CorpComms Magazine

It was supposed to be the sun-drenched Polynesian holiday of a lifetime - but it didn't quite work out like that. When the controversial media mogul Conrad Black took his wife Barbara Amiel to the palm-fringed island of Bora Bora, the couple had something of a trip from hell.

The pair arrived in the middle of a dengue fever outbreak. Black went down with bronchitis and almost drowned while attempting to snorkel. In a subsequent email to a friend, he complained that he and his wife felt like 'geriatric freaks' among their youthful fellow revellers.

To cap it all, the former Telegraph owner was later charged with defrauding shareholders in his Hollinger media empire for using the public company's corporate jet for his journey to the South Pacific. Hollinger's financial controller put the cost of the trip at $565,326 (£284,907).

During Black's recent trial in Chicago, the issue of executive extravagance shot to the top of the corporate governance agenda. But at what point do reasonable boardroom 'perks' cross the line into criminal behaviour? And just how zealous are boards of directors when it comes to policing the excesses of their own members?

Perking up

In the US, the issue is a hot one. The US financial regulator, the SEC, has tightened its rules on the disclosure of perks. Since December 2006, US companies have been required to tell investors of all executive benefits if their aggregate value is more than $10,000 - a massive cut from the previous threshold of $50,000.

The floodgates have opened: newspapers in every US city have been scrutinising the newly required disclosures of their local companies - and delivering entertainingly juicy nuggets to readers. The Denver Post, for example, questioned whether shareholders in a local oil company, Bill Barrett Corporation, should really have footed the bill for a $16,683 watch and a $7,000 painting on the retirement of the company's chief executive. And how did EchoStar's boss, Charlie Ergen, rack up $821,771 of personal flight time on the satellite television company's plane?

The Atlanta Journal-Constitution was curious about $320,000 of perks incurred by the boss of Coca-Cola, which included a plane, a car, a driver and lashings of personal security.

Meanwhile, in upstate New York, the Buffalo News informed its readers that battery maker Greatbatch had paid $43,271 for college tuition, text books and laboratory fees for the family of senior vice president Susan Bratton under a higher education programme. 'The new disclosure rules mean compensation committees will have to think long and hard about whether they can justify a benefit as a genuine business need,' says Don Lindner, an expert in executive rewards at Arizonabased consultancy WorldatWork.

In the general scheme of things, perks can seem minor footnotes to a seven-figure pay package. But they have a tendency to stick in the public mind - and to add disproportionately to an impression of excess. For example, the disgraced Tyco boss Dennis Kozlowski was responsible for many aberrations - but he has truly gone down in corporate folklore for spending $6,000 on a gold and burgundy, hand-made shower curtain funded as part of a 'relocation' package.

It's off to work we go

One enduring bone of contention in the perks world is the question of commut ing. Ordinary mor tals ar e expected to foot the bill for travelling to work - so why are chief executives sometimes treated differently?

Marks & Spencer paid for its former chairman Luc Vandevelde to stay at the exclusive hotel Claridges, where suites cost £675 a night, for half of every week in a deal that allowed him to spend the rest of his time with his family in Brussels and Tuscany.

There might be an argument for such an arrangement with a foreign national on a part-time contract. But what about Dow Jones' chief executive Rich Zannino, who lives in Connecticut and works in Manhattan? A delegation of distinguished war correspondents at the Wall Street Journal pointed out in April that the company was paying $667 a day - or more than their total salaries for dodging bullets in Iraq and Afghanistan - for Zannino to travel to work in chauffeur-driven style.

Lindner says remuneration committees need to think carefully about such offerings. 'The question is: how does this particular benefit support our business strategy?' he says. 'What does this do to keep our CEO in place and make him or her more productive?'

Ford has gone even further: it allows the wife and children of its new chief executive Alan Mulally to use its corporate planes for their own personal trips - even without Mulally on board. A Ford spokesperson says this concession, which cost $172,974 last year, allows Mulally to 'remain on the job while his family travels to meet him'.

This is pushing it, says Lindner. 'Whether that makes business sense or not is a very difficult call,' he comments. 'Paying for someone to spend more time with his or her family - is that really the firm's responsibility?'

Living the high life

 Member ship of count ry and golf clubs has also become an issue. Two years ago ExxonMobil footed a $67,035 membership bill for its then chief executive Lee Raymond. The argument posed by companies is that business is frequently transacted in the informal surroundings of a rural retreat. Just as the British taxpayer pays for the prime minister to entertain at Chequers, runs the argument, surely senior corporate bosses should have somewhere to meet contacts in peace?

In the UK, standards tend to be more austere. The corporate jet, in particular, has always been a bone of contention, with rows over executive air trips dating back to the 1990s. During a bitter takeover battle, Sir Gerry Robinson, the former chairman of Granada, held up the private jet of hotels group Forte as a symbol of founder Sir Rocco Forte's alleged excess. And in 1995 tough questions were raised about why struggling Shoprite had two private planes registered on the Isle of Man.

At its peak, pharmaceutical giant Glaxo Wellcome had four jets to its name. The London Stock Exchange took a battering in 2005 for chartering an aircraft to carry 11 guests to and from Gloucester for a day's entertainment at the Cheltenham Gold Cup - even though, it maintained, the price was barely more than the cost of first-class rail tickets.

Then there was the cash-strapped drugs firm Cortecs, which funded helicopter lessons for its chief executive Glen Travers to help him travel between offices in London and North Wales. He also got a £42,000 membership of a millionaires' bonding organisation called the Young Presidents' Club. Nobody really cared until the firm hit financial trouble - at which point, Travers was hung out to dry.

The former boss of the Tomkins conglomerate, Greg Hutchings, had use of two London apartments during his tenure, one in Belgravia and one on the South Bank. The company boasted four corporate jets and a four-seat box at the Royal Albert Hall worth an estimated £80,000.

Prevention policies

So where do professional bodies stand on the issue? The Association of British Insurers is tight-lipped over its policies on corporate aviation. 'We expect perks to be taken into account by remuneration committees and disclosed as appropriate,' says spokesperson Erfan Hussain.

At the corporate governance consultancy PIRC, spokesperson Tom Powdrill says: 'Arguably, you could say using a corporate jet for business purposes is reasonable. But using it for a family trip - what benefit are shareholders getting from funding that?'

In the travel industry, free holidays are not unusual. For example, MyTravel, which was recently bought by Thomas Cook, provided 'product review allowances' of £25,000 annually to its chief executive Peter McHugh, and its UK managing director John Bloodworth. This helped them to 'purchase and review other suppliers' products and services to facilitate market research and comparisons with group products'.

Making a move

Relocation can be another contentious issue. The retailer Kingfisher took severe heat f ive year s ago over £334,000 in expenses paid to help its then finance director Helen Weir move some 40 miles closer to London. When he joined BT five years ago, chief executive Ben Verwaayen received £200,000 to help move from the US to Britain - plus a £250,000 annual allowance for his new home in Surrey.

Consultants are reluctant to set hard and fast rules. 'The first and fundamental thing is that everything should be disclosed to shareholders,' says Powdrill. 'If something is deemed to be part of the remuneration arrangements for a senior executive, it should be out there. But then it's up to investors to decide what is acceptable.'

On Wall Street, Todd Thomson, the former head of Citigroup's wealth management arm, parted company with the firm in January after a series of clashes about his 'style'. It emerged he had a wood-burning fireplace and a fish tank in his 50th floor office - dubbed internally 'The Todd Mahal' - necessary, you might argue, to impress his client list of high-net-worth individuals.

As seems so often the case, however, it was Thomson's use of the firm's corporate jet that proved to be his downfall. Returning from a business trip to China, he offered a lift on the plane to Maria Bartiromo, a CNBC business anchor known as the 'money honey'. CNBC paid Citigroup the equivalent of a first-class business fare, amounting to $4,000. But the media suggested the cost was far more.

Chief executive Chuck Prince lost his patience and Thomson was dumped in a management reshuffle.

Executive excess

He may have rivals in the freebie stakes but, to many of his critics, Conrad Black is the poster boy for irrational excess. In addition to his Polynesian foray, Black charged shareholders for two thirds of the cost of his wife's 60th birthday party, a star-studded affair attended by Michael Bloomberg, Donald Trump and Dame Edna Everage actor Barry Humphries.

Black also stuffed his New York apartment with antiques at the company's expense, claiming he needed a 'presentable' venue for entertaining his peers. It seemed his guests required a $33,000 Chinese carpet dating back to the 1920s. The cost was reimbursed as part of a deal allowing Black to buy the property cheaply from Hollinger.

Although he was acquitted of illegality related to these 'perks', they did almost as much damage to Black's reputation as his embezzlement of millions of dollars from the sale of businesses. A juror in Black's trial, Monica Prince, summed the problem up rather well, telling the Toronto Star after the verdict that Black displayed an attitude of: 'I'm Conrad Black, I'll take what I want'.

Explaining the panel's decision to acquit on the perks, however, Prince insisted it was simply too much of a grey area. 'It wasn't worth going to jail for,' she said. 'You know, we all cheat and take paper and pencils from the job. Granted, we aren't flying to Bora Bora

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