I've been bearish on The Blackstone Group (NYSE: BX) as a public company since before the IPO for two reason: 1) the IPO had all the hallmarks of a classic top of the market cashout for insiders, and 2) the company had poor corporate governance, leaving insider Stephen Schwarzman in what amounted to complete control of everything, with the shareholders at his mercy.
In The Wall Street Journal, George Anders reports (subscription required) on just how much of a corporate governance chamber pot Blackstone is: "Blackstone's top executives set their own pay, without the checks and balances -- sometimes perfunctory, sometimes real -- set up by other public companies."
Blackstone has no compensation committee, so partners Schwarzman and co-founder Peter Peterson make their own pay decisions.
Perhaps this explains how Schwarzman earned $350 million in 2007, in spite of the evaporation of more than $4 billion in market value since the company's IPO in June.
I know that a lot of investors are looking at Blackstone anew now that is dipped down to the $16 per share range. But without good corporate governance -- or any meaningful corporate governance -- I would still be skeptical about the company.
It's also disappointing that the New York Stock Exchange provides a market for companies that are run for their benefit of their insiders, not their shareholders.
Blackstone chiefs pay themselves first
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Reader Comments (Page 1 of 1)
3-28-2008 @ 12:06AM
Michael said...
Zac,
I think your hatred for Blackstone and Shwartzman is blinding you. The millions that Schwartzman got paid were from before it was a public company. while it was public he only got a 350K salary. It is of no business of either the public shareholders or the NYSE what money he took while Blackstone was a private company.
3-29-2008 @ 9:06PM
Chris B said...
Your summary of the WSJ article was wholly incomplete. And since many of your blog readers are probably not WSJ subscribers, they are probably only privy to your out-of-context summary of the article.
Schwartzman only earned $350K in salary in 2007 - extremely low by industry standards. He earned another $350M in incentive payments by successfully reaping gains from investments - gains shared by Blackrock shareholders. But, most importantly, in your analysis, you completely ignore the fact that Schwartzman's equity stake in the company has decreased by some $4B in value. To suggest that Schwartzman's interests are not aligned with shareholders is foolhardy at best, and intentionally misleading at worst! He can make a lot more dough by enhancing the share price than he can through his personal compensation plan (which again is almost entirely incentive-based itself).
I'm not feeling sorry for Schwartzman - but I'm not feeling sorry for shareholders either. Schwartzman's compensation is by no means opaque. Most importantly, he shares the other shareholders' interests in share price appreciation.