The Broken Promise - Time Oct 2005

[Helen]

I posted this on the Motley Fool board as well.

http://www.wnymedia.net/index.php?op...=506&Itemid=35

<<<At the same time corporate executives are paid retirement dollars for years they never worked, hapless employees lose supplemental retirement benefits for a lifetime of actual work. Just ask Betty Moss. She was one of thousands of workers at Polaroid Corp.--the Waltham, Mass., maker of instant cameras and film--who, beginning in 1988, gave up 8% of their salary to underwrite an employee stock-ownership plan, or ESOP. It was created to thwart a corporate takeover and "to provide a retirement benefit" to Polaroid employees to supplement their pension, the company pledged. Alas, it was not to be. Polaroid was slow to react to the digital revolution and began to lose money in the 1990s. From 1995 to 1998, the company racked up $359 million in losses. As its balance sheet deteriorated, so did the value of its stock, including shares in the ESOP. In October 2001, Polaroid sought bankruptcy protection from creditors.


By then, Polaroid's shares were virtually worthless, having plummeted from $60 in 1997 to less than the price of a Coke in October 2001. During that period, employees were forbidden to unload their stock, based on laws approved by Congress. But what employees weren't allowed to do at a higher price, the company-appointed trustee could do at the lowest possible price--without even seeking the workers' permission. Rather than wait for a possible return to profitability through restructuring, the trustee decided that it was "in the best interests" of the employees to sell the ESOP shares. They went for 9¢. In short order, a $300 million retirement nest egg put away by 6,000 Polaroid employees was wiped out. Many lost between $100,000 and $200,000.">>>

...

<<<Once Polaroid entered bankruptcy, Moss and her retired co-workers learned a bitter lesson--that they had no say in the security of benefits they had worked all their lives to accumulate. While the federal Pension Benefit Guaranty Corp. (PBGC) agreed to make good on most of their basic pensions, the rest of their benefits--notably the ESOP accounts, along with retirement health care and severance packages--were canceled. The retirees, generally well educated and financially savvy, organized to try to win back some of what they had lost by petitioning bankruptcy court, which would decide how to divide the company's assets among creditors. To no avail: Polaroid's management had already undercut the employees' effort. Rather than file for bankruptcy in Boston, near the corporate offices, the company took its petition to Wilmington, Del., and a bankruptcy court that had developed a reputation for favoring corporate managers. There, Polaroid's management contended that the company was in terrible financial shape and that the only option was to sell rather than reorganize. The retirees claimed that Polaroid executives were undervaluing the business so the company could ignore its obligations to retirees and sell out to private investors.


The bankruptcy judge ruled in favor of the company. In 2002 Polaroid was sold to One Equity Partners, an investment firm with a special interest in financially distressed businesses. (One Equity was a unit of Bank One Corp., now part of JPMorgan Chase.) Many retirees believed the purchase price of $255 million was only a fraction of the old Polaroid's value. Evidence supporting that view: the new owners financed their purchase, in part, with $138 million of Polaroid's own cash.>>>


Read on to see how the CEO's fared. This is legal ?? I don't know if the upper layers are becoming more corrupt or if I am just now catching on to it.

-helen

[Texas Proud]

Helen,

I have not read the article but have a few comments on what you have copied....

First, almost ALL corporations go to Delaware for bankruptcy as most are Delaware corporations no matter where their corporate offices are... so this is NOT strange...

Also, the value of the retirement account did not suddenly disappear when it was sold like you said... it slid down over MANY years... the sale was just the official end of the slid. AND, more than likely it was better than keeping it if the value was to go to zero after bankruptcy. They were common shareholders and most common shareholders lose everything.

They were not promised to make money, they were promised ownership in the company.. and that is what they got.. ownership means that you can LOSE as well as gain.

[F-One]

The problem was that the investor in the ESOP was not allowed to sell shares as the stock value dropped. So what she had bought early on was worthless and she had no recourse but watch it go to nothing.
That s**ks.

[bow-tie]

I think its a sign of the times, and not necessarily a good sign.* As time passes, we are forced to become experts in many more areas... finance,* medicine, law, etc.

No one is there to look out for us.* Not near as much as in the past, it seems to me.* Right or wrong.* Good or bad.

[alphabet soup]

Quote:

Originally Posted by Texas Proud Helen, I have not read the article but have a few comments on what you have copied.... First, almost ALL corporations go to Delaware for bankruptcy as most are Delaware corporations no matter where their corporate offices are... so this is NOT strange... Also, the value of the retirement account did not suddenly disappear when it was sold like you said... it slid down over MANY years... the sale was just the official end of the slid.* AND, more than likely it was better than keeping it if the value was to go to zero after bankruptcy.* They were common shareholders and most common shareholders lose everything. They were not promised to make money, they were promised ownership in the company.. and that is what they got.. ownership means that you can LOSE as well as gain.

Hmmm... So you mean Bush's vision of an "ownership society" is fraught not only with the perils of the marketplace but the predations of corporate crooks and Wall Street bloodsuckers?

As M. Emmett Walsh said, in the classic film "Blood Simple, " .."in Texas you're on your own."

A great vision the Busheviks have for America.

[Texas Proud]

Yes, in the ownership society it is fraught with perils... it is called LIFE. SH*t happens and you lose. It will not be the first time nor the last.

And, most ESOPs I know of stopped many many years ago. I do not know much about them, but they were short lived as far as I can remember. So, how much money did she have in the fund that she lost? I do not know, but if she was planning on this to be her retirement then there is a problem.

I am not saying she did not get screwed, but that it is life. You pick yourself up and move on.

[alphabet soup]

Quote:

Originally Posted by Texas Proud Yes, in the ownership society it is fraught with perils... it is called LIFE.* SH*t happens and you lose.* It will not be the first time nor the last. And, most ESOPs I know of stopped many many years ago.* I do not know much about them, but they were short lived as far as I can remember.* So, how much money did she have in the fund that she lost?* I do not know, but if she was planning on this to be her retirement then there is a problem. I would agree with you if there was a level playing field. But, yeah, she got screwed while top management walked away with millions. Happens all the time. It's easy when the whores in Congress are in your pocket. :P I am not saying she did not get screwed, but that it is life.* You pick yourself up and move on.

[alphabet soup]

I would agree if there was a level playing field. But while she got screwed, top management walked away with millions.
Happens every day. It's easy when the whores in congress are in your pocket.

[Texas Proud]

Quote:

Originally Posted by alphabet soup I would agree if there was a level playing field. But while she got screwed, top management walked away with millions. Happens every day. It's easy when the whores in congress are in your pocket.

Decided to read the article... the ones who walked away with millions are the NEW managers who got NEW capital put into the company. They made the right decisions and the company was able to recover. The old managers were not mentioned, so I do not know what they received.

If you do not like the laws, vote somebody else in that will change them. I hate the new bankruptcy law as it is the banks that keep trying to get you to have a big credit card balance and then when you are in trouble, do not want you to be able to file for bankruptcy... and I work at one of those banks...

[MRGALT2U]

Quote:

Originally Posted by Texas Proud it is the banks that keep trying to get you to have a big credit card balance and then when you are in trouble, do not want you to be able to file for bankruptcy...* and I work at one of those banks...

A little bit whiny don't you think? Just approach these things as if virtually everyone
was trying to "get in your knickers", and remember....... you're not paranoid if it's true.

JG

[Texas Proud]

Quote:

Originally Posted by MRGALT2U A little bit whiny don't you think?* Just approach these things as if virtually everyone was trying to "get in your knickers", and remember....... you're not paranoid if it's true. JG

JG,

I hope I never have to go to bankruptcy, but I do not think that someone who helped you get into a problem should be getting special treatment... I am all for socking it to the people who spend like crazy and then think that they should be able to get off scot free and not pay any of it back, but not everybody fits into this category. And I do think that everyone is trying to get into my knickers..

[cute fuzzy bunny]

Me too!

And the weird part is, I'm not wearing knickers.

[alphabet soup]

Quote:

Originally Posted by Texas Proud Decided to read the article... the ones who walked away with millions are the NEW managers who got NEW capital put into the company.* They made the right decisions and the company was able to recover.* The old managers were not mentioned, so I do not know what they received. If you do not like the laws, vote somebody else in that will change them.* I hate the new bankruptcy law as it is the banks that keep trying to get you to have a big credit card balance and then when you are in trouble, do not want you to be able to file for bankruptcy...* and I work at one of those banks...

TP,
Read the article again. Read about all the cases where rank and file employees got screwed out of their pensions while management had the board of directors add many years to the actual years of service in computing their benefits.
I don't see the congressional whores giving up squat in their retirement packages, while they allow everyone else to get the shaft.
It ain't easy to vote them out when you need millions just to play the game. Even then, they get you with rigged voting machines.
Bottom line, if John Galt thinks you're wrong, you know you're on the right track.

[JPatrick]

Quote:

Originally Posted by alphabet soup I don't see the congressional whores giving up squat in their retirement packages, while they allow everyone else to get the shaft. It ain't easy to vote them out when you need millions just to play the game. Even then, they get you with rigged voting machines.

You know why they don't get voted out??
Because it's your congressperson who is a whore not mine, and I can't vote yours out.* My congressperson is perfect : :

[Beststash]

To me it's simple, the BOD and Executives of corporations should not be able to drain their companies at the expense of their employees or stockholders. This ideal of capitolism that we practice had it's pro's and con's , I think the con's strongly outweigh the pro's in the last 5 years.
The working class in this country will at some point say "We just cannot afford the price of this dream - how about a shared reward for everyone.

[markplus4]

I don't invest in companies that aren't shareholder friendly....i.e. that self deal themselves fat options packages and/or golden parachutes for poor performing executives. It takes some analysis of the fine print in 10k's, but it's worth it.

[cute fuzzy bunny]

But does that really work out in terms of overall investor returns, across a broad swath of companies that include non-failures?

Do the sharks that watch out for their own wallets also make good leaders that drive a business to greater success or do the nice guys that play by the rules and care about the little people do just as well?

[ladelfina]

Quote:

The working class in this country will at some point say "We just cannot afford the price of this dream

It's not only the "working" class that should be screaming.. it's the investor class, too!!

This from Forbes (http://www.forbes.com/2005/04/20/05ceoland.html):

Quote:

Special Report : CEO Compensation * * Edited by Scott DeCarlo, 04.21.05, 6:00 PM ET The heads of America's 500 biggest companies received an aggregate 54% pay raise last year. As a group, their total compensation amounted to $5.1 billion, versus $3.3 billion in fiscal 2003.

I am as capitalist as the next guy, but an across-the-board 54% raise is outright theft. Have these companies raised earnings 54%?? Have they raised dividends 54%?? *Shareholders are as powerless as employees, and are getting ripped off as well.

[Nords]

Quote:

Originally Posted by markplus4 I don't invest in companies that aren't shareholder friendly....i.e. that self deal themselves fat options packages and/or golden parachutes for poor performing executives.* It takes some analysis of the fine print in 10k's, but it's worth it.

That sounds like socially-responsible investing, which has compensated investors' consciences far more than their portfolios.

The golden parachute, which started in the '80s and admittedly has strayed from its intended purpose, was supposed to keep executives from turning down a merger just to protect their jobs. The idea was that they'd agree to form megacorps with efficiencies of scale and even greater investor returns instead of guarding their rice bowls.

So which version of "it's worth it" are you referring to? If we're talking portfolio returns, is there any financial-returns data to back that up?