‘Preying on Business Is Un-American’

The Iacocca article is a good example of the “best defense is a good offense.”

He decrys the payment of greenmail as “blackmail in a pin-stripe suit,” which I believe is 100% correct, but who are the beneficiaries of these payments? Certainly not the hapless shareholder whose shares usually plummet after payment to a raider, nor the corporation, which now has a reduced net worth and probably a mountain full of debt. No, the only beneficiaries of these payments are management, who are so fearful of losing their jobs that they give away shareholders’ money to pay off a raider.

Goodyear Tire is a prime example of this, as was Gillette in its payment to Revlon.

Management should never pay greenmail, as it serves no corporate purpose.

If they don’t and the raider is successful in his effort to get control of the company, he will need present management to operate the company and if he is unsuccessful he will be in a position of having his money or his credit tied up in a stock that he has probably paid too much for.

By not paying greenmail management would discourage those raiders who are only in it for the blackmail and encourage those investors who see long-term value in those companies whose management has been unable to earn an appropriate return on their assets.

Top management should strive to have a larger portion of their personal net worth in stock of the companies they manage and bonuses should be given in stock options and stock rather than cash. In that way they won’t be so ready to give away their companies money in paying off raiders, and if the raider is successful and pays an inflated price or higher than market price for his stock, management will be amply rewarded by their stock ownership. They will probably also retain their jobs as the raider in “protecting his investment” will want to retain the good will of companies like Iacocca’s and relieve his apprehension about their gaining control of his supplier.

SIDNEY L. GIMBEL

Palm Springs