BY Ira Stoll – Employees who hope to keep their jobs and investors who hope their shares will rise may want to hope their executives avoid President Obama’s Council on Jobs and Competitiveness.
When the council’s members were announced February 23, among the concerns raised was that the members would use their status to the advantage of their companies. In fact, what’s happened since then is that the 13 publicly traded companies whose executives were appointed to the council, taken together, have declined in value by about 7% through year-end, worse than the decline of about 4% in the Standard & Poor’s 500 Index over the same period.
Eastman Kodak’s stock has lost more than 80% of its value since President Obama named its chairman and CEO, Antonio Perez, to the Council on Jobs and Competitiveness. Citigroup is down 44% since Mr. Obama named its chairman, Richard Parsons, to the Council on Jobs and Competitiveness. The UBS AG shares traded on the New York Stock Exchange are down 40% since Mr. Obama named Robert Wolf, the chairman of UBS Group Americas and the president of UBS Investment Bank, to the Council on Jobs and Competitiveness. All these figures are adjusted for any dividends or splits.
If these council members haven’t produced much by way of competitiveness, at least as measured by stock price, they haven’t produced much in the way of jobs, either. In April 2011, Kodak announced 48 layoffs in Durham, North Carolina. In August 2011, UBS announced 3,500 layoffs. In December 2011, Citigroup announced 4,500 layoffs. Call it the Competitiveness Council Curse.
Maybe at the next meeting of the Jobs and Competitiveness Council, the president could invite some of the employees who have been laid off by his own council members to come testify.
It’s certainly possible to make an “it would have been worse” argument, the same way President Obama does about the economy absent the stimulus. Perhaps without the advantage of having executives with input into government policy and access to government officials, Kodak, UBS, and Citi would all be doing even worse, and perhaps they would be announcing even bigger layoffs.
But it’s also possible to make an “it could have been better” argument, which is that companies whose executives get politically involved in these sorts of boards generally do so as a kind of last resort, seeking to gain by political influence or decision-making what they have been unable to achieve through competition in the free, private marketplace. If these companies were stronger to begin with, the executives might be busy growing them, rather than sitting around at meetings in Washington trying to help President Obama appear more business-friendly.
It’s true, too, that companies picked for these sorts of panels sometimes outperform rather than underperform. The predecessor of the President’s Council on Jobs and Competitiveness was something called the President’s Economic Advisory Recovery Board. It was named in February 2009 and included two executives—Mr. Wolf of UBS and Jeffrey Immelt of GE—who were also named to the Council on Jobs and Competitiveness. The four publicly traded companies represented on that Economic Advisory Recovery Board have outperformed the S&P 500 by more than 60 percentage points since the board was named. That board was active at a time when Mr. Obama’s party also controlled both houses of Congress, and when the administration was dispensing stimulus money.
Even a one-shot event like a state dinner invitation, which might seem less significant than membership on a panel or council, can, when analyzed, appear to be linked to corporate performance that varies significantly from the overall market. The three public companies whose executives were invited to President Obama’s state dinner for the chancellor of Germany, Angela Merkel, were up 14% since the June 7, 2011 dinner, while the S&P 500 was down 2%. The companies were IBM, Duke Energy, and Choice Hotels.
I’ve been tracking these matters with what I call a Crony Capitalist Index. There’s nothing wrong with a president seeking advice from business leaders or socializing with them. I’d rather have some of the president’s chosen businesses struggle and lay off workers than have the president take money from taxpayers to try selectively to prop those businesses up. But the embarrassment of having a President’s Council on Jobs and Competitiveness whose members are laying off workers while their stock prices plunge is a cautionary tale about the risks of giving a select few businesses executives a presidential stamp of approval.