain was struck speechless before pleading memory lapse on the votes. Even painful to watch, it had to rank among his top 10 most uncomfortable moments since the Hanoi Hilton.

    In the bigger picture of McCain’s campaign for the White House, what Gramm and Fiorina said matters last week less than who they are and what they’ve done in their respective careers.

    My way or the HP way
    Fiorina was the first woman chief executive officer of a Dow Jones Industrial Average firm when she took the reins at HP in 1999. Aside from the first layoffs in company history, Fiorina used dubious arguments and trashed Hewlett-Packard’s founding families and its “HP way” culture to engineer a dubious merger with Compaq.

    The move, announced in 2002, was designed to make HP the world’s largest manufacturer of personal computers. The company that invented Silicon Valley after Stanford University graduates David Hewlett and Bill Packard built a precision audio oscillator in a Palo Alto, California, garage (now a state historic monument), would stake its future on the low-margin business of grinding out a commodity product. HP shares fell 18% on the day the merger was announced.

    The Compaq merger decision came after HP had failed to partner with a business consulting firm and move the company more heavily into that space. IBM, which sold its PC division to China’s Lenovo, has just done that with great success. In 2002, HP was the dominant player in computer printers, and, opposing the merger, board member and founder’s son Walter Hewlett urged focus on that very profitable segment. But Fiorina was following the Vietnam War strategy of destroying the village in order to save it. She wanted HP to unmistakably bear her stamp, one way or another. On this matter, and all others, those disagreed with her, well, they were simply wrong.

    Fiorina got her merger but the results were predictably disappointing. In 2005, Fiorina got the ax, with a US$21 million severance package. Since she’s left, HP has also prospered. It has firmly taken the top spot in PC market share and acquired EDS, a leading computer services provider. The stock price, which rose 7% on the day Fiorina was fired, has more than doubled. In an unintentionally comic turn, Fiorina said in an interview last week, “My choices and my leadership had been completely validated by what happened from the moment I left. And by the way, the best legacy of a leader is what happens after they go. That’s how you know the kind of foundation they put in place.”

    Selective legacy
    So Fiorina is taking credit for the progress HP made thanks to her firing. However, she’s not taking credit for what happened after she left Lucent, the telecom equipment maker spun off from AT&T, where she ran global sales. A darling of Wall Street in the late 1990s, the company imploded amid irregularities in sales reporting and accounting during her watch. (Nice hire, HP.) Lucent shares lost more than 99% of their value, the company sold off various pieces, and finally, in 2006, sold itself to Alcatel.

    Fiorina’s autobiography, Tough Choices, recounts an episode where she stuffed socks into her crotch and declared, “Our balls are as big as anyone’s in this room.” That would explain what can be charitably characterized her conveniently selective memory in misrepresenting McCain’s position on insurance payments for birth control.

    While Fiorina wants to bring her brand of corporate megalomania to the political arena – in addition to speculation she could be McCain’s vice presidential choice, Fiorina is considered a potential candidate to succeed Arnold Schwarzenegger as California’s governor – Phil Gramm has gone the other route, bringing his extraordinary political ego to the corporate sector as a vice chairman of Swiss banking giant UBS. But Gramm realized early on that there was no need to have a corporate job to be on corporate payroll.

    While railing against government involvement in the economy, Gramm’s entire career has about been making his involvement in government personally profitable. His “mental recession” remarks fit a long-running pattern: Gramm and his wife, Wendy Lee Gramm, embody Washington insiders brazenly feathering their own nests and letting the public eat cake.

    While gutting the rules that kept banking, securities and insurance separate as a senator, Gramm took more than US$1 million in contributions from the financial industry. Eliminating restrictions on financial services companies has enabled them to become behemoths. It’s also ensured that a problem in banking or insurance or mortgages isn’t a sectoral problem but a threat to the entire US economic system.

    Senator from Enron
    Gramm was also known as the senator from Enron, but he didn’t do that job alone. Wendy Gramm headed the Commodity Futures Trading Commission, where she approved many of the controversial strategies that Enron employed to make its name synonymous with corporate malfeasance. Her government work done, she went directly from her commission chair to a seat on the board at Enron. Phil Gramm then picked up the torch, co-sponsoring the Commodity Future Modernization Act that gave Enron even more scope for the fraudulent behavior that brought it down, costing shareholders billions while executives escaped the carnage.The Gramms, each with a doctorate in economics, kept their Enron money. From 1999, Wendy Gramm refused to accept Enron stock as payment for her work as a director. With an audacious lie that would make Josef Stalin blush, she declared that holding Enron stock created a conflict of interest for her as a director, so she cashed in her stock and took all further payments in cash. Corporate directors, by law, have a fiduciary duty to act in the best interest of shareholders. Any economist not named Gramm will tell you the best way to ensure they do that duty is to give directors the same financial interest as shareholders, ie that directors should be shareholders, preferably substantial ones.Gramm’s statement was complete and utter nonsense, the equivalent of declaring only foreigners should vote since residents’ choices would be impacted by having to live with the outcome. If Gramm actually believes her conflict of interest argument, then she can’t believe in democracy or representative government. But what matters is that she avoided getting stuck with worthless Enron shares when the crash came. Her rake as an Enron director reportedly totaled $2 million.The Enron episode reveals much about Wendy Gramm’s character. As a government official and in her current position as a chairman of Regulatory Studies at George Mason University’s Mercatus Center (to which Enron was a donor), Gramm champions the rough justice of markets to determine winners and losers. But as a director at Enron, she found a way to insulate herself from not just the market, but from the consequences of her own inadequate oversight as a member of Enron’s audit committee.To investors she was duty-bound to protect, Wendy Gramm still preaches that Enron’s demise was a triumph of market freedom (so quit whining).Phil Gramm is just as hypocritical but perhaps even less competent. His job at UBS entails lobbying Washington and providing the bank with perspective on US regulations and markets. You’d think the former chairman of the Senate Banking Committee would have foreseen the subprime mortgage debacle and steered UBS clear of it. Instead, UBS has been hit with losses estimated as high as $45 billion, and its shares have lost 70% of their value. Ask your bosses and shareholders whether it’s all in their heads, Phil.In Phil Gramm and Carly Fiorina, John McCain has a pair of economic experts who last week showed they can’t talk the talk and over their careers have demonstrated they can’t walk the walk. Yet McCain hasn’t cut either of them loose. With so many experts out there, McCain needs to explain to voters why he chooses to listen to what Gramm and Fiorina have to say.