NY Times Takes Aim At 'Greedy' Executives

by Mike Godfrey, Tax-News.com, Washington

27 May 2002

Perhaps attempting to set some new record for the number of derogatory articles which can be written about one jurisdiction, New York Times Columnist, David Cay Johnston continued his tirade against US companies which have relocated to offshore jurisdictions, such as Bermuda, in order to avoid punitive US taxes on overseas profits. This time, he accused the executives of companies such as Nabors Industries, Stanley Works, Cooper Industries, and Ingersoll Rand, of attempting to line their own pockets at the expense of their other shareholders.

In an article published last week, Mr Johnston explained that: 'While each company's Bermuda strategy differs in details, chief executives always profit because their compensation is based partly on the profitability of the company or its stock price. If taxes fall, both would be expected to rise.' (And the problem here is....?)

Citing the example of Houston's Nabors Industries, the shareholders of which are scheduled to vote June 14 on a proposed move to Bermuda, the article suggested that Chief Executive Eugene M. Isenberg, stands to benefit to the tune of tens of millions of dollars each year if the oil-drilling rigs operator performs a corporate inversion.

The New York Times also slates toolmaker Stanley Works' Chief Executive, John Trani, arguing that if the - now postponed - move to Bermuda goes ahead, Mr Trani will 'pocket an amount equal to 58 cents of each dollar the company would save in corporate income taxes in the first year'.

Although the chief executives of all of the US companies considering relocating offshore are likely to benefit from the move due to reduced taxation, it seems counterintuitive to suggest that other shareholders would approve a move which would disadvantage them, no matter how great the pressure.

And indeed, even David Cay Johnston is forced to admit this:

'The move is likely to benefit Stanley shareholders over the longer run, which is how Mr Trani prefers to look at it,' he wrote last week, explaining that: 'If the move to Bermuda doubles the company's stock price in eight years - a prospect that the company has no quarrel with - all shareholders will increase their wealth by about $3.3 billion'.

Recommended