LABJ Forum: CEOs’ Lender of First Resort

As part of his plan to crack down on corporate America, President Bush last week called on corporate boards to curb company loans to executives. The request came after disclosures that several companies either in or near bankruptcy had granted lavish loans to top executives. The biggest series of loans $3.1 billion were made to former Adelphia Communications chief executive John Rigas and his family. With the issue of corporate responsibility so much in the news, the Business Journal asks: Do you think companies should give loans to senior executives?

Ernie Doud

Managing Partner

DoudHausnerVistar

In general, I think they shouldn’t. There are some inherent issues of conflict of interest in a company giving its top executives large loans. On the other hand, because it is a legal practice, if it is done responsibly and in moderation, I suppose it would be hard to argue against it. For me, the question is one of reasonableness and intent. With the right intent, providing loans could be a responsible strategy that benefits shareholders. However, if it is simply for the benefit of the executive, then I think the people in governance should think twice.

Chere Estrin

Chief Executive

C.B. Estrin & Associates

Yes. This is a time when investors trust in CEO’s needs to be rebuilt. However, the loan amount should never exceed the CEO’s ability to repay within a reasonable amount of time. I think the days of wild risk-taking and special treatment are long gone and a much more conservative approach to executive perks is now in order.

Scott Bowling

President and Chief Executive

Exceptional Children’s Foundation

Absolutely not. I think companies should stick to their primary mission and their core competencies. Banks are here to provide loans to people, not the companies they are employed by. I think sign-on bonuses make sense, as do stock options, but loan options just seem like a creative way to give bigger bonuses. Giving loans to top executives can get companies into a lot of trouble financially and I think that is what we re seeing.

Philip Gainsborough

President

Gainsborough Financial Consultants

No, I think it’s a tax dodge. As a former president of a brokerage firm, I am not fond of it. It is a cheap way for the person receiving the loan not to pay tax on a bonus, and I think we ought to close the loophole. It’s frustrating when 99 percent of people are trying to do the right thing and the other one percent are trying to beat the system. Besides, what do they need more money for anyway? The executives that normally receive loans are always the most highly compensated people anyway.

Lynne Rosenberg Kidd

President and Chief Executive

Innovative Solutions Insurance Services

No. I think that compensation programs need to be developed in a straightforward manner and should not include loans. The company is owned by shareholders, who are actually the ones loaning money to the top executives. It is a complete conflict of interest and is not in the best interest of the shareholders. It is the stockholders who have suffered the losses and they have no say in how the corporate books are managed. The board of directors and accounting firms in charge need to make prudent decisions on behalf of the stockholders.