By BEN STEIN
ONE of the best conspiracy movies ever made is the perfect British classic,
"The Third Man." In the most haunting scene, the villain, played
adroitly by Orson Welles, takes Joseph Cotten, the good guy, up in a Ferris
wheel. The villain, named Harry Lime, has been selling
adulterated penicillin in postwar
Mr. Cotten's character, a pulp fiction writer named Holly Martins, asks
him how he could do such an evil thing for money.. The
two men are at the top of the Ferris wheel, and the people below them look
like tiny dots.
Mr. Welles's villain looks down and says, "Tell me, would you really feel
any pity if one of those dots stopped moving forever? If I offered you ?20,000 for every dot that stopped, would you really,
old man, tell me to keep my money, or would you calculate how many dots
you could afford to spare?"
This scene comes to mind when I think of Glenn F. Tilton and other executives
of the UAL Corporation and the hapless employees of its primary business,
United Airlines. Its history is a perfect text for the ethical morass in
which American business often finds itself.
United is one of the proudest names in airline history. It has long been a synonym for fine service and extensive,
convenient routes. In the early 1990's, when some investment bankers were
casting around for a way to make tens of millions of dollars, they came up
with a doozy: the employees of UAL would give up some of their salaries and benefits
in exchange for stock in UAL, eventually becoming UAL's largest owner through
an employee stock ownership plan.
The deal went through - with staggering compensation to Wall Street - and in
1994 the American employees of UAL, as a group, became its largest owners.
Within a few years, overseas personnel were allowed the privilege of
tossing their life savings into UAL, too.
Trouble was not far behind. The employees found management demanding pay
cuts, big (and, for passengers, inconvenient) changes and cuts in scheduling
and services, and even silly changes in their once-great flight attendant
uniforms. Then came the blows of 9/11 and a recession,
and then rising fuel costs. There were demands for more cuts in pay and
benefits and more layoffs. That was not enough. About three years ago, UAL was
"forced" to enter bankruptcy to stay alive.
This step meant that UAL could drastically cut workers' pay - and it did.
Pensions were simply jettisoned and made the burden of the federal
government's Pension Benefit Guaranty Corporation, which meant cuts of close to
two-thirds in some pilots' pension payments. And, of course, the bankruptcy
simply eliminated all of that equity in UAL that the employees had bought with
their hard-earned savings.
Thus, in a series of evil events, management of UAL basically ruined the lives of the employee-owners, if that is not
putting too fine a point on it, by taking away their savings, incomes and
pensions. (I am indebted to my pal, Phil DeMuth, for much of this research.)
All right, you might say. What else could management have done amid high fuel costs and a deregulated, super competitive
market?
That's "creative destruction," and it's good for the economy, some of
my fellow Republicans and admirers of the free market might say. But what about the rules of law and common decency? Because,
you see, there is a bit more to the story.
Now UAL has been reorganized. It is preparing to emerge from
bankruptcy. It will s oon have a stock offering. This offering is
expected to raise very roughly $6 billion. It is presumably worth that because
UAL now has such low labor costs that it may
actually make a profit of some size. (I'll believe it when I see it.)
Here comes the good part: management has asked the bankruptcy court to let it
have - free - roughly 15 percent of the stock in the new company, or about
$900 million. Mr. Tilton, the chief executive, who plays the Orson Welles
character in this drama, would get about $90 million personally for his hard
work shepherding UAL through bankruptcy (for which he was already paid multiple
millions of dollars).
The bankruptcy court, instead of ordering Mr. Tilton's arrest, instead cut the
management share to about 8 percent, so he will get more than $40 million, more
or less. That is more than Lee R. Raymond, the chief executive of Exxon Mobil,
one of the most successful companies of all time, was paid in 2004 (not
counting Mr. Raymond's 28 million shares of restricted stock).
So here it is in a nutshell: employees are goaded into investing a big chunk of
their wages and benefits in UAL stock. They lose that. Then they lose big parts
of their pay and pensions. They become peons of UAL.
Management gets $480 million, more or less. "Creative
destruction?" Or looting?
Wait, Mr. Tilton and Mr.20 Bankruptcy Judge. The employees were the owners of UAL. They were the trustors, and Mr. Tilton
and his pals were trustees for them. How were the trustors wiped out while the
trustees, the fiduciaries, became fantastically rich? Is this the way capitalism
is supposed to work? Trustors save up, and their agents just take their savings away from them?
If the company is worth so much that management has hundreds of millions coming to them, shouldn't the
employee-owners get a taste? Does capitalism mean anything if
the owners of the capital can be wiped out while their agents grow
wealthy? Is this a way to encourage savings an d
the ownership society? Or is this a 20 matter of to him who hath shall be
given?
I know that this is basically the same story I described recently concerning
the Delphi Corporation, where something similar is going
on. But that's exactly the point. Management is using competition,
higher fuel costs and every other cost complaint to cut the pay and pensions of its own employees while enriching itself.
And I can well imagine what goes through Mr. Tilton's mind as he does it:
"Hey, I'm a great executive. Great executives in private-equity firms make
more than I do. Why shouldn't I get the moolah? Basically, I've worked it so
UAL is now a private-equity deal anyway. That's what it's all about now, isn't
it? Who's got the most at the end of the day at Bighorn or the Reserve or
whatever golf course I choose to retire at? And, anyway, wouldn't you take
$48 million for a few of those dots we used to call our employees and owners to
stop moving?"
Ben Stein is a lawyer, writer, actor and economist.