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Friday, September 2nd, 2011
ultimate measure

Bank of New York Mellon (BK) got rid of its chairman and CEO, Robert Kelly.  OK, he left by “mutual agreement.”

In Bloomberg Businessweek, RBC analyst Gerard Cassidy was quoted as saying, “The stock price is the ultimate measure of a CEO’s job, and the stock hasn’t done well.”  You can probably guess from my last pix regarding Hewlett-Packard that I think that can be a misguided notion.  In the name of “shareholder value” many bad corporate decisions are made.  (One of these years, this topic will get the full treatment on the research puzzle.)

So, I went to look at how the stock has done, since it’s the “ultimate measure.”  Typically, a stock is judged versus the market, its sector, and comparable stocks, in this case State Street (STT) and Northern Trust (NTRS).  The chart starts when BNY and Mellon got together in July of 2007.

NTRS has been the winner since then, with STT and BK neck and neck.  The returns are all found between those of the market and the gruesome financial sector.  You can draw your own conclusions about what the stock is “saying” about company performance.

But wait.  According to Bloomberg, the value of Kelly’s compensation plan for the last four years has been over $70 million.  Haircut that a bit for some options that are underwater and it’s still a nice chunk of change; we’ll see how it all totals up after the severance package is made public.  Where was the concern about Kelly’s (= the stock’s, so they say) “performance” before now?

More broadly, if a stock is the ultimate measure, when is it applied?  How?  Let’s just say it’s no science and all art these days, with the CEOs veritable old masters at painting pictures that make themselves look good.

Have a great Labor Day.  File this one under “Nice Work if You Can Get It.”  (Chart:  Bloomberg terminal.)