Corporate Governance

Exxon and Corporate Aircraft

By J. Robert Brown

As we watch those companies subject to the bailout get rid of their corporate jets (this was required as part of the bailout of the auto companies), we have noted that other companies not obtaining government largess are still operating the planes.  Exxon-Mobile recently reported that it had a record year of profits (setting a record for a US company).  In the 2007 proxy statement (this year's hasn't been filed yet), the company disclosed that it had private aircraft and that the CEO, Rex Tillerson, had used it for personal travel (costing the company $41,000, not including capital costs). 

The proxy statement disclosed that its use for personal travel was necessary for "security reasons."  As the proxy statement explained:  "the Board requires the Chairman and CEO to use Company aircraft for both business and personal travel." 

Really?  What was the basis for the board's determination?  Was there any actual evidence of threats?  With only Tillerson making personal use of the corporate aircraft, why did the board not think other officers would be equally at risk? 

While we are not privy to the factors that actually went into the decision, we have written often on this Blog about how directors have an incentive to give the CEO what he/she wants in order to keep their lucrative sinecure on the board.  Thus, while there may have been a genuine concern about security, it's also possible that the board simply gave another perq to the CEO because he wanted it. 

To the extent Exxon continues to maintain the corporate aircraft and continues to allow its use by the CEO for personal travel (we shall find out when the proxy statement for 2008 is filed), it illustrates the fact that while companies accepting bailout funds are under pressure to eliminate this type of largess, other companies can quietly do what they've always done.  What needs to happen is a more permanent and substantive reform of the standards for determining executive compensation.  Preemption of Delaware law in short.

In other words, while financial institutions and companies taking bailout money are selling the corporate aircraft, there's no guarantee that the practice has actually become widespread in other areas of business.

Full post as published by The Race to the Bottom on February 05, 2009 (boomark / email).