The Kraft acquisition of Cadbury provides a vivid illustration of why the US model of screwing workers to preserve executive bonuses does not go over well abroad.
Brief synopsis: Kraft acquires the 200 year old British confection-maker Cadbury after a heated battle. The chairwoman and CEO Irene Rosenfeld (already not a good sign, best practice is to separate the two roles) was awarded a 41% pay increase, bringing the total to $26 million for 2009 for her “exceptional role” in the Cadbury transaction, as well as her “commitment to fiscal discipline.
Huh? Doing deals is part of a modern CEO’s job. Unless her role was SO exceptional that it saved Kraft several million in deal fees, this just looks like a trumped up excuse. It is far too early to tell if the Cadbury acquistion was a good deal or not, thus special bennies look mighty unwaranted.
Indeed, the board looks like is was snookered (as in how would they know how “exceptional” her role was? Those reports would only come from her or staff and advisors loyal to her; teh board most certainly not involved enough in transaction details to have an informed view.
The press is blandly reporting Kraft party line on a monumental stuff up. From the Financial Times:
More than 3,000 Cadbury employees face a three-year pay freeze unless they opt out of the confectioner’s final salary pension scheme.
New owners Kraft Foods, the US food group, has told 3,600 staff that they must accept a pay cap after it discovered an obscure clause in Cadbury’s pension trust deed that makes it almost impossible to close the scheme.
Kraft did not know about the clause, which is at least 30 years old, until after it acquired Cadbury for £11.6bn ($17.6bn).
A person with knowledge of the Cadbury pension fund said he did not know why such an unusual clause existed, but it could be linked to Cadbury’s Quaker heritage and its doctrine of giving a fair deal to staff and suppliers. Kraft is forcing employees to accept a pay freeze because it believes this is the only way it can get its future retirement costs under control. “The scheme is unaffordable going forward,” said one person involved.
Yves here. Can you parse the bullshit? That “obscure clause” nonsense is a “the dog ate my homework” level excuse. Due diligence includes a review of material contracts. A pension is a major contract and would get a lot of attention. Someone on the Kraft team made a colossal error, and is trying to shift blame in a ham-handed fashion.
And “the scheme is unaffordable” is a plain lie. Kraft can afford it, it simply does not want to pay it. But Kraft is quite comfortable with lying, unethical behavior is clearly how they do business:
Kraft came under fire from British workers over its broken promise to save from closure the Somerdale factory in Keynsham, Bristol, thereby safeguarding 400 jobs
Reader M.P., a retired money manger who ran a top-rated fund noted:
So Kraft did not do due diligence and now it wants to play dirty. Is it any wonder that American finance is now despised everywhere, even in the U.K!
Yves here. So welcome to 21st century capitalism, where management never has to admit, much the less bear the consequences of its errors. Just take it out of the hide of the little guy.