Fiduciary Duty by Tim Michaels Page B

few years earlier. Those circumstances alone indicated it was very unlikely that the company was doing the sort of expensive maintenance that telecom cables and switches required. However, there was more than circumstantial evidence that the necessary work wasn’t being done – filings with the Federal Communication Commission indicated that service in the acquired company’s area was consistently poorer than almost anywhere else in the country.
    Part of the problem was, in fact, the highly touted fiber backbone which, it turns out, had a tendency to shatter in the cold winters experienced in the Midwest and the Northeast. The fiber had been purchased from a Chinese company that since gone out of business. The poor quality of the fiber should not have come as a surprise either. Two years ago, after a particularly cold night, a newspaper in Lancaster County had quoted several incredulous linemen saying a quarter of mile of fiber had flat out disappeared, replaced with an assortment of glassy crystals. Similar stories had since appeared in the Bluefield Daily Telegraph, Coal Valley News, Hampton Roads News, and the Lehigh Valley Express-Times.
    Basic due diligence should have turned up these and other problems at the acquired company. But somehow none of that made its way into the executives’ decision-making process.
    When it turned out that M & O had bought a pig in the poke, the next step was obvious to anyone who has spent much time in corporate America: those who had spoken out against buying the pig would have to pay, assuming they had survived the first purging after the merger. The second “purger” was more elaborate. Those targeted got “offer letters” – giving them the opportunity to accept a lower-paying job with less responsibility. Company policy dictated that anyone who failed to accept such an offer might be eligible for a severance package. The offers were made not only to those who had warned against the merger, but to people who had been uncomfortably right on a wide range of issues. In fact, from my vantage point, the entire process seemed to be little more than an opportunity to settle scores.
    But actually, it had all started before the merger. It began with a proxy fight between M & O shareholders over whether the merger should even take place. A former board member had pointed out that the company’s management had a history of overselling the benefits of proposed mergers. The latest proposed merger was the largest one by far. However, nobody had yet articulated a good reason for it, other than increasing the size of the company.
    M & O’s management struck back in the media, labeling the former board member as “disgruntled.” They went on to discuss the cost savings from the merger. In response several of the unions, recognizing that their membership comprised a likely source of much of those cost savings, promptly declared themselves against the merger as well. “Exempt employees” also tended to be against it, but most of them kept fairly quiet about it since they didn’t even have a union to protect them.
    Things got really acrimonious, however, when one of the vice-presidents of a family of mutual funds that was heavily invested in M & O stock was quoted as saying “non-management employees of telecom companies are essentially commodities. There are too many of them, they aren’t particularly skilled and are easy to replace. In fact, our research indicates that in general, non-management employees of telecom companies are overpaid by 22.7%.” He went on to say the merger was a “golden opportunity to pare down salaries and staff to sustainable levels at both companies.”
    The article in the Cleveland Plain Dealer that quoted the esteemed mutual fund VP noted that his own compensation from the previous year was just shy of $2.8 million, despite the fact that the family of funds for which he was an officer had lost 8.3% during the year. A piece in the Akron Beacon-Journal