October 2 , 2006

Congress last week finally took a good hard look at high-ranking officials who manipulate intelligence gathering and behave as if a law unto themselves. These officials, interestingly, had nothing to do with Iraq. They came instead from Hewlett-Packard, the Silicon Valley corporate heavyweight that has spent a good chunk of the last two years spying on journalists and its own dissident directors.

Hewlett-Packard's CEO now admits that the entire episode has not been “his finest hour.” We explore, in this week's Too Much, what he's not saying.

Greed at a Glance: Matriculating at Oligarch U

The investment world’s most profitable bank, Goldman Sachs, has set aside $13.9 billion for 2006 annual bonuses, an all-time Wall Street record. That bonus pool, if distributed equally among everyone on the Goldman Sachs payroll, would be enough to sweeten the holiday season of every company employee by $542,000. Last year, the company bonus pool hit an estimated $11 billion. Partners at the firm took away chunks of that ranged up to $40 million. Meanwhile, across the Atlantic in Britain, Labor Party MP Harriet Harman last week called for action to stop “excessive, ridiculous bonuses” in London’s financial industry. Noted Harman, Britain’s current constitutional affairs minister: “Inequality matters. The big gap between those at the top and those at the bottom makes for a sick society.”

Interested in becoming an oligarch? Do we have an MBA program for you! Russian President Vladimir Putin last month laid the cornerstone for the Skolkovo Moscow School of Management, the new world-class business school that’s bankrolled by “a who’s who of oligarchs taken from the Forbes rich list,” everyone from vodka baron Rustam Tariko (net worth: $2.5 billion) to oilman Roman Abramovich ($25 billion). The school’s 300 students, from inside and outside Russia, will take instruction — in English — from a faculty that includes top Russian oligarchs themselves. The entrance fee: $68,000 . . .

One of America’s top mutual fund gurus, John Bogle, thinks “CEOs are paid far too much for far too little.” The founder of the Vanguard Group last month told a forum at New Hampshire’s St. Anselm College that he felt “terrible” about today’s “inexcusable” levels of top executive pay. Bogle has good reason to feel that way, suggests a new academic study in Organization Science, the journal of the effective enterprise analyst community. Excessive CEO pay, note authors James Wade of Rutgers, Charles O’Reilly of Stanford, and Timothy Pollock of Penn State, tends to increase employee turnover. The impact of executive excess, the study observes, appears “particularly salient” at lower organizational levels, where “inequity relative to the CEO may create more intense feelings of injustice.”

Tax cuts for corporations and wealthy investors, the White House likes to claim, are making the U.S. economy more globally “competitive.” The rest of the globe begs to differ. A new survey of over 11,000 international business leaders, released last week by the Geneva-based World Economic Forum, knocks the United States down five slots in the global “most competitive economy” rankings, from first to sixth place. To add insult to injury, the new survey results rank ahead of the United States three nations that practice public policies the White House says the United States, to remain “competitive,” must at all costs avoid. Finland, Sweden, and Denmark all tax the wealthy at much higher rates than the United States and offer working families a much stronger safety net . . .

Bill Gates now ranks as the world’s richest person. Where do you rank? Now you can find out, via an imaginative new online service. Just click to the Global Rich List, enter your income, hit “show me the money,” and you’ll almost instantaneously see your place, by both number and percentage, in the world rich rankings. A $100,000 income, for instance, would make you the 39,615,049th richest person in the world — and put you among the world’s richest 0.66 percent. The world’s 225 richest people, the site’s British creators note, curently hold a combined wealth that equals the total annual income of the world’s 2.5 billion poorest people.

The New HP Way: Spies and Superstars

“If Bill Hewlett and Dave Packard were alive today,” Hewlett-Packard CEO Mark Hurd acknowledged last week, “they’d be appalled.”

Yes, Bill and Dave, the legendary engineers who founded Hewlett-Packard in 1939, certainly would be appalled — but not just by the ongoing “spy” scandal that now threatens America’s 11th largest company with state and federal criminal prosecution.

Bill and Dave would be appalled, even more, to see that their once-proud collaborative enterprise has become just another springboard to fortune for superstar CEOs.

Mark Hurd, a year ago last April, became the latest of HP’s CEO superstars. Hired with great fanfare and $24 million in signing “inducements,” Hurd replaced Carly Fiorina, an even more celebrated CEO superstar whose half-dozen years at HP began with a four-year contract worth $90 million and ended with a kick out the door and $42.5 million in severance.

In between that flashy entrance and exit, Fiorina maneuvered HP employees into accepting “voluntary” pay and vacation cutbacks, then rewarded their company spirit with 6,000 layoffs. Sadly for Carly, this bit of cleverness failed to pump up HP’s share price. So Fiorina rushed off into a $25 billion merger with Compaq, an HP rival, and cashiered another 15,000 HP workers.

Fiorina’s merging and purging would end up creating a corporate chaos that HP tapped Mark Hurd, no slouch himself in the slash-and-burn department, to fix. In Ohio, as CEO at NCR, Hurd had become a Wall Street hero after he axed the troubled company’s pension plan and gored a variety of other employee benefits.

At HP, Hurd would keep to the same gameplan. Four months into his CEO tenure, he ended HP’s traditional pension, for younger employees, and announced plans to cut an additional 15,000 HP jobs, a tenth of the company’s workforce.

Thirty years ago, during a 1970s downturn, Bill Hewlett and Dave Packard took just the opposite course to get HP back on its feet. They tried to share sacrifice. To avoid layoffs, their HP cut pay 10 percent across the board, executives included.

That approach, Bill and Dave's “HP way,” valued employees and shunned hierarchy — and has long since vanished.

“We’ve slipped into the absurd,” San Jose Mercury News columnist Mike Cassidy noted last week. “The company has moved from the Bill (Hewlett) and Dave (Packard) days of management by walking around to the current days of management by skulking around.”

And how will the movers and shakers on the HP corporate board fix this mess? They’ll keep skulking. And sometime soon, if they skulk the shadows long enough, they’ll surely find just what Hewlett-Packard so desperately needs. Another superstar CEO.

Americans, apologists for inequality often argue, don’t really mind the awesome concentrations of private wealth that sit atop America’s economic ladder. They don't mind, the argument goes, because America offers opportunity. Anyone can rise and prosper.

This rising, Americans believe, starts with schools. Get an education and you can go anywhere. Study hard and you can do anything. So promises the American Dream.

Isabel Sawhill would like to believe that promise. The co-director of the Center on Children and Families at the prestigious Brookings Institution — and one of America’s most respected public policy analysts — Sawhill takes opportunity seriously. In an increasingly unequal United States, she believes, only opportunity can prevent American society from becoming “a poverty trap at the bottom and an enclave of wealth at the top.”

Sawhill and a team of distinguished social scientists have just released a massive new survey that explores the state of opportunity — and education — in the United States today. They reach a sobering conclusion. Education — the institution Americans expect to level our unequal playing field — may actually be doing more “to perpetuate” existing inequalities than compensate for them.

One huge reason: The United States is not adequately investing in education.

“Growing disparities in income and wealth in the United States would be less troubling if everyone had a decent chance to win the most valuable and coveted prizes,” she sums up. “The most important step the nation can take to make the competition fairer is to strengthen and reform the education system so that it compensates for differences in family background.”

What’s wrong with this picture? The September Phi Delta Kappan, the most influential professional journal within American education, offers an answer — from Robert Everhart, a veteran educator at Oregon’s Portland State University.

Everhart’s provocative essay — Why Are Schools Always Begging for Money? — sets out to explain America’s failure to invest adequately in education. He finds that explanation in America’s distinctly unequal distribution of income and wealth.

The more wealthy and powerful America’s wealthy have become, Everhart argues, the less they pay in taxes — and the more the tax burden shifts onto the shoulders of working families already stretched economically to the limit.

“The level of public support for school funding,” Everhart contends, “cannot be divorced from the patterns of income distribution in our nation.”

Everhart may have put his finger on the grand strategic choice that now faces advocates for quality public education. Should these advocates concentrate their efforts on increasing opportunity — or move to explicitly confront inequality straight-on?

We have more on the contrasting perspectives that Isabel Sawhill and Robert Everhart have placed, this fall, on the public policy table.

Stat of the Week: The World's Richest Rich

Which nation in the world can claim the richest rich? That dubious honor, the Sunday Times of London reports, belongs hands-down to the United States. The 100 richest Americans now together hold a fortune worth an estimated $749.9 billion, well over double the $304.1 billion total net worth of the richest 100 in Germany, the nation with the second-richest rich. The world's third-richest 100, worth a collective $292.8 billion, live in the UK.

Quote of the Week: Lavishing Fuel on the Fire

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