NOTE: The below originally appeared as the editorial in our March 11 One Minute Week newsletter. To find out more, and sign up for free, please click here.
This week The Financial Times has published what it calls an “investigation” into how S&P 500 executives use company jets for private use.
Apart from a section referencing RJR Nabisco’s fleet of jets (great recycling of a 30-year-old book) the article basically says that a lot of listed companies let founders use the corporate jet.
It is worth pointing out that all of the data was made available by companies in their filings. None of it was hidden.
One of the main targets is Barry Diller, Chairman of Expedia and IAC. Diller took personal flights worth $1.6 million in 2015. In the grand scheme of things this is nothing. Diller controls 69% of Expedia. According to Forbes he is worth $2.3 billion. He is a self-made billionaire who has reinvented himself – and different industries – many times. This is the man who greenlighted the Simpsons.
Another target was Steve Wynn. Mr Wynn is another visionary. He revolutionised Las Vegas (as many of you who attended NBBA last October may know to your cost) and has consistently delivered huge profits to investors.
Macau gambling revenues have been hit hard by the Chinese anti-graft crackdown. This year Wynn has made a profit of $195 million down from $731 million last year. This is disappointing – but it is not because he used the company jet. If you want to benchmark this, The Financial Times made a profit of about $30 million in 2014 and £38 million in 2013 (it is surprisingly bad at reporting its own results).
If I were a Wynn Resort shareholder, I would not care one bit that Mr Wynn uses the company jet to get back to the office on Monday. I would be grateful to have him working.
The Financial Times quotes Carol Bowie, Head of Americas Research at Institutional Shareholder Services, a company that provides governance research, securities class-action claims management and advises investors on how to vote. Ms Bowie says: “Where you find misuse is often at companies where there seems to be in the C-suite a certain sense of entitlement,” says Miss Bowie. “Investors pay attention to it as more of a sign — not the disease — but an indication that the CEO is too powerful.”
First, professional investors should be making their own calls (and working out that Mr Diller controls most of his company). They should not be outsourcing it to a company that benefits from class action suits. Second, no one forces you to invest in a company and every investor has the right to sell as soon as they are unhappy. If you do not want to invest in company led by a successful entrepreneur – like Diller or Wynn – you do not have to.
“Entrepreneurs like Diller and Wynn have created tremendous amounts of value for shareholders over long periods of time,” says Kenny Dichter. “Their ability as chief executives and shareholder returns would be greatly diminished if they were forced to fly in a commercial system.”
(Kenny – of course – could not help himself by adding that they both “could fulfil most of their missions in a King Air 350i at $3950 per hour”. Although he admits that even a WheelsUp KingAir cannot fly from Las Vegas to Macau.)
The Financial Times survey is one of those ideas that should have been killed when it was first pitched at an editorial meeting. It only shows which companies have been good at calculating benefits in kind. The IRS should give the companies an award.
The next Financial Times investigations will no doubt reveal that CEOs get paid more than interns or that Superyachts are most likely to be owned by billionaires.
It is yet another example of the mainstream media ganging up on business jets. It is annoying. It is lazy thinking. But we all need to ignore these stories. A few timid CEOs may delay buying a jet by a few months following this “investigation” (or may just hide ownership better) but it will not have any significant effect. Diller, Wynn or any of the others the Financial Times picked on will not have lost any sleep over this story.
There is, however, a solution to all the negative stories in the press surrounding business jets.
If every manufacturer lent one or two business jets to editors for their personal use I am sure the stories would become much more positive. Not convinced? I am happy to trial this.