Forget about the allegations of expediting bonuses for Merrill Lynch executives before Bank of America realized the mess it was buying. I am more concerned about the $1.2 mn that ousted boss John Thain spent on renovating his office last year. There are the trappings of success, and then there are the trappings of excess, and I think I know which category this expenditure falls into.
In the world I live in (let’s call it the real one), $1.2 mn would renovate and refurnish all seven rooms of my Victorian terraced house in north London, buy the adjoining one and still have money left over for a new car.
Thain chose to spend the lottery-sized fund on items such as an $87,000 rug and a $35,000 ‘commode with legs’. Unless it means something else in the US, I believe a commode is a small cabinet that holds a chamber pot. A portable john, if you will, designed before public sewers and running water were readily available.
I know times were hard at Merrill Lynch last year, but I’m assuming its plumbing was still operational, so why did Thain need a commode for his office? Unless, of course, he needed somewhere to dump his personal toxic waste?
Thain subsequently explained away the luxurious outfitting of his office as an expense ‘incurred over a year ago in a very different environment’, as if that somehow justifies paying $1,400 for a wastebasket. Still, perhaps he got a bargain: Dennis Kozlowski, the now incarcerated former boss of Tyco International, spent $2,200 on his wastebasket six years earlier.
When a company boss starts caring too much about décor and office buildings, a huge alarm bell should ring through the investment community. Indeed, history is littered with examples of companies moving into opulent new headquarters just before they start to experience difficulties.
A mere four years ago, Queen Elizabeth II opened UK financial group Royal Bank of Scotland’s (RBS) new £350 mn ($503 mn) headquarters, complete with a bridge linking the building to Edinburgh airport. The state-of-the-art building was so grandiose RBS was forced to deny rumors that then CEO Sir Fred Goodwin, who took a keen interest in its construction, had insisted on a special ‘scallop kitchen’ near his office. The bank was then the fifth-largest in the world; it is now majority-owned by the UK government.
Lehman Brothers moved into its lavish European headquarters, designed by renowned Argentine architect Cesar Pelli, in London’s Canary Wharf in 2003, just one year ahead of the opening of its new Asian headquarters in Tokyo’s Roppongi Hills.
And the phenomenon is nothing new: Western Union completed its grand 10-story headquarters in lower Manhattan in 1875 when it had a virtual monopoly on US telegraphic communications.
A year later Western Union’s president, William Orton, declined the opportunity to buy Alexander Graham Bell’s telephone patents, claiming the telephone had ‘too many shortcomings to be seriously considered as a means of communication.’ Soon afterwards, Western Union ceded market leadership to Bell, now AT&T.
