I’ve gotten a lot of good stories just mining databases. Obviously you can’t just troll among information and find stories. Usually you have to come up with the idea ahead of time. But sometimes just knowing that the database is there will give you a story idea.
TA: The golf story was ‘05 and the climate was a little bit different then—the corporate-jet thing has really taken off now in this crisis. Was there pushback on that story then from corporate types that said “I don’t know what the problem is here or what you’re exposing. This is just part of business.”
MM: A little bit. There’s a legitimate argument that if you’re flying frequently to Wichita, Kansas, from upstate New York that it’s going to take a long time to go on commercial flights and that sometimes executives are better served by having a private jet.
But what was clear was that a lot of people were using it essentially as a flying limousine service to take themselves around. And they get these bogus security studies that suggested that they needed to fly all the time, and their families needed to fly for security reasons. There may be a handful of executives in the country who really do have security concerns, but when was the last time you heard about a CEO being attacked in a public airport?
TA: That’s about the last place you could be attacked these days.
MM: What some of these people say is well, you know, some of these CEO’s have to make tough decisions and they may have had to lay off 10,000 people. What happens if they’re in an airport and one of the guys they laid off decides to take a swing at him or something? But I haven’t heard a lot of those reports recently, even though there are a lot of layoffs now.
I’d love to jump on my corporate jet if I want to go off to Florida every weekend. If I am a very, very wealthy individual I should probably be able to afford that myself. But the whole question was whether shareholders should be paying for it and whether it was properly disclosed and properly taxed and that kind of thing.
TA: Do you feel like you’ve sort of been toiling away in executive compensation and—A lot of people have said, and I believe, that it’s in part the structure of bonuses and pay that contributed to creating the current crisis…
MM: I think there are a lot of things that helped contribute to creating the current crisis, and compensation, arguably, was too short-term oriented and too rich. In other words, the risk of failing was low, because all you do is get fired. (Yet) the reward was huge because you could make tens of millions of dollars. It wasn’t necessarily even at the CEO level, it was at the levels of people who were actually deciding to make these investments.
TA: But do you think your stories got enough traction? In the good times people look past this stuff and say “Well, the stock’s going up.” Is that frustrating? Now it’s got a wide audience and people are outraged and have got their pitchforks and torches.
MM: It got traction at the time, a lot of these stories. I’m not sure that it created the widespread change or at least closer look that you might always like. But a number of the stories did have impact. The primary impact, unfortunately, of the golf and jet data was that companies moved to block their jet aircraft from being tracked and the golf association that had made that data available said you can no longer get that data. I think it’s a pretty sad commentary.
But certainly the next year when we worked on the backdating and stock-options investigation—that one had an explosive impact. Certainly can’t complain about impact on that one.
TA: One of the great business investigations of all time. Can you talk about that and the advent of that series?
MM: I think it’s one of these things where I was rooting around in the same neighborhood already, which was executive compensation. One of the people I talked to said there was this paper circulating in academic circles on this theory that this guy has at the University of Iowa, Erik Lie, that people were improperly backdating their options to make them worth more.
Once executives started having to file when they got their stock options, you could start compiling a huge database and then analyzing that against stock prices, which is what he did. And he found that they were on average given on very advantageous days, which was extremely improbable. So somebody must have been cheating.