I have been picking on NYT business columnist Gretchen Morgenson lately (e.g., here) because she provides such great examples of shallow, sensationalist business reporting by the mainstream media.
In general, Morgenson illustrates professional commentators' tendency, first discussed by Michael Jensen, to provide entertainment rather than information. The typical format is (1) define a crisis; (2) preferably one that will keep the readers returning for more; and (3) provide a simple and clear solution (because the alternative would be too depressingly complicated).
At the risk of piling on, I can't resist citing another example -- yesterday's column.
(Note: Times Select seems to truncate the link, so I have to spell it out, for those who can access Times Select: Begin with http://select.nytimes.com, then add: /2006/03/26/business/yourmoney/26gret.html. In another post I need to discuss the problems this presents for blogs seeking to comment on professional journalists' work.)
The column begins by discussing yet another overpaid (in Morgenson's view) executive. In this case it is Henry McKinnell, Pfizer CEO, who reportedly received $65 million in total compensation over a five-year period in which the stock lost 43% of its value, and stood to receive a $83 million pension benefit when he retires in 2008 because the benefit reflects long-term increase in Pfizer's value. (Already we see the practice documented by Core, Guay & Larcker of sensationalizing pay by emphasizing one-time equity and option payoffs rather than annual increments.)
Although the story quotes a company spokesman as saying that the company did use a stringent benchmark, Morgenson offers no information that would enable the reader to evaluate this claim. Rather, she stresses that the pay was “munificent” and that McKinnell received it despite presiding over the “destruction of shareholder value.”
Morgenson presents this as doubly alarming because, quoting a shareholder activist (chairman of the Texas Pension Review Board), "[m]anagers and their friends have done well while future retirees, endowments, universities, museums, widows and orphans have broken even, if they are lucky. This is not a coincidence." In other words, although retirement funds are linked to a rising stock market, these funds have somehow gone down because executive pay has gone up.
Morgenson ups the ante by telling us why institutional shareholders have not been sufficiently vigilant: because they get investment management funds from the companies in which they also hold stock on behalf of clients. She gives the example of Northern Trust, which holds 99 million Pfizer shares but also gets $490,000 in fees as trustee of a Pfizer savings plan, and which voted last year with Pfizer management on all matters. The story does not mention whether other institutional investors, not similarly "conflicted," also did so. The cautious reader also might wonder how Northern Trust will hold onto its non-Pfizer customers if it is willing to sacrifice their returns to keep Pfizer as a customer. Under Jensen's theory cautious readers are not Morgenson's target audience.
Finally, consistent with Jensen's formula for journalistic success, the article poses a solution to the crisis: Institutional shareholders need only take advantage of Pfizer's voting rule which requires a director to resign if there are more shares withheld from voting for the director than are voted in favor. In other words, they should vote against directors because the executives' pay is, in Morgenson's view, "munificent." In this case the vote seems simple because Pfizer's stock has gone down. Morgenson does not explain what shareholders should do in cases of "munificent" pay by companies whose stock has risen.
The article concludes ominously, "[w]e'll keep you posted on the outcome of this exercise in accountability." And so the reader is primed for the next installment. I can't wait.
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