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Tuesday, January 27, 2009

The Shaming of John Thain

In this morning's NYT, one of my favorite writers there, Clyde Haberman, goes to town on John Thain, the Merrill Lynch CEO who's been recently deposed.  I understand the sense of frustration and anger; indeed, I'm a shareholder in Bank of America, which bought ML late in 2008 and has since declined precipitously. So it's no surprise to see popular anger (like Clyde's) over reports stating that Thain spent $1.2 million

to redecorate his office — purchases like an $87,784 area rug, a $68,179 19th-century credenza, a $35,115 commode and an $18,468 George IV chair. The rug alone cost the equivalent of nearly two years’ pay for the average worker in New York State

As Haberman writes, "If anyone should blush, you’d think it would be Mr. Thain." But Haberman wants the Thains of the world to be held up to scorn and shaming, despite my efforts to persuade him otherwise. My recent arch-nemesis appears to agree:

"Folks like John Thain are perfect candidates for public shaming on billboards and in the press," Professor Calandrillo said. “Their good name is what allows them to succeed in business. Once that is stripped, they have little left.” Others in business, he added, may then think twice about their own actions.

Elsewhere in the Times, however, we also see this bit of reporting on Thain's apparent misjudgments. First, he's stated his plan to reimburse the company for the renovation, whose costs include some other rooms besides his office. Second, and more importantly, it appears the story about Thain's distribution of bonus money is more complicated than reports initially suggest. 

Another point of controversy was Merrill’s decision to pay discretionary bonuses to its employees just a few days before the sale to Bank of America closed — considerably earlier than such bonuses were paid out in years past. In the memo, Mr. Thain appeared to challenge Bank of America’s suggestion that Merrill alone was responsible for the earlier-than-usual bonuses. He said the timing, composition and size of the bonuses were all “determined together with Bank of America.” In the interview, he said that Bank of America even mandated that more of the bonus be paid out in cash rather than stock. Bank of America has countered with its version of the bonus affair, telling The Financial Times: “We never said we didn’t talk with them about it. But, in the end, it was their decision and they informed us of it.”

All this is to say that we'd be better off waiting patiently until all the facts are found before rushing to extra-legal judgments culminating in "stocks" and cyber-pillories. There's always time for cool recrimination later...

Update: Over at Co-Op, Danielle Citron notes with greater specificity the dangers of even the privately-instigated shaming punishments, alerting us to the fact that shaming the Thains of the world can be "particularly potent in our networked age: online and offline shaming can ruin reputations, produce privacy invasions, and lead to offline stalking and physical violence."  She develops that argument in much greater detail in a very interesting piece entitled Cyber Civil Rights, which appeared in the BU Law Review a few months ago and which you can download here.

Posted by Administrators on January 27, 2009 at 09:43 AM in Article Spotlight, Criminal Law, Current Affairs, Dan Markel | Permalink


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Dan, I agree with your measured response. The furniture, frankly, is inexplicable to me. There's a rationale for spending enough money on office comfort and amenities to allow one to be productive, but why anyone needs a museum is beyond me. Obviously, after the fact, that became apparent to Thain as well. This is anecdotal, but in almost thirty years of practice, it's my observation that executives of non-profit institutions drape themselves in ornate offices even more than for-profit executives, I suspect rationalizing that by the gaps in pay.

As to the bonuses, I agree that there is probably more to that story. What gets charged through just as a company is about to be merged is a strange dance in itself, because any commitment one makes as the acquired, otherwise not violating a deal provision, is going to be paid (ultimately) by the shareholders of the acquiring company. For example, it's very common for the law firm to the acquired firm to ask for a "completion bonus," knowing that the acquiring firm will bear the cost, and really can't do anything about it except pay the bill.

Posted by: Jeff Lipshaw | Jan 27, 2009 11:15:23 AM

I think that's a more generalizable problem with shaming. One person standing on a corner with a signboard looks like the object of ridicule and scorn. Ten people on the same corner and it looks like a protest!

One person wearing a t-shirt that says: I'm a thief--well, that looks bad. Lots of people wearing that shirt: well, it's the new t-shirt from urban outfitters...

Posted by: Administrators | Jan 27, 2009 10:57:08 AM

I think the true problem with the shaming is that it presumes that the shameless cupidity here (recall also that Thain pushed for a $10 million bonus for himself) is just a problem of a few bad apples. The real issue is that the current system of executive compensation is all but guaranteed to make people like Thain, Stan O'Neal, Dick Fuld, etc., extremely wealthy men--rich out of all proportion to their contribution to the economy.

What I can't believe is that, as a taxpayer, I may well be in part on the hook for the bonuses Thain accelerated.

Posted by: Frank | Jan 27, 2009 10:03:33 AM

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