Mark Cuban is a maverick businessman who earned nearly $6 billion during the dot-com boom, cashed out before the bust, and used the money to buy a basketball team — the Dallas Mavericks, appropriately — and spend the next decade earning a reputation as the bad boy of the exclusive club of NBA team owners. Oh, and he also took time out last year to compete on ABC’s “Dancing with the Stars”. (Yes, that link will take you to video. Enjoy.)
He also maintains a blog called (take a guess) “Blog Maverick” where he holds forth on whatever issues he happens to be agitated about on a given day — usually, the incompetence and/or stupidity of various personages around the league.
This week, though, he’s using his blog to float a modest proposal for how to prevent future stock market meltdowns like the one we’re experiencing this week:
There is one major problem on Wall Street, that until solved, will result in meltown after meltdown in future years. I can’t say if the meltdown monkey will hit every 2,3, 5 or 10 years. But I can say with certainty that it will happen again. Why ?
Because Risk and Reward have been decoupled for CEOs on Wall Street…
Lets say you run Country Wide Insurance. You get the housing market plumped up, during which you sell $414mm dollars worth of stock, and then watch as it spirals out of control because you lent money to anyone with a pulse, and probably to some without. Your punishment ? A $110mm payday. Oh wait, he had to give some back. Sucks to be him doesn’t it…
Which is exactly why we need to re-establish a link between risk and reward in public companies. The first step should be the following law:
If the government must step in and provide any sort of financing or guarantees for any part of a public company’s business, then all officers and directors lose all rights to severance pay and all outstanding vested or unvested options or warrants immediately become canceled…
And what about the CEOs that just screw up companies, but not to the point of federal bailouts? You cant protect against hiring a bad CEO. It happens. You can pass a law saying that officers and board members can’t be paid in stock. Let them take their cash earnings and go on the market and buy stock or options like everyone else. Putting their own cash money on the line will create a link between the risk and the reward. They will be in the same boat as every other shareholder. It’s their money on the line.