Continued from page 1
Of course, let's not forget
very well-documented hiring (and very public exiting) of Michael Ovitz, who after eighteen months as President of The Walt Disney Co. (on a multi-year contract) left with over $96M in compensation and stock options - a matter that became a very public battle last year when stock holders took Disney to court over this enormous payout to Ovitz). Think about it - this works out to about $533,000 a month, or maybe only $213,000 a month after taxes. Not bad for eighteen months' work, if you can get it.
Today, more often than not, this is something contractually sanctioned by corporation. It's destructive, I believe, because as we've seen over and over, especially in last four years in other industries, consequences of these types of compensation packages DO NOT promote any sense of commitment, devotion or loyalty to a company, its growth, financial well-being or even in most extreme cases (e.g. Worldcom, Enron) its very survival.
So what could possibly be primary reason corporations continue to do this? It's driven, we believe, by a core yet completely misguided fear that no one else is capable of doing job -- NO ONE!! Consequently, these executives have to be given whatever they ask for! Nothing reflects this mentality more clearly than often-obscene severance packages you see CEOs carrying away when leaving or being fired from a company.
A further manifestation of this mentality in business is reflected in hiring of same CEOs and executives over and over again regardless of their track records or past performance levels. As we always say, "the names in this business never change, just addresses underneath them."
This practice of rotating top executives further creates very powerful perception that there are very few people who can actually do job. In 25 years of being in this business, we've never believed this, yet this deeply held belief is very difficult to change, especially at highest levels of a company.
A few years ago at a party, I asked a CEO of a major label why this practice seemed so prevalent at top executive levels of music & film industries and response was astounding. He said, "What you have to understand about decisions to hire executives at that level is that very often boards of company hiring them are much more comfortable with someone who's already had position and done job regardless of their past track record than someone they don't know regardless of their ability!"
It was a sobering statement to say least from someone who really understood this process and mentality that goes into these choices. It also provided real insight into why so few companies today have any executives that go up all way in ranks. There are a few, such as Jason Flom, Sylvia Rhone and Jordan Katz, but not many.
So, question in boardroom today needs to be, "How can we inspire a level of dedicated commitment and accountability in our top CEOs to grow company we've made consequences of failing so financially lucrative?"
In this day and age, when so many of our firmly held beliefs about way things are in music industry are continually being broken apart and we're repeatedly being challenged by brutally sobering new financial realities in post-merger major label world now emerging: (Viacom's $18 billion decrease on their radio station valuations; Sony and BMG merging their recorded music operations worldwide; fracturing of powerhouse NYC law firm Grubman, Indursky & Schindler, once one of largest and most powerful law firms in music business, who recently had one of its name partners, Paul Schindler, depart to a competing law firm as well as laying off several attorneys), it's a very powerful statement of just how out of touch and destructive corporate values like financial compensation packages at Warner Music are to even their own financial well being and survival.
The tragedy, and I use classic definition of tragedy as "a fall from greatness due to an unseen flaw in one's own character," (and labels truly don't get much greater than Warner Bros., Elektra & Atlantic, historically speaking), is that leadership at Warner Music Group in most profound sense just does not get it! They truly don't see it. They still believe, "this is way our business needs to be run."
This isn't so much a case of "corporate greed," but rather something that has become much more pernicious, especially in last ten years, and that's this pervasive mentality of "I truly don't care as long as I'm taken care of." The Enron & WorldCom scandals are absolutely classic text book examples of this mentality on a grand scale in every respect!
As Bob Lefsetz, a leading music industry consultant and writer so aptly said recently, "To be this out of touch is to demonstrate you should not be running this enterprise." And in a creative industry like music that has always thrived on innovation (radio, TV, CDs, Internet, iPods, satellite & internet radio), and in a time where such rapidly developing and emerging technologies are creating dramatic changes in culture at an alarming pace as well as creating incredible opportunities and challenges, what great artists starting their career in music would want anything to do with a company that cares more about itself and its own survival than it does about artists and music on label?
Is it any wonder Major Labels Market share continues to stagnate? Or that their ability to break new artists has reached an all time low? This is exactly why major labels in their current state have no future in this New World Order. If they are to be a part of it, they're going to have to reinvent themselves in a completely new way that reflects world and times we live in today, not some fantasy of past.
In closing, I'm reminded of a quote that a brilliant man named Breck Costin once said: "Always remember that your fantasies have to die before your dreams can come true."
Ritch Esra 818-995-7458 ritch@musicregistry.com
Ritch Esra is the publisher of the Music Business Registries.
