The liberal blogosphere and liberal media outlets are already wailing about Mike McGavick's choice to loan his campaign $2 million. There are a number of blatantly obvious reasons Democrats have no room complaining about this turn of events.
One, Maria Cantwell obviously self-financed the bulk of her 2000 campaign, paid for by her well-documented wealth from Real Networks stock. But, she failed to report until after the election that a notable part of her self-financing was actually merely a loan to her campaign, for which she earned a reprimand from the FEC.
Yet, not only was Maria Cantwell disingenuous to voters by claiming she was self-financing her 2000 campaign when in reality she only loaned part of it to her campaign, the campaign still hasn't paid it all back. Her current FEC filings list over $2 million in debts. Anyone want to guess what that debt is for? For the slowcoaches in the reading audience that would be the money still owed to her personally by her campaign. I am not the first person to note the duplicity of such actions.
So, Cantwell is still riding a 6 year-old debt of over $2 million that most people would expect to be paid by now, but which she is still refusing to pay-off to keep the funds available for her current campaign.
Meanwhile, despite the fact Cantwell's own original wealth came from stock-heavy compensation in the private sector, some would like to claim the politically motivated lawsuit is grounds for questioning McGavick's compensation from Safeco. Right.
They of course choose to forget the fact McGavick's own stock-heavy compensation package was the only way to recruit a quality candidate to turn around a failing company. And forget the irony the high tech and biotech industries, which Cantwell should know well, commonly use such stock-heavy packages to compensate executives. Let alone the fact a large portion of stock-option compensation is routinely exercised when an employee departs the company and must use or lose their vested options.
McGavick's last year of compensation fits all the criteria noted above, and then some, as described by David Postman who recounts the compensation came "from stock options, bonuses and performance rewards." The PI provides a more in-depth breakdown here.
It is important to note that beyond exercising accumulated stock options, McGavick's compensation comes from his bonus for Safeco's 2005 performance, and for the combination of his aid in the leadership transition and for signing a three-year non-compete clause. Based on his annual compensation at Safeco, during a strongly successful tenure, McGavick signed away tens of millions of dollars by accepting such an agreement, if he were to lose the Senate race (let alone the millions worth of stock options he gave up by leaving Safeco).
Moreover, based on my own experience in the biotechnology sector (I served as Director of Public & Government Affairs for the Washington Biotechnology & Biomedical Association for two years), I can attest to the value that is placed on such executives, especially when they provide a smooth leadership transition.
But, this isn't good enough for liberals. Take the view of the man that helped create the frivolous lawsuit against McGavick, David Goldstein:
Legal or not, the fact is that McGavick's golden parachute is an absolute disgrace, and at the very least presents the kind of perception of impropriety that simply should not be acceptable from our highest elected officials. And no, the fact that other executives have been similarly overcompensated at customer, employee and shareholder expense is not an excuse.
In the end, McGavick choosing to support his campaign with his hard-earned compensation is not the true issue for liberals who object to such happenings. At their root, they view such compensation as amoral, not matter how justified it is by the modern marketplace. They are entitled to their opinion, but regardless of their conspiracy theories (see comment #3 from thor at this post by Postman for a great example), that doesn't make them right.
Let's see if he runs an anti-Cantwell post with headlines on these facts, or if he chooses to bury it as an update in the McGavick hit piece.
Posted by: swatter on August 14, 2006 08:21 AMHere are some objective questions:
1. What unvested stock options did McGavick forfeit when he left Safeco? How many shares, when granted, when would have vested, option price, and market value of options at departure (had they been vested)?
2. What stock options were accelerated in vesting as part of the December 2005 termination contract that McGavick signed? How many shares, when granted, when they otherwise would have vested, option price, market value of options at departure, and market value of options on the exercise date?
3. What stock options vested in the normal course of events after McGavick signed the December 2005 termination contract and before his total departure on February 28, 2006? This refers to the amount vesting especially during his last two works of part-time work at $8,333.33 or so per month. How many shares, when granted, when they vested, option price, market value of options at departure, and market value of options on the exercise date?
4. What already vested stock options did McGavick possess in December 2005 when he signed the agreement? How many shares, when granted, when they had previously vested, option price, market value of options at departure, and market value of options on the exercise date?
5. What are the terms of the $1,275,000 interest free deed of trust loan from General American Corporation (apparently a Safeco affiliate) to the McGavicks (technically to Scimitar Trust of 2001, the name under which the McGavicks hold title to their home)? When do the McGavicks have to pay this back, if ever?
I don't know enough about shareholder derivative lawsuits to say whether or not I think the lawsuit has merit -- i.e. whether or not it will survive summary judgment. Somehow, I think a lot of these lawsuits survive summary judgment when they are filed by skilled attorneys. The plaintiff's attorneys, if they are smart (and they certainly appear to be), will hire some high-powered expert to testify in support of their position. Then the corporation settles out-of-court, because they are worried what a jury will do when trying the case.
It does seem that Safeco Corporation received some legally valuable consideration in exchange for the extra things left gave McGavick in the December 2005. If McGavick forfeited some unvested stock options, that was a legally valuable consideration. If McGavick performed three more months of services (even if two months were only part time), that was a legally valuable consideration. If McGavick agreed to a three year non-compete, instead of the pre-existing one year, that was also a legally valuable consideration.
But I think the main legal and factual issues in the derivative lawsuit will be whether the value of what Safeco gave McGavick is reasonable in comparison with what McGavick gave Safeco under the agreement.
The answers to Questions 1, 2 and 3 would be very important in determining the merits of the lawsuit -- along with the value to Safeco of McGavick's services from December 2005 to February 2006, and the value of two additional years of non-compete.
The non-compete value has to be considered in light of (1) McGavick would likely campaign for the U.S. Senate for most of the existing one year non-compete period -- i.e. March 2006 to November 2006, (2) McGavick would stand a significant chance of losing the Senate race (especially given Washington political reality) and would likely otherwise be seeking employment in the insurance industry come March 2007, and (3) such employment would likely be with another company, as McGavick's CEO position had just been filled.
The answer to Question 4 would determine how much of the $28 million would otherwise had been received by McGavick, had he quit in December 2005 without any acceleration of vesting, or having additional shares vest in normal course for three more months of employment.
Like I said at the outset, I don't see either side trying to break down this $28 million in any way. McGavick opponents try to call this entire amount a gift (which is incorrect, as McGavick certainly had a lot already vested as of December 2005), while McGavick supporters simply say that the additional vesting (both through accelerated vesting and three month longer employment) was supported by fair, valuable, and wise consideration.
The answer to Question 5 would be interesting, but presumably more of a political question, rather than a legal question relevant to the derivate lawsuit. Did the December 2005 separation contract affect the $1,275,000 interest free home mortgage (granted in July 2001 as part of the hiring contract) in any way?
Posted by: Richard Pope on August 14, 2006 09:54 AMSee my post on the Public Blog. Progressives are hypocrites. Wealth generation is moral. It is the most moral thing in a free society. We all benefit from wealth generation, be it our own, or others around us.
There are already a number of issues, where McGavick need only point out the hypocrisy of Cantwell's claims. Or better yet, McGavick need only point to the low brow muck raking and other Cantwell tactics without even mentioning the hypocrisy directly.
Cantwell is going to have a huge liability here as we get closer to the election. If I were Cantwell, the first thing I would do is to stop trying to make McGavick's compensation an issue, and the second thing I would do is make a personal call to David Goldstein and tell him to watch his potty mouth and his tactics. One particularly dirty Goldstein post would be all that McGavick would need to prove his point about trying to run a clean and above board campaign against a barrage of Nutroots Profanity.
Posted by: Jeff B. on August 14, 2006 09:58 AMPosted by: Jimmie-howya-doin on August 14, 2006 10:27 AM
as for Maria, time for a change; anyone see her & Peppermint Patty acting decisively & boldly to protect us in a terror plot here in WA? yea, sure;
Posted by: Jimmie-howya-doin on August 14, 2006 11:39 AM1. McGavick signs deal, gives word, that if he leaves he gives up any money from options.
2. McGavick quits.
3. Safeco says if you work part time for a month or so, we'll reinstate all the options you have lost.
4. McGavick says yes.
(Note, this is the most McGavick scenario possibl...assuming he didn't encourage the deal).
Translation: The man has NO ethics. He gives his word and then does a side deal to avoid having to follow through on his word.
Plain and simple. No ethics. Is this the kind of guy we want in DC representing us? His word is absolutely worth nothing (this whole payment excersize has shown that to be the case).
Now, I'm sure you'll accuse me of being a left-wing nut or a hypocrite or both. And some will talk about Democrats who have publicly demonstrated unethical behavior (there are a lot of them).
However, I truly hope at least one of you will respond intelligently regarding the demonstrated lack of ethics Mr. McGavick has shown publicly and how that's a bad thing for a Senator.
Posted by: Ray Burt on August 14, 2006 01:46 PMIf you were presented with what you said happened to McGavick, would you turn it down?
Honest now, don't lie?
I would take it in a heartbeat.... It's not about ethics, its about BUSINESS.
If he stole the money, hid the money in a coffee can and went back and got it then that is unethical.
I am a proud Safeco Shareholder, and I AM .GRATEFUL to McGavick for saving my hard earned investment
Posted by: chris on August 14, 2006 02:26 PMyou seek pure ethics and untouchable credibility? look no further than WA's native tribes and their business dealings, methods and lobbying; you think all is noble under the shaman's hut? (insert drum beats here)
Posted by: Jimmie-howya-doin on August 14, 2006 02:38 PMIf you really want to talk about ethics I'm sure you'd agree it's important to include all facts and circumstances in the discussion. Any intentional omission could be considered dishonest or possibly unethical.
There is a significant omission in your summary of events which leads you to the conclusion that McGavick is unethical. An honest mistake?
You failed to mention the additional two year extension of the non-compete agreement. Have you considered what's reasonable compensation (fair market value) for a Fortune 500 Company CEO giving up his livelihood for two additional years? That wasn't in the original deal and they don't come cheap.
Your use of the term "side deal" is not an accurate portrayal of the circumstances. A side deal is a mutually beneficial agreement made between two people aside from an agreement negotiated by them on behalf of the parties or organizations they represent. There was no side deal.
OK.. you went too far with the crack about condo assoc boards... (I'm on one).
Some call it micro-managing, I call it enforcing rules that you signed up for when you bought the place, or have been put in place in open meetings.
The alternative: the Obliviots and the SelfImpor-Tants rule. I could tell you stories...
cheers, Mike
Posted by: Mike in America's Vancouver on August 14, 2006 06:56 PMmy slam was pointed at pinheads who sign on and then use the board to roadblock every sensible or difficult decision to display their own "power stiffies;" i'm suire you know the type; same with local gadflys at city council meetings; i resent this type of 'citizen participant' who pizzes & foams over minor things; nothing (especially a rule) is perfect;
Posted by: Jimmie-howya-doin on August 15, 2006 10:31 AMMany corporate CEOs have compensation or severance packages that are, in MY opinion, too generous. But that's MY opinion, and I don't sit on any boards. That highlights a difference between conservatives and liberals. A conservative has an opinion but doesn't want to impose it on everyone else; a liberal has an opinion and immediately wants it enacted into law, to force everyone to live by laws they they make up on the spot, and subject to their whims.
Posted by: Obi-Wan on August 16, 2006 06:43 AM