"This is all terrible for Republicans and conservatives because the best thinking on social problems and race in recent years has come from their ranks. Conservatism (or classic liberalism) has wanted to correct for the paternalistic and racialist social engineering of 1960s-style reform without seeming to be against reform itself. How do you say, I'm against policies designed to help you, but I'm not against you?

"...A vacuum of white guilt as wide as the Grand Canyon has opened in him, and he will never again see civil rights, welfare, judgeships or education with a clear eye. He will now live in a territory of irony where his redemption will be purchased through support for racialist social reforms that make a virtue of the same segregationist spirit that has now brought him low."

Here's last Sunday's. Morgenson's entire text is here, indented. My comments are interspersed, without indent.

In the Empire of Siebel, Stirrings of Rebellion

At last, more and more institutional shareholders are sharpening their pitchforks and taking them up against imperial corporate executives.

Always be wary when a column begins with "At last..." That means you're about to read a column that uses some news event as a hook to promote a point of view that the columnist already had. Look for proof that the news hook actually ties into anything larger than itself -- in this case, Morgenson doesn't mention even a single other example of the "more and more institutional investors" who are doing this "at last."

And beware of metaphors used in place of logic or proof -- this column has two metaphor layers. As you will see, the news hook turns out to be an investor lawsuit against a public company. But Morgenson doesn't just report the facts about it -- before she even describes it she's already framed it metaphorically as a story of class warfare. She offers no proof that the lawsuit is about any such grandiose thing, however -- but that lack is papered over with more metaphor. Siebel is an "empire" and its executives are "imperial." The opposition are noble but oppressed peasants whose only weapons are their humble "pitchforks." Morgenson uses these metaphors to frame her class-warfare case because she doesn't have the confidence or the brazenness of Times columnist and former paid member of Enron's Advisory Board Paul Krugman -- he'd skip the metaphors and just call the executives "plutocrats" and those opposed to them "decent people." 

The Teachers' Retirement System of Louisiana has sued Siebel Systems, contending that since 1996, the company's board has awarded more stock options to Thomas M. Siebel, the founder and chief, than shareholders have approved and that some grants to Siebel directors have not been disclosed. The suit also contends that the company has improperly accounted for options issued at a discount to prevailing market prices. As a result, the suit questions Mr. Siebel's certification in August of the company's financial statements.

This paragraph is apparently factual. (I have not independently verified Morgenson's characterization of the issues in the lawsuit.)

The $10.6 billion retirement fund, which owns 392,000 Siebel shares, has asked executives and directors, including Charles R. Schwab, the brokerage firm executive, to return what it calls the "tainted options." Mr. Schwab did not return a call seeking comment.

Here the column starts evolving from fact to spin. Why, of all the directors, single out Charles Schwab? Because he's famous? Because he is associated with the Bush administration? And note that the factual description of what the Teachers' Retirement System of Louisiana has asked -- the return of the options -- is expressed from their partisan point of view: return of "what it calls the 'tainted options.'" 

Stuart M. Grant, a partner at Grant & Eisenhofer in Wilmington, Del., represents the pension fund. Siebel Systems "fosters an environment of the all-powerful C.E.O. and an abdicating board," he said. "They are fighting us, but we're saying, 'If you cure this corporate governance problem, you will be a better company.'"

Nothing in this quotation of the retirement plan's lawyer supports the merit of the case. What it supports is the theme of Morgenson's column -- that Siebel is a corrupt empire and that those who oppose it are noble. Readers of this column have no way of knowing what else, if anything, the lawyer told Morgenson -- she gets to decide what questions to ask him, and she gets to decide what to print. This is what she chose.

A Siebel spokesman said that the company had never issued options at discounts to the market price and that its accounting and disclosure were proper. The company called the suit baseless; it must file a response by Christmas.

Seibel's response is presented much more matter-of-factly, with no actual quotations from named company officials. Did Morgenson actually talk to anyone at Siebel, or did she get this information about Siebel's response elsewhere (court filings, press releases, other media coverage)... she doesn't say. But the result is that Morgenson presents the pension fund in a humanized, colorful and sympathetic way -- but not Siebel.

Since its creation in 1993, Siebel has been a big believer in stock options. From 1996 through 2001, Mr. Siebel received options worth almost $1 billion at the time of the grant, the lawsuit says. Siebel Systems' stock has lost 94 percent of its value since its 2000 peak and is down 72 percent this year, so many of his options are underwater. But from 1998 to 2001, Mr. Siebel exercised almost six million options and realized gains of $321 million related to them.

This paragraph is a troubling mixture of fact, judgment, and self-interested advocacy. How does Morgenson know that Siebel has been a "big believer" in stock options, and what does that mean, and why is it relevant? The unavoidably subjective $1 billion valuation of Mr. Siebel's options at the time of grant (options have no tangible value until and unless they are exercised) is provided by the retirement fund that is suing the company. We are not told the source of the statistics of Mr. Siebel's realized profits. Fact? Allegation in the suit?

From 1996 to 2000, according to the suit, Mr. Siebel got the maximum number of options and a higher salary and a bonus. In recent years, according to the complaint, the compensation committee met less and less.

In 1996, when he received $320,000 in cash and two million options, the committee met five times. In 2000, when he got $2.5 million in cash and eight million options, it met once. Last year, the committee did not meet at all. It gave Mr. Siebel only $1 in cash compensation but again gave him the maximum eight million options.

According to the suit, the compensation committee members realized more than $36 million through their own option exercises. They are A. Michael Spence, a partner at Oak Hill Venture Partners, and Eric E. Schmidt, the chairman of closely held Google Inc., the Internet search engine. Mr. Spence did not reply to an e-mail message seeking comment; Mr. Schmidt did not return a phone call.

These three paragraphs are simply recitations of the claims of the lawsuit -- much as the plaintiff's lawyer might make as part of summing up before a jury -- but not all the claims are labeled as allegations, and the significance of the allegations is not examined. Is it important how many times a compensation committee meets? Why? Is it important how much members of the compensation committee earned? Why? Who knows, but I guess Morgenson must think it sounds bad. So there it is, uncritically reported.

Siebel Systems says its option program motivates employees, but it is not clear why Mr. Siebel needs motivating. He owns 7.5 percent of the company's stock, a stake that is worth around $280 million at current prices.

Now a small concession to balance -- but it doesn't even last an entire sentence. We are not told the source of the defense that Morgenson puts in Siebel's mouth -- "Siebel Systems says its option program motivates employees" -- but we are told in the very same sentence that it is inadequate, because "it is not clear why Mr. Siebel needs motivating."

Not clear to whom? Gretchen Morgenson? Of what possible significance is it as a moral criterion whether Mr. Siebel's need for motivation is "clear" to a newspaper columnist?

But it's not about clarity at all -- that's just a pompous figure of speech that should have been edited out. The issue is that Morgenson has arbitrarily decided -- apparently based on no research or analysis at all -- that Siebel's 7.5% stake in the company he created ought to be enough to motivate him. But why? Maybe 8.5% is required. Or maybe 7.5% is already too much, and it actually de-motivates him and ought to be cut in half. Whatever it is, what makes Morgenson or anyone else but Mr. Siebel and his board and his shareholders expert about it?

Siebel's reaction to the case shows that its executives continue to believe that me-first practices, so common during the bubble, are fine even now. Before the suit was filed, Mr. Grant said, the fund tried to persuade the Siebel executives to make the board more independent and return the options it said had been granted improperly. The fund also asked Siebel to let an independent accountant decide the option accounting issue. Siebel declined on both counts.

"Siebel's reaction"? What reaction? Morgenson has not directly quoted any reaction at all -- what reaction was indirectly reported earlier in the column was a flat-out denial of the charges, and now nothing more than that Siebel doesn't wish to let an independent accountant decide an issue that it believes should not be in contention. Why is denial of wrong-doing an example of "me-first practices"? If Gretchen Morgenson were falsely accused of taking a bag of potato chips from Floyd Norris's desk, would it be a "me-first practice" if she denied it? Whom other than herself would she be putting first by lying about it and confessing to a crime she didn't commit?

Amazing, isn't it, how some executives think it's still O.K. to stuff their pockets with stock options, then stiff-arm the owners who complain?

If to deny wrong-doing is to stiff-arm, then Morgenson's arms are a stiff as anyone else's. A couple weeks ago I exposed her deceptive attempt to cover up her 1999 column in which she recommended the stock of AT&T for widows and orphans, by falsely characterizing it as the opinion of an analyst whom she in fact had quoted only tangentially. I called Morgenson for comments, and she denied that it was a cover-up.

As Morgenson might say, "Amazing, isn't it?"

Posted by Donald L. Luskin at 1:48 AM | link    

Monday, December 16, 2002