TCS Daily

Business Press Mess

By James K. Glassman - April 30, 2003 12:00 AM

"Have They No Shame?" screamed the headline of the cover story of one of the magazines, adorned with a picture of five ravenous pigs eating cake amid piles of money.

The subhead: "Their performance stank last year, yet most CEOs got paid more than ever. Here's how they're getting away with it." The story heaped ridicule on such executives as John Chambers of Cisco Systems, Hank Greenberg of American International Group, and David Cote of Honeywell, with the clear implication that they were plundering corporate assets.

The other magazine headlined its cover story, "Dealing With Despots." Its point was that oil companies were in bed with "brutal military dictators," paying off unsavory characters in order to feed the insatiable appetite of morally oblivious consumers for more and more energy. According to a caption: "To keep America's SUV owners happy, oil companies get in bed with bad guys."

Two magazines, two outrageously distorted articles about greed - with little in the way of rigorous analysis or facts to back up the claims. Instead, the guiding principle behind both is a kind of vulgarly Marxist power theory.

So, obviously, we're talking about the latest issues of left-wing journals like The Nation or Mother Jones. Right?

No, in fact, the cover stories appear in the current issues of two U.S. business magazines. Fortune (May 5) has the CEO pay article and Forbes (April 28) has the oil-and-despots article.

What's going on here? Fortune, founded by Henry Luce in 1930, has had a proud history of serious writing. Forbes, owned by the same illustrious family since 1917, has as its publisher Steve Forbes, the supply-side Republican candidate for president. Is Steve not paying attention? Has something profound changed since the retirement of Jim Michaels, probably his generation's best magazine editor, of any sort?

Maybe the explanation is that business magazines, getting thinner and thinner from declining advertising, have to shout and sensationalize to keep their circulations up. But how does that explain the continuing competence of Business Week?

Whatever the reason, Fortune and Forbes are sliding, in quality and respect.

The latest cover stories indicate why. It's true that many corporate CEOs continue to glean high salaries, bonuses and stock awards and options even though their firms' stock prices have been declining. But why should that be surprising? When the economic wind is at your back, it's easier to make lots of money. In tough times, businesses need great managers more than ever. How to attract them? The same way that sports teams attract them. With high compensation. It's not very complicated.

Consider Chambers, one of the 12 CEOs that Fortune blasted for "High Pay, Rotten Returns." Last year, Chambers's compensation was $55 million, but, as Fortune admits, it actually fell 66 percent and consisted "almost entirely of options." Still, $55 million is a large chunk of change. But remember what Chambers does. He runs a company with a market capitalization of $100 billion, which last year, despite a terrible economy, earned about $3 billion in profits on about $20 billion in revenues.

As a shareholder in Cisco, would you rather spend one-tenth the money to hire a CEO who, it's logical to assume, might be less skillful than Chambers? That doesn't make much sense. Chambers's pay last year amounted to one-three-hundredth of Cisco's total expenses.

Fortune says it has been screaming about high pay since 1982, with a cover story titled, "The Madness of Corporate Compensation." But the last 20 years have - by any objective standard - been among the most productive in the history of U.S. business. The American economy outstripped the rest of the world, with average growth of over 3 percent annually. The Dow Jones Industrial Average rose from 777 in August 1982 to over 8000 today. U.S. businesses now lead the world in nearly every major industry, from semiconductors to retailing. Fortune congratulates European businesses for paying CEOs less than Americans. But look at the results.

Certainly, a serious business magazine would not simply serve as an apologist for CEOs, but neither would it mindlessly condemn what it sees as high corporate pay, without mentioning, for example, that Adam Sandler, Britney Spears, Tiger Woods, and Michael Schumacher all make more than Greenberg of AIG, a company with 80,000 employees and $54 billion in assets. Shortstop Alex Rodriguez has a contract with the Texas Rangers that guarantees him a quarter of a billion dollars over 10 years, plus bonuses.

The CEO-pay story is simply a cliché that magazines trot out this time of year, but, in his piece, Daniel Fisher of Forbes goes into wild contortions to squeeze a mass of innuendo into a template he apparently had established long before he began interviewing.

While Fisher, dredging up tired tales, smears Unocal, Total and Shell, his main target is Exxon Mobil. Of course, oil companies work with unsavory governments. That's often where the oil is. But the real story is precisely the opposite of the one that Forbes tells. ExxonMobil is an oil company which, in alliance with the World Bank, is forcing the government of Chad to spend royalties on social needs instead of weapons through a unique cash-flow process. This is man-bites-dog story of social responsibility, but Forbes, like Fortune, prefers to mold it into another predictable, glib piece about corporate corruption - the facts be damned.

If Fisher had cared to do a truly important article, he might have focused on the energy story that the media has been ignoring: the reality that, even with optimistic predictions about renewable sources like wind and solar and with efficiencies increasing in dazzling ways, the world's energy needs will rise sharply over the next 20 years. ExxonMobil predicts that oil, gas and coal, which currently account for 81 percent of all energy use, will account for 83 percent in 2020. Does any expert dispute those numbers? I doubt it.

Overall, energy use will grow at an average of 1.8 percent annually, but growth in the U.S. will be just 0.8 percent; in Europe, 0.7 percent. The big increases will come in developing countries, especially China and India. Now, that's a story.

How about an article about where all this energy is going to come from? And what the consequences will be if it's lacking? What about a discussion of the ethics of environmentalists trying to restrict energy use in poor countries that desperately need abundant and cheap energy to provide decent lives for their people?

How about looking at coal, enormously important both in the U.S. and the rest of the world? Or at the fact that Europe, for all its sanctimoniousness, is going to have to boost its oil import requirements by 45 percent over the next 20 years?

It seems only reasonable that business magazines would concentrate on the many important stories about energy, the economy, and corporate practices - and leave the silly, superficial and inflammatory ones to the ideological and sensationalist media.

Fortune and Forbes: Get serious. Have you no shame?

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