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A Call for Accountable Development at HCDC - By Reilly Morse

Can recent corporate scandals provide any insights or guide us to a solution to the problems at the Harrison County Development Commission?

Shareholders may hold ultimate power as owners, but this power must be exercised by a board of directors elected to represent their ownership.

In the 1990s, many boards failed to exercise their duty to oversee management, and shareholders did not demand oversight either due to indifference or diluted ownership. As a result we saw owner’s capitalism replaced by manager’s capitalism—in which “the corporation came to be run to profit its managers, in complicity if not conspiracy with accountants and the managers of other corporations.”  [1]   As John Bogle, Founder of Vanguard Group put it in a recent speech:

Little good is likely to result when the CEO becomes not only boss of the business but boss of the board, erasing the “bright line” that common sense tells us ought to exist between management and governance.  Put more harshly, in a quote that I came across last spring, “when we have strong managers, weak directors, and passive owners, don’t be surprised when the looting begins.”

What are signs of this “pathological mutation of capitalism?”[2]  Grossly excessive pay increases to CEOs, rising over 400% as average worker pay rose 60% between 1988 and 2000. Executive stock options enabled managers to reap huge gains by manipulating stock price, and options were liberally awarded since they were not treated as a cost in the company’s income statement.

Directors of companies such as Enron, Worldcom, and Tyco approved mind boggling compensation packages and loans to CEOs, many of whom also served as Chairman of the Board. These same directors acquiesced as management, aided by outside accountants, lawyers, analysts, and bankers dragged companies into a quagmire of legal and financial schemes to inflate earnings and stock options values and hide true performance.

Is it really persuasive that blue-chip business leaders did not know what was going on? Did the directors’ personal gains override their duty to the stockholders?

Owners have the ultimate power, and in the 1990s 56% of all U.S. equities was in the hands of the top 100 pension funds.[3] 

With that power came responsibility, yet these professional investors did not stand up for better corporate governance. Either they did not understand what was happening or else they ignored the warning signs that appeared.

As Bogle bluntly puts it, “When the owners of corporate America don’t care about governance, who on earth should care?”

What characteristics did the worst corporate management share? Managers who lorded over the very Directors appointed to monitor management. Management that placed the appearance of success over building corporate value. Extreme cronyism. Contempt for accountability to shareholders. Shredded paper trails. Above all, fealty to the credo of Gordon Gecko, “Greed, for lack of a better word, is good.”

It’s a long way from the excesses of Enron and Tyco to the top of the Hancock Bank Building.  But are there any parallels?

Some critics of HCDC may see in Paige Gutierrez, a former commissioner with the HCDC, an echo of  Sherron Watkins, the whistleblower who divulged Enron’s mismanagement. Both spoke up despite intense pressure not to rock the boat.  Both challenged powerful and ostensibly successful managers.

The portrait of HCDC’s executive director painted by Ms.Gutierrez and others is a strong-willed, highly-paid man who exerts powerful influence over a board of directors eager to share in the perquisites of power and privilege –expensive travel junkets and lavish living. Ms. Gutierrez also describes a leader intolerant of criticism and quick to anger.

Her views have been corroborated by a few other current and former members of HCDC.  Her efforts to inject greater transparency and fiscal responsibility into HCDC’s activities are nothing else than promoting accountable development practices. For this she was “cut from the pack.” Citizens who have attempted  to influence HCDC’s behavior were scorned and ridiculed as soon as they left the room.

Efforts to seek access to public records have been met with hostility, arbitrarily created conditions, and the shocking news that records that were covered by pending litigation were shredded before the Court ruled on their disclosure.

A court recently has concluded that HCDC willfully violated the Public Records Act and assessed over $8,000 in  penalty and attorneys fees.

Elected officials who questioned practices of HCDC’s director have been scorned as vengeful inquisitors pursuing a politically motivated agenda of retribution. The arrogance and hostility of this tax-payer supported agency towards the public, towards public officials, and towards the Courts  simply stuns the average person’s mind.

What about Mr. Olivier’s pay?  At $160,000, he is the highest paid employee of Harrison County, earning over 650%  more than the average worker's wage of $24,257. [4]  

In the past, HCDC proposed annual severance pay contributions for Olivier, but the Attorney General advised that such "incentive payments" for services already rendered are unconstitutional.[5] More recently, Mr. Olivier has received "consulting fees" in undisclosed sums from entities funded by businesses he is already paid to promote.

Add the consulting fees, expense reimbursements, taxpayer-funded memberships, and other perquisites,  and Mr. Olivier's compensation easily could top 700% of the average county employee’s pay.

Taxpayers have the right to expect that coveted business incentives are dispensed fairly and in exchange for substantial net public benefit.  Undisclosed “consulting” payments  raise the possibility that a business funnels money to HCDC's director in exchange for his influence over HCDC's endorsements for tax abatements or other favorable treatment.

Mr. Olivier sees no conflict, but the public cannot decide unless the secrecy ends and the potential of a quid pro quo is evaluated.

His disproportionately high salary for a public sector local government employee, his desire to see it increased, and his secrecy about privately-funded supplemental payments suggest that a smaller species of Gecko may have emerged here on the Coast.

In an ironic twist, this endangered specimen has its own chorus of protectionists who complain about invasions of his privacy and efforts to exterminate him.

The difference is that Olivier is a public-sector employee, his  full time business is "the public's business, " and so like any other public official he must accept the scrutiny and criticism along with the authority.

What about performance?  How accurate is  HCDC’s  proclamation of its successes? According to recent news reports,  HCDC has claimed credit for jobs it did not attract, as well as jobs that went to another county. Just as troubling, HCDC has not exerted significant oversight of companies who received substantial tax and other incentives at HCDC’s request.

Finally, HCDC has become embroiled in many more lawsuits than its peers. Accreditation and advanced degrees leave no excuse for careless business practices.

As management is strong, so oversight by HCDC’s  board is weak. Anyone attending the meetings of HCDC will generally see a process that is insular, non-confrontational, and chummy. 

The final piece of the puzzle is ownership.  What historically has been the attitude of those whose tax dollars support the efforts of HCDC?  Indifference and ignorance. Is it any wonder that the Commissioners have a similar attitude?

One significant difference between a publicly traded company and an incorporated governmental agency like HCDC is that Harrison County taxpayers and voters cannot “exit their corporate citizenship [in HCDC] for the cost of a stockbroker’s commission.” [6] We are captives, forced to make annual capital contributions through our tax payments. Our only recourse is to exercise greater influence over the HCDC’s activities.

Since we cannot get out, we should require honest reporting of concrete accomplishments.  We should convince our elected officials to appoint independent and strong-willed Commissioners.  We should require sensible stewardship of county funds.

Above all, we should require a clear division of responsibilities between management and governance to prevent the possibility of undue executive influence over this powerful agency.

[1] John Bogle, “Somebody’s Gotta Keep an Eye on these Geniuses”  What We Must Do to Restore Owner’s Capitalism. http://uwexeced.com/directorssummit/Bogle's keynote speech.htm

[2] Id., quoting journalist William Pfaff.
[3] Id.
[4] The average public sector wage would be lower, causing Mr. Olivier's public sector salary to be proportionately even higher.

[5] Attorney General Opinion Letter November 25, 1998, Docket No. 1998-653.
[6] Bogle, quoting Henry Manne, Dean Emeritus of George Mason University Law School.

Source for Coast average weekly wages: http://www.mscoast.org/county_reference/harrison.html


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About the author: Reilly Morse is a third-generation Gulfport attorney in solo practice. He is a former Gulfport Municipal Judge and Prosecutor and now concentrates on public interest environmental law.
His father, Stanford Morse Jr., served two terms as Senator for Harrison and Stone counties, authored the legislation creating the Harrison County Development Commission, and thereafter served as its
attorney for over two decades.

Reilly Morse may be contacted at mail@reillymorse.com

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