Sprint Filings

At left: Sprint's newest board member works on the potential Ericsson outsourcing deal. And places an order for bananas.





It has been said that if you took an infinite number of randomly typing monkeys that they, eventually, would produce some of the world's greatest literary works. In fact, I'm pretty sure that's how romance novels are written today. "Fascinating", you may say, "but what does that have to do with anything?" Well, for one, everyone loves monkeys. Humans love monkeys so much we destroy their habitat, dress them up as people for laughs, and then put them in cages to live out their now sad, miserable lives. That's what I call true love. But, the point is that the infinite monkey theorem can also be applied to the Board of Directors. In fact, it has been noted that monkeys can out pick stock professionals; so why then could they not outperform the Board?

Obviously, I am only (sort of) joking when comparing monkeys to the Board. After all, I don't know of any monkeys that have made decisions that led to a 80% drop in stock value since the merger (see chart - Sprint vs. S&P500 vs. North American Telecom Index.). But I am digressing from the original intent of this post - what do board members get for leading Sprint to such prosperity and riches? Let's take a peek...

Each outside director is paid a $70,000 annual base salary plus meeting fees and additional retainers. Not unreasonable sounding, at least to me. They work hard and it's not like they're hiring outside firms to study such issues as executive compensation. Actually, scratch that last part as "for 2008 and year-to-date 2009, the Compensation Committee...retained Frederic W. Cook & Co., Inc. as its independent compensation consultant." Also mentioned is that "our CEO periodically discusses the design of compensation programs and the compensation levels of our other named executive officers and certain key personnel with the Compensation Committee." Now, I'm clearly not an ethicist but that seems poor judgment on the part of the board - allowing the CEO to have input into executive compensation issues when he is the top executive.

But, back to the board. They are, after all, providing a valuable service to Sprint and it's not like they're serving on other boards too. Umm, well, nevermind that one too. The current (current as of the 2009 proxy filing) board members actually serve on a combined 19 other boards. It would seem difficult to devote enough time and energy to Sprint while serving other companies as well but, then again, I could be wrong as there is a first time for everything. But it's not like members get other perks like, say, unlimited number of wireless units including accessories, wireless long distance, and long distance calling cards (max $12,000). And it's not like they get the following for simply attending a meeting:

• $2,000 for in-person meetings
• $1,000 for meetings "held telephonically"

All told, during 2008, the board of directors held 17 meetings with all directors attending at least 75% of board and committee meetings. I'm not sure what legally constitutes a meeting ("Everyone here? Alright, meeting adjourned") but I'm glad to see they're on top of things. Oh, I forget to mention some additonal perks. What are the additional retainers needed to keep these vitally important individuals?

• the Chairman (James Hance) receives an additional $150,000
• the Chair of the Audit Committee (James Hance) receives an additional $20,000
• the Chair of the Compensation Committee (Gordon Bethune) receives an additional $15,000
• the Chairs of the Finance (Robert Bennett) and Corporate Governance Committees (Irvine Hockaday) each receive an additional $10,000

All things considered, being a member of this club is not a bad gig if you can get it. Beats Costco, at least. So, what did Sprint pay in 2008 in total compensation (cash, stock, & other) to all board members (current & former, excluding Hesse)? Here's the breakdown:

• James Hance - $436,036
• Robert Bennett - $265,516
• Gordon Bethune - $264,864
• Larry Glasscock - $257,864
• Irvine Hockaday - $251,194
• V. Janet Hill - $250,690
• Rodney O' Neal - $242,864
• William R. Nuti - $109,222 (joined board on 6/9/08)
• Sven-Christer Nilsson - $46,432 (joined board on 11/10/08)

All told, in 2008 Sprint paid $2,633,617 to current and former board members (not including Hesse). And $2,633,617 sure can buy a lot of bananas. Here's the compensation table lifted from page 14 of the proxy:

At left: Ever wonder what happens at Sprint's annual Board meetings? A board member prepares to wrestle in a vat of jelly while shareholders cheer him on.





In keeping with my theme of not really doing any investigative work and merely pointing out information already contained in Sprint's 2009 proxy, I would now like to say a few words about the Board of Directors. Those words are "they suck." And, if you don't believe me, well that was the opinion of the independent research firm The Corporate Library (TCL). While they did not state their opinion as eloquently as I did, they did rate the B.O.D. as a "D" overall. Now, unless you are George W. Bush, that is nothing to be proud of. So, what did TCL say about the B.O.D?

• "D" overall (reiterated just so it sinks in)
  
• "High Governance Risk Assessment"
• "Very High Concern" in Executive pay

Some other governance issues were identified as well (note, I'm not sure they are directly attributed to TCL but they are mentioned in the proxy). Specifically, for shareholders, there is:

• No right to cumulative voting
• No right to act by written consent
• No right to call a special meeting
• No right to vote on executive pay

And, to me, this quote from the proxy summarizes up the overall concerns:

• "Our management should have the leadership initiative to adopt the above Board accountability items instead of leaving it to shareholders to take the initiative in proposing such improvements."

Now, maybe you're thinking, "Well, sure they've made mistakes. They're only human. Sprint did not do well so of course the Board would be rated low. It's not like the Board is the problem. Let he who is without sin, cast the first stone!" Well, TCL disagrees with you and casts away:

• Irvine Hockaday was designated a “Problem Director” due to his involvement with the proposed Sprint merger with WorldCom that led to the acceleration of $1.7 billion in stock options even though the merger ultimately failed
• Irvine Hockaday and Janet Hill were designated “Accelerated Vesting” directors due to their accelerating stock option vesting to avoid recognizing the related cost.

And, as it turns out, 6 of the current 11 members (and 1 former member) of the Board coincidentally also served on other boards that were also rated "D" by TCL. Of the 5 who didn't, 1 is Dan Hesse who, I would imagine, will not and cannot serve on another board while CEO. Of the remaining 4, 3 have been on Sprint's board for less than a year. Excluding Hesse, the only member of the board who has served more than a year and did not serve on another "D" rated board is James Hance - who is the retired Vice Chairman of Bank of America. And we all know how well they are doing (thanks to taxpayer money).

So, who are the other folks that also helped screw up other companies? Well, leading the way, was one Mr. Irvine Hockaday who served on 3 other boards that received a "D" (4 total - Sprint, Ford, Estee Lauder, and Crown Media). "Funny" enough, he only served on a total of 4 boards. Well done Mr. Hockaday! You are a fortress of ineptitude. With the loss of shareholder value in those companies, you've probably screwed over more retirees than Medicaid. Luckily for Sprint, Mr. Hockaday is retiring from the Board to pursue his dream of eating live puppies in front of school children (addendum: see end of post). After all, he's not getting any younger and why wait to crush the hopes and dreams of adults when you can do it to kids?

Hot on Irvine's heels, is one Mr. Rodney O'Neal who served on 2 other boards that received a "D" (Sprint, Goodyear, and Delphi). Well done, Rodney! You have some work to do to catch Irvine but I have faith that you too can become as terrible at this as he is. Shoot for the stars and when you don't make it, blame it on the little guy. Not to be excluded from the party of incompetence, 5 other Sprint board members (of which, 4 are still on the board) served on other "D" rated boards - Gordon Bethune (Honeywell), Ralph Whitworth (no longer at Sprint; Sovereign Bancorp), Janet Hill (Wendy's/Arby's), Robert Bennett (Liberty Media), and Larry Glasscock (WellPoint).

In my next post, I'll take a closer look at the compensation provided to the board. But, in the meantime, I will be hard at work figuring out how I too can become a rich, old white guy so I can serve on the board. Wish me luck.

author's note: I do not know if Irvine Hockaday eats live puppies. Presumably he does not. Besides, they are better cooked.

Statistics and numbers. Numbers and statistics. No matter how you type it, everyone knows you can manipulate virtually any number or statistic to say whatever it is you want it to say. Numbers are not to be trusted (don't even get me started on 2,587). As for statistics, did you know that 24% of all statistics are false? If you didn't, you should now since I just made that up.

I say all that with the intention of showing you a chart I stumbled upon in the 2009 SEC filing that shows the amount of stock bought by employees in the Employee Stock Purchase Plan (page 70). Now, I don't know if much can really be read into the chart but it is interesting to me. And since this is my blog and no one reads this stuff anyways, it doesn't really matter if I post it. So here it goes...

Obviously, Sprint's stock took a worse beating than Rihanna this past year. I think the depth and breadth of the beating surprised everyone. In fact, I can't believe she took Chris Brown back! But, back to Sprint's stock; it makes sense to buy stock if you believe if it is going to go up in price. In no other situation (other than covering a short sale), would you buy stock that you thought would depreciate unless - and this is a huge caveat - you are f*cking retarded. But, I assume the best in people so I doubt this is the case. So, what did non-executive employees buy via the ESPP? And what did executives buy via the ESPP? Let's go to the scorecard:

All executive officers (8 people) - 2,672 shares
All employees (excluding officers) - 8,676,427 shares

Now here it is in monetary terms at a weighted price of $4.16 per share (as listed in the proxy):

All executive officers (8 people) - $ 15,943
All employees (excluding officers) - $ 36,109,316

To help you comprehend the difference, that's about my yearly salary versus 77 minutes of losses by AIG in the 4th qtr. You can guess which value is which.

Now, obviously, the number of employees (excluding officers) greatly exceeds the top 8 people in the company. And the top officers in the company are already tied heavily in stock as part of their compensation mainly through stock options and grants/awards. But, none of the top 5 current executives (Hesse, Brust, Cowan, Elfman, Johnson) nor any of the top 4 ex-executives (Saleh, Arendt, Kennedy, Angelino) purchased stock via the ESPP. If they thought the stock price would go up in 2008, would they have bought stock? Is the fact that they didn't indicative that they believed the stock would go down? Why is there such a discrepancy in the "bullishness" of the stock between executives and non-executives? I, like usual, don't have any idea.

So I'll leave it up to you, my dear astute readers, to answer those questions for yourself. By the way, here's the actual chart: