It sounds like an act of unprecedented generosity: Former Global Crossing chairman Gary Winnick, moved by the plight of workers who said he betrayed them, last week pledged $25 million of his own money to repay employees who lost their retirement funds when his company went bankrupt.
But in an unforgiving age when only the sight of executives in handcuffs seems to reassure the investing public, the reaction to Winnick’s dramatic pledge has been remarkably, well, stingy.
As one lawyer representing a group of Winnick’s former employees in a class-action lawsuit put it, “Why only $25 million?”
What’s more, Winnick’s challenge to other embattled executives to make similar donations to their own wounded workforces — made last Tuesday before a House committee investigating corporate wrongdoing — has gone unanswered.
Experts in business ethics say they are not surprised that no one has rushed to imitate Winnick. Some of his peers-in-disgrace are suffering financial problems of their own, they said, and some face tricky legal situations.
There is also the matter of scale. Today’s crisis of confidence in corporate leadership is as big as the staggering paydays enjoyed by the executives now under fire.
“What Winnick is doing is a noble thing to do,” former DuPont chief executive John A. Krol said at a recent gathering of business leaders. “But he took $700 million out before he paid back $25 million. So it’s a gesture, at best.”
That $25 million is about 3 percent of the $750 million Winnick grossed in three years of selling stock in Global Crossing Ltd. Many of his employees used their 401(k) plans to buy company stock and hung on even as the share price fell because, they said, Winnick and other executives assured them everything was fine.
While Winnick comes out of the experience with a $100 million home in Los Angeles, workers such as Lenette Crumpler, who also testified last week, face the prospect of working for the rest of their lives because their nest eggs were wiped out. Crumpler lost $86,000.
Winnick’s pledge “is a recognition that, really, employees helped create that wealth that he ran off with, a recognition that it’s not fair he got as much as he did,” said Marjorie Kelly, editor and publisher of Business Ethics magazine. “That may not be what he intended to say, but that’s what his action says.”
What Winnick actually said on Tuesday was that he regretted the losses of his “family” at the corporation.
“As head of the company, I let them down — not because we engaged in fraud, or insider trading, or chicanery. We ran our business in very tough economic times,” he told the House Energy and Commerce Committee’s panel on oversight and investigations. “I decided, and my wife is in complete support, that I personally along with my family will guarantee $25 million to people who lost their money in their 401(k) plan who were not responsible for this loss.”
It was an act of contrition with little precedent in American industry, several experts said.
Industrialist Andrew Carnegie tried to make up for a ruthless life by building ornate libraries in his old age.
But Winnick is a rare example of a businessman accused of wrongdoing who, unconvicted of any crime, offers to repay some of the specific people who got trampled while he was cruising to the bank.
While Winnick had considered such a move some time ago, associates said this week that he surprised them by making the announcement. The idea had been on hold because it would be so complicated to bring off, one associate said.
Indeed, a spokesman for Winnick said he is just now trying to figure out how to get the money to 14,000 former workers. He wants to write a check and have Global Crossing’s 401(k) plan administrator distribute the cash.
One public relations expert lamented that Winnick made the announcement on Capitol Hill. “The timing was very ill-advised,” said the expert, who asked not to be identified. “You don’t do it the day that you are testifying; it doesn’t look right. It looks like it was a PR stunt.”
The expert also wondered whether the move could have legal ramifications. Winnick and Global Crossing are the targets of dozens of investor lawsuits, and Winnick has now taken responsibility for losses in a very public way.
“There are all types of civil issues here,” said Jules Brody, a New York lawyer representing more than a dozen current and former Global Crossing employees. But Winnick also might be calculating that his tactic will reflect well on him in any proceedings, he said.
“In some circles, he’ll get brownie points for that,” he said. Brody said he hadn’t yet spoken with his clients about the offer because he wanted more details. His first reaction: It’s not enough money.
The $25 million represents an estimate only of how much the employees contributed to their 401(k) plans. It makes no allowance for the actual value they lost.
Edward Soule, a professor of business ethics at Georgetown University, said it’s difficult for the action to serve as a clarion to others because Winnick has never been looked to for that type of “moral leadership” within the business community. It’s not that Winnick has a bad reputation, Soule said; in fact, he has given about $100 million to charity over years.
But Winnick, a former associate of junk-bond king Michael Milkin, is known primarily as an aggressive dealmaker, Soule said.
There are corporate leaders known for selfless acts. Last year, Charles Schwab took a 50 percent pay cut, among several other steps, to avoid laying off workers from his financial services company. When layoffs became inevitable, he pledged $10 million of his own money to create an education fund for employees who lost their jobs.
Similarly, chief executive Aaron Feuerstein of the privately held Malden Mills textile company kept paying his employees after a fire destroyed their Massachusetts factory in 1995.
But today’s wave of executives, accused of milking their companies for private gain at the expense of employees and investors, has eclipsed such noble images. None of that group has so far stepped up to Winnick’s challenge.
A spokesman for former Enron chairman Kenneth L. Lay declined to comment on how Lay views Winnick’s offer, for example, and industry sources said former Tyco International Ltd.’s chief executive L. Dennis Kozlowski has no plans to repay any investors.
Reid H. Weingarten, attorney for former WorldCom Inc. chief executive Bernard J. Ebbers, said his client is in a different category.
“It may be that corporate executives who sold stock in advance of their company’s collapse should give up some of their profit to disadvantaged shareholders. Mr. Ebbers is not one of those corporate executives. He never dumped WorldCom stock in anticipation of bad news,” Weingarten said.
What, then, set Winnick apart from that crowd? He said during the hearing last week that he decided to make his pledge after seeing the testimony of Crumpler, the former employee.
That is a believable catharsis, said Marianne Jennings, a professor of legal and ethical studies at the Arizona State University College of Business.
“You have these businesspeople making decisions, and it all seems logical, and then they get eyeball to eyeball with the people they’ve harmed, and that’s when it’s tough,” Jennings said. “Even the most callous human being has trouble with that, seeing how much harm you have heaped on people who really can’t handle the harm.”