Hit with the lucky stick

Directors & Boards, Spring, 2007 by James Kristie

WE'RE ALL FAMILIAR with the expression "It's better to be lucky than good" (or some variation thereof). I just heard an appealing new take on that sentiment. A senior executive who was making a sizable philanthropic donation was recounting how he had come to do so. Thanks to a hostile takeover of his company, he now had the wherewithal and motivation to make a meaningful gesture of support to an institution that was important to his success. Beyond all good work in building up a company that had come into the gunsights of a determined buyer, he unabashedly admitted that he "got hit with the lucky stick."

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It's that time of the year again when the lucky stick is much in evidence--i.e., compensation reporting season.

How to account for the remuneration numbers that we'll be seeing? One answer is: There is no accounting that justifies some of the numbers. In this corner we typically find the media, certain institutional and activist investors, some veteran executives (in their private anguished moments), and John Q. Public. The other answer is: The numbers are easily accounted for. In that corner we find pay consultants and compensation committee members vouching for their rigorous linking of pay and performance.

Perhaps there is a third answer, which we might as well call the lucky-stick theory. There are two parts to it: First, the megamillionaires who are being created in the executive suite get what they get through a combination of talent, hard work, determination, and other factors (like, yes, luck, since only fools totally discount the role of luck in their lives); and second, they have a board of directors that approves of what they are doing and can show that approval by making them wealthy. The board is the lucky-stick swinger in their corner. Some recipients are hit deservedly, and some not. (The issue then becomes: How qualified is the board to swing the lucky stick?--but that's a question for another day.)

Our contribution to advancing the art and science of rewarding executive performance comes on page 35 with the article "CEO Pay--a New Way to Judge the Numbers." But I would also say that a solution to the kinks in today's wealth-making machinery can be found in a close reading of our cover story spotlight on Kim Clark (page 22).

I'll close with one of my favorite sayings about wealth. It comes from H.L. Mencken, a newspaper and magazine editor long revered by journalists as one of the most influential writers of the early 20th century. When the Sage of Baltimore (as he was known, thanks to his birthplace and base of operations) was coming to the end of his days, he recounted in his diary the many things he was grateful for. One was this: "I always had a dollar more than I needed." Call me square for thinking so, but we should all be so lucky.