As financial industry executives crowded the Troubled Asset Relief Program (TARP) trough late last year one thing was notably absent—leadership. Instead of stepping up to the podium to thank taxpayers and offer a vision for navigating out of the crisis, the Wall Street executives fell silent. Perhaps they were too busy refurbishing their corner offices or ordering private jets. Perhaps drawing up paperwork for an estimated $18 billion in year-end bonuses diverted their attention. Whatever the case, Americans looked for a visionary path from trouble to prosperity and saw only the dark abyss of greed and incompetence.
This wasn’t always the case. In his 2007 New York Times bestseller, Lee Iacocca lamented, “Where Have All the Leaders Gone?” In this new era of rewarding executives for failure, the more appropriate question is, “Where Has Lee Iacocca Gone?”
TARP (or the How-Henry-Paulson-Guaranteed-Himself-Six-Figure-Speaking-Engagements-For-Life Program as it will come to be known) is hardly the first time the Federal Government has bypassed laissez-affair economics and helped right a floundering ship. In the early 1970’s, troubled aerospace giant Lockheed sought and received government assistance. In 1979, a legend in the business community was born when Chrysler Corporation Chairman Lee Iacocca endured months of heavily-scrutinized Congressional hearings to secure $1.5 billion in government loan guarantees to stave off creditors and save his company from bankruptcy.
What sets Iacocca apart from his financial industry counterparts today is that he opted to lead rather than immediately cash in on the largess of the taxpayers. Securing the loan guarantees was only the beginning. As it stood in 1979, Chrysler needed to sell 2.2 million cars a year to break even, but was only selling half that amount. Union
Faced with having to ask his unionized workforce to take substantial pay cuts, Iacocca cut his own annual salary to $1.00 and demanded that his executives take a 10% cut as well. Only then did he begin to negotiate with the unions. A far cry from the “leadership” displayed by Merrill Lynch executives, for example, who awarded themselves with $4 billion in bonuses for racking up an estimated $27 billion in losses last year. Bonuses that, in one form or another, were bailout subsidized.
Iacocca also took out print ads and television commercials to thank the taxpayers for their assistance and outlined a vision for the reemergence of Chrysler Corporation as a leading automaker and employer. “Thank You.” What a concept. Rather than express their gratitude for taxpayer assistance, TARP recipients instead send out their spokespersons to explain away lavish bonuses, costly executive retreats, and expensive perks such as new private jets. Putting taxpayers on the hook for billions is one thing, not thanking them is inexcusable.
Far more important than Chrysler’s expressed gratitude was the extraordinary efforts undertaken to reinvent the company. Labor agreements were reworked, with the average union member taking a $10,000 cut over a 19-month period. Loans were renegotiated. Plants were modernized. And a new line of high-mileage, front-wheel drive “K-cars” were introduced. Iacocca had a vision. His workforce and his customers were inspired. As a result Chrysler returned to profitability within 3 years, issued a wildly-popular stock offering and paid back the government-backed loans 7 years before they were due. The vision offered up by the TARP participants? “Keep that checkbook open, we’ll probably need more.”
Today’s financial industry executives sorely lack the leadership qualities that made Iacocca an icon--opting to compensate themselves prematurely rather than earn their reward. Not surprisingly, the public outcry has reached the White House. In response, President Obama has stated that he will now cap the compensation for executives who request further TARP assistance at $500,000 annually. America
Sadly, it was all avoidable. Americans, with perhaps the exception of teacher union leaders, get the concept of pay for performance. In the end, his turnaround of Chrysler made Lee Iacocca a very wealthy man. (By exercising stock options, not siphoning off tax dollars.) Americans love to reward success. But lavish bonuses for failure? That has to stop. True leaders must emerge or government control of the banking industry will continue unabated and the confidence Americans need to shake off this recession will never be sparked.
