The Kraft acquisition of Cadbury provides a vivid illustration of why the US model of screwing workers to preserve executive bonuses does not go over well abroad.
Brief synopsis: Kraft acquires the 200 year old British confection-maker Cadbury after a heated battle. The chairwoman and CEO Irene Rosenfeld (already not a good sign, best practice is to separate the two roles) was awarded a 41% pay increase, bringing the total to $26 million for 2009 for her “exceptional role” in the Cadbury transaction, as well as her “commitment to fiscal discipline.
Huh? Doing deals is part of a modern CEO’s job. Unless her role was SO exceptional that it saved Kraft several million in deal fees, this just looks like a trumped up excuse. It is far too early to tell if the Cadbury acquistion was a good deal or not, thus special bennies look mighty unwaranted.
Indeed, the board looks like is was snookered (as in how would they know how “exceptional” her role was? Those reports would only come from her or staff and advisors loyal to her; teh board most certainly not involved enough in transaction details to have an informed view.
The press is blandly reporting Kraft party line on a monumental stuff up. From the Financial Times:
More than 3,000 Cadbury employees face a three-year pay freeze unless they opt out of the confectioner's final salary pension scheme.
New owners Kraft Foods, the US food group, has told 3,600 staff that they must accept a pay cap after it discovered an obscure clause in Cadbury's pension trust deed that makes it almost impossible to close the scheme.
Kraft did not know about the clause, which is at least 30 years old, until after it acquired Cadbury for £11.6bn ($17.6bn).
A person with knowledge of the Cadbury pension fund said he did not know why such an unusual clause existed, but it could be linked to Cadbury's Quaker heritage and its doctrine of giving a fair deal to staff and suppliers. Kraft is forcing employees to accept a pay freeze because it believes this is the only way it can get its future retirement costs under control. "The scheme is unaffordable going forward," said one person involved.
Yves here. Can you parse the bullshit? That “obscure clause” nonsense is a “the dog ate my homework” level excuse. Due diligence includes a review of material contracts. A pension is a major contract and would get a lot of attention. Someone on the Kraft team made a colossal error, and is trying to shift blame in a ham-handed fashion.
And “the scheme is unaffordable” is a plain lie. Kraft can afford it, it simply does not want to pay it. But Kraft is quite comfortable with lying, unethical behavior is clearly how they do business:
Kraft came under fire from British workers over its broken promise to save from closure the Somerdale factory in Keynsham, Bristol, thereby safeguarding 400 jobs
Reader M.P., a retired money manger who ran a top-rated fund noted:
So Kraft did not do due diligence and now it wants to play dirty. Is it any wonder that American finance is now despised everywhere, even in the U.K!
Yves here. So welcome to 21st century capitalism, where management never has to admit, much the less bear the consequences of its errors. Just take it out of the hide of the little guy.
Kraft has had some excellent free tuition from the actions of ‘to big to fails’ in how to dodge any form of responsibility, guilt or consequence.
How ironic! One of the key initiatives in UK and European corporate governance was the Cadbury Report (1992), which was in part a response to Robert Maxwell’s abuse of the Mirror Group pension fund, and which expressed a preference (paragraph 4.9) for a separation of the roles of Chairman and Chief Executive: http://www.ecgi.org/codes/documents/cadbury.pdf
Dear Vinny, youre beeing very clever.
“This îs so typical of how American businesses operate. They lie, cheat, and steal with impunity.”
Hear! hear!
Thatis the true. Anglosaxon world management is almost completely looting way of foing money.
Of course Yves says:
“Yves here. So welcome to 21st century capitalism, where management never has to admit, much the less bear the consequences of its errors. Just take it out of the hide of the little guy.”
But this isnt capitalism. This is looting. This is the management who dominates the corporation and loots his stakeholders. This isnt capitalism. You cam blame capitalism but it isnt.
This is a political and economic system who isnt based in capitalism but lack of The Rule of Law, lack of anti-trust agencies, lack of criminal law and so on.
This is the result of the origin here:
http://homepage.newschool.edu/het//essays/paretian/paretosocial.htm
When the government is captured by rent seeking oligarchs and the judicial system lacks of authority or power to fight the looters, we can see how is easy to loot others withut any sanction.
How many lobbists live in Washington? Isnt lobbying the legalalized corruption in the system? Isnt lobbying the modern way to implement the fascism, borned in Italy, some years ago? Who rules the political system in USA? The people? Or the power of money, through lobbying, by who dont want free markets but cheating the people?
Of course you can blame the capitalism. But this isnt capitalism. This is economic fascism. This is the power of some oligarchs on political leaders. This is the evolution of economic thought in Italy (and others europeans places) that gave Delano Roosevelt and Hitler their ideology. Roosevelt was more clever because he didnt believed in authoritarian political systems.
Some can argue that Roosevelt was inspired in Keynes, but isnt true. Keynes publicized his theories after Roosevelt changed the aproache to repair market failures. Roosevelt was clever enouph to understand the excessive power of some economic agents. Insprired in the economic thought in the otherside of the world.
Today there myths. Keynes is a myth as that USA live in a economic free capitalism. No, USA lives in one new type of economic fascism.
This is the plain truth. Deny it or embrace it. Its up to everyone. But we cant deny that USA hasnt a free capitalism system. No. No way, José. That inst truth. Inst the market forces who choose the winners, is the best and more clever that can change laws in Washginton. To win in the economic system in USA, you must buy politicians through the legalized corruption: lobbying.
Is this capitalism? No. No. This is economic fascism.
By the way, and is of the topic. Have you all noticed the inflation leading indicators scream?
Gold, interests rates, oil, copper and so on are in fire.
And, for surprise for some, even the real estate is taking off:
“Home sales contracts leap higher
NEW YORK (CNNMoney.com) — Contracts for the sale of existing homes rose sharply in February, according to a widely watched industry report released Monday.
The National Association of Realtors’ Pending Home Sales Index rose 8.2% in February to 97.6 from a downwardly revised 90.2 in January. The increased surprised economists surveyed by Briefing.com, who were expecting a 1% decrease. ”
In http://money.cnn.com/2010/04/05/news/economy/pending_home_sales/index.htm
Welcome to the consequences of action from students of Zimbabwe School of Economics.
This îs so typical of how American businesses operate. They lie, cheat, and steal with impunity. The only thing they understand îs to be hit with massive lawsuits demanding they pay reparations. At least that îs what they understand now. But I am sure in their inability to see the writing on the wall, they will push the people to the point where the only message they will then receive from people is to hunt these criminal CEOs like the subhumans dogs that they are, and offer them the justice of piblic lynching that they deserve. It is coming… to an American corporation near you.
Vinny
Ahem…pubic or public old boy, tis a Freudian thing [?] or one to many frappes.
Skippy…play time for adults.
I think we can accomplish both. We first rip off heir balls, stuff them into their mouth, and only then we lynch them…
Vinny
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