Online NewsHour: The Ownership of AT&T

AT&T: Whose Company Is It?

April 29, 1996
TRANSCRIPT
Earlier this year, AT&T's executives broke the nation's telecommunications company into three parts and announced layoffs in the tens of thousands. CEO Robert Allen and AT&T's other top officers said the layoffs were necessary to ensure the company's future and stockholders' profits. NewsHour economics correspondent Paul Solman reports on how those same stockholders responded during AT&T's annual meeting this month.
JIM LEHRER: Now, who owns the American Telephone & Telegraph Company, otherwise known as AT&T? There is more than one answer. Our economics correspondent Paul Solman of WGBH-Boston reports.
PAUL SOLMAN: In March, we chronicled the downsizing of AT&T and specifically Travis McElyea's last day at work. After twenty-eight and a half years on the job, he epitomized for us the larger story or restructuring corporate America and the phone company's January 2nd announcement that it was eliminating 40,000 people. Just 18 months shy of retirement, Travis McElyea was one of them.
TRAVIS McELYEA, Former AT&T Employee: I am angry that the company does not treat this as a business failure.
PAUL SOLMAN: That they can somehow get away with that, you mean?
TRAVIS McELYEA: Yeah, and, you know, I'm angry that, that Wall Street rewards it. Downsizing is treated as a tough decision, perhaps even a macho decision, that managers make, instead of a business failure.
PAUL SOLMAN: McElyea was angry at Wall Street because when AT&T restructured and then downsized, its stock went up by 15 percent. To McElyea, that rise benefited shareholders and CEO Robert Allen, whose pay is tied to the stock price, at the expense of employees like him, and it revived a complaint that's becoming common this political season, that America's supposedly great companies should show more consideration for the many people with a stake in them. The complaint is the stakeholder, such as employees, customers, the community the firm is based in, are often sacrificed to the shareholders and the expectations of the stock market. Labor Secretary Robert Reich.
ROBERT REICH, Secretary of Labor: (February 26) Does a company have obligations responsibilities beyond the bottom line? Does a company owe anything to its workers, its workers' families, the communities in which it does business. Managers who balk at executing the judgments of the market may fear with some reason that they will quickly face their own day of reckoning. And yet, I want to suggest to you that this restricted vision of stewardship may be ultimately disastrous for this country. And it may ultimately harm American business.
PAUL SOLMAN: But tell that to corporate America's top managers, themselves, or this spring to the managers of AT&T, who held their obligatory annual meeting this year in Miami to report the firm's fortunes to its shareholders.
SPOKESMAN: Welcome to the 111th annual meeting of AT&T's share owners.
PAUL SOLMAN: In their minds, AT&T's corporate stewards have just been doing their jobs in the fast-changing world of telecommunications. It costs a fortune to keep up with new technology, so there's a huge investment to be made to stay ahead of the competition.
RICK MILLER, Chief Financial Officer, AT&T: In order to attract that investment, we need to earn profits so that the investors are getting a return on their investment. If the businesses are not allowed to be profitable by configuring themselves to be more productive with in some cases it might be fewer people, in other cases, hopefully it will be more people.
PAUL SOLMAN: And that's what this is all about?
RICK MILLER: Well--
PAUL SOLMAN: The layoffs, the restructuring and so forth?
RICK MILLER: Well, I think it's an important part of that, but that helps us to be more efficient, to produce better returns on the investment which will attract capital to AT&T, which then allows us to employ more people.
PAUL SOLMAN: Rick Miller is the chief financial officer of AT&T. The theory he subscribes to is that he works for the rightful owners of the firm--its shareholders. They, in turn, elect members of the board of directors here at the annual meeting to look out for shareholders' interests. Finance Professor Robert Glauber has served on various boards.
ROBERT GLAUBER, Harvard University: What I teach in class and what the law says is directors are supposed to act on behalf of the shareholders. Directors are really very straightforward and simple people. They can only make decisions that are in the interest of one group, and if they focus on that group, they'll do that well. If you ask them to focus on a whole bunch of different stakeholders, they're going to get it wrong.
PAUL SOLMAN: In fact, Glauber argue, managing strictly for the shareholders addresses an age-old issue of corporate capitalism.
ROBERT GLAUBER: The problem was that you had corporations owned by a large number of shareholders, none of whom could reach out and control the senior management.
PAUL SOLMAN: Managers weren't doing what?
ROBERT GLAUBERS: Managers were doing whatever they thought they wanted to do, building big empires, riding around in big limousines. The idea was directors are supposed to keep an eye on management, make it accountable to the shareholders.
PAUL SOLMAN: In the 1980's, this idea was seen as a reform. Boards of directors like this one at AT&T finally forcing top management to perform for shareholders, instead of for itself, and one way of doing it was by tying compensation to stock performance. But the reform has led to a new controversy. CEO's like AT&T's Allen now benefit directly when the bottom line is improved by letting employees go. And at the annual meeting, Allen's compensation, some five to sixteen or more dollars, depending on how you value his stock options, was the hot topic.
ED FEIGAN, Teamster Pension Fund: Yes. My name is Ed Feigan. I'm representing the Teamster Pension Fund. And, Mr. Chairman, I rise to object to the election of each of these board members. Simply put, each of these board members has failed in their basic task of deciding your pay.
IRVING LUTZ, AT&T Stockholder: I'm wondering about your confiscation of $20 million a year in salary and stuff.
EVELYN DAVIS, AT&T Stockholder: The timing about the bonus from you, how come it came right on top of the fact when 40,000 people were laid off? (applause) Why didn't they wait till things were cooled down at least? (applause)
PAUL SOLMAN: CEO Allen responded by defending himself, his board, and their restructuring of AT&T.
ROBERT ALLEN, Chairman & CEO, AT&T: If you, as share owners, don't benefit, I don't benefit, and when we get to the other issue that's had a good deal of mis-reporting, and I'd like to clarify it, it goes to the options that were awarded to me and other senior officers by the board late last fall. They were options that today have no value, absolutely none. They are not worth the paper that they're written on. But they do have an incentive for all of us at the senior level to be sure that this restructuring, this transition is successful on behalf of AT&T's share owners and its employers. And the way they do this, if the stock price goes up, you benefit, the stock prices goes up, I benefit.
PAUL SOLMAN: To understand what led to all this, you have to go back a few months to the much-publicized downsizing and the trivestiture that occasioned it. The trivestiture was a radical move. AT&T would split itself into three separate companies: the new AT&T, which will supply phone and other communication services, Lucent, which will manufacture communications equipment, and NCR, the computer company. The trivestiture announcement boosted AT&T's stock 10 percent and led to the downsizing announcement which drove the stock still higher and which Allen still defends.
ROBERT ALLEN: Putting off the inevitable, given the dramatic changes in our industry, would only lead to weakness and more draconian steps later. So I am convinced that some downsizing was necessary to protect the jobs of the 270,000 people who will make up the three new companies. That didn't make the decision any less painful for me personally.
PAUL SOLMAN: At an AT&T job center in Boston, we assembled a group of former employees. They think that a system of pitting shareholders against them, the stakeholders, is simply short-sighted.
CHUCK MITCHELL, Former AT&T Employee: If all of your employees could walk out tomorrow, what's the value of the corporation? What do the shareholders have? Nothing.
TONY SCARSCIOTTI, Former AT&T Employee: I think what happens today is the shareholders are dictating to the company what they want, and they want more money, and they want it now. They want it fast.
PAUL SOLMAN: To its critics then, AT&T has been playing to the short-term thinking of Wall Street, and the company's recent downward revision of the originally 40,000 downsizing figure has fueled their suspicions. Even Rick Miller thinks the company may have gone too far in its efforts to show shareholders it meant business.
RICK MILLER: If we, if we knew the way it was going to come out, we would have fought a lot harder about the way that we, we made the announcement.
PAUL SOLMAN: You could have maybe gotten away with announcing, announcing less.
RICK MILLER: Last week, I met with a group of my peers, CFO's from other large companies, and one person in the room asked the other CFO's if any of them were going to undertake a major layoff or a major restructuring charge this year, and, umm, everyone in the room said, no way, that, that even though they had things to do that were important to their company, that they were going to do it in ways that were small and disguised, as opposed to making the grand announcement.
PAUL SOLMAN: For their take on the shareholders' stakeholder debate, we turned to the former AT&T employees. Who do they think the firm should be run for?
KIM BERTRAND, Former AT&T Employee: I think if you run a company for its stakeholders, the community, the people, the employees, that out of that grows the reward to your shareholders.
TONY SCARSCIOTTI: I'm a stakeholder. I'm here doing the best job I can to make sure that the shareholders are getting what they need.
PAUL SOLMAN: Not surprisingly, this is a group of former AT&Ters. A trio of new recruits had a different response.
UNIDENTIFIED MALE EMPLOYEE: I think the shareholders. I mean, they're the owners. It's their money.
UNIDENTIFIED FEMALE EMPLOYEE: Shareholders, yes, because we have to turn a profit, we have to keep them happy.
SECOND UNIDENTIFIED MALE EMPLOYEE: I believe I would have to go with the shareholders.
PAUL SOLMAN: But perhaps the ambivalence isn't just a matter of having a current job at AT&T. More than 10 percent of the company's stock is owned by its employees, both past and present. They are stakeholders in one sense, shareholders in another.
BOB MORSE, Former AT&T Employee: I'm an AT&T shareholder also, but I got nervous awhile ago and thought it peaked around, uh, in the 60's, so I, I sold half of mine.
PAUL SOLMAN: So you're a short-term shareholder too?
BOB MORSE: You bet. I was a shareholder 20 years ago. Okay. But I would have said that if you have a sustained growth above a certain part of your business plan, 7 or 8 percent, that's fine. Now, it's getting to be 12, 15, 20 percent, and, and the five-year business plans we used to do just nobody does anymore. We're lucky to do an annual one.
PAUL SOLMAN: But the reason you no longer have five-year plans is because shareholders like you are dumping the stock if it's not doing well, is that right?
BOB MORSE: That's, yeah, that's exactly right. You've kind of got us all.
PAUL SOLMAN: I caught them all. Well, that may not actually be so surprising because I'm one of them. My family investing strategy crafted right here in this office is about as passive as you can get, but through stock pension purchases at work, my wife wound up with a few hundred shares of AT&T. So we're AT&T shareholders, as surely are some of you. In fact, a great many Americans own some stock, either directly or indirectly, through a pension plan say, and are thus shareholders, and almost all of us in one way or another are stakeholders. So, in a sense, the shareholder/stakeholder debate is not in the stars but in ourselves. And so long as we, the shareholders, demand rising returns, we, the stakeholders, will feel rising pressure.

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