The Marxist Rhetoric at Siebel Shareholders' Meeting

Shareholder meetings are typically dry affairs. Auditors are approved, directors elected and resolutions adopted in mechanistic format closer to ritual than spectacle. For anyone who has actually had the good or bad fortune to attend one of these meetings, they usually hold all the drama of watching a stranger get a haircut or renew a driver's license.

This year's Siebel Systems' shareholder meeting was much more exciting than most; it provided the forum for a public debate into the nature of capitalism.

This happened because certain institutional investors, including the College Retirement Equity Fund (CREF) and the American Federation of State, Municipal and County Employees (AFSCME) Pension Plan, have targeted Siebel Systems in their campaign to reform corporate governance. Although Siebel Systems is not alone in this regard (over 100 companies have been asked to consider similar resolutions from their shareholders), the company's generous use of stock options, its combative reaction to the proposals and Tom Siebel's role as a public lighting rod made Siebel Systems' annual meeting a test case.

On the surface, the drama revolved around the equally abstract Stockholder Proposal Regarding Equity Policy and Expensing of Stock Options proposals, both of which dealt accounting issues. The first would have required Siebel Systems to clear certain performance hurdles before executives received options. The second proposal would have recorded the cost of issuing employee stock options as an expense, rather than as a footnote in the financial statements.

Below the surface the drama revolved around who controls and who benefits.

Both resolutions were controversial among Siebel management because they would have sharply limited management's ability to use the option carrot alongside the many sticks in place to motivate employees. So the company fought hard to prevent the resolutions from being considered in the first place.

Both sides claimed the moral high ground by contending they best represented the interests of everyday working people.

"This is perhaps one of the few companies on the planet where the workers own the means of production," said Tom Siebel. "It's been kind of a Marxist dream in capitalist clothes."

"I am glad you are taking good care of your workers," responded Charlene Shores, president of AFSCME Local 829 and treasurer of Council 57. "But remember, there are a lot workers out there whose retirement systems are heavily invested in stocks, including your stock."

Yet the vote itself proved anti-climactic, with 62% percent of the shares being voted against the equity policy proposal and 65% against expensing stock options.

Part of the reason the resolution did not pass is because Siebel Systems is a stronger company now than it was in March 2000 in every respect - save one. The company is now worth $5 billion dollars in the market's estimation, it has $2.2 billion in cash, is the second largest application software company in the world and the largest application software company in the United States. The one exception to this strength: in March 2000 the stock was trading at $120 dollars a share; now it is trading at $10.

Voting results aside, many of the stockholders' attacks were aimed personally at Tom Siebel, who realized $311 million in stock option gains from 1999 through 2001. This, the AFSCME estimates, means he has received about 7,500 times the average worker's salary.

Does Tom Siebel deserve such extraordinary compensation? I would argue that Siebel Systems is largely the result of Tom Siebel's extraordinary vision and drive and he does deserve this compensation. Tom Siebel's accomplishments are on a scale similar to those of Michael Jordan or Madonna, with arguably greater social benefit. Yet no one stands outside Jordan's or Madonna's events in pig's noses protesting their compensation.

Through Siebel Systems, Tom Siebel has created wealth and employment for thousands of individuals and put food on the table of many families, including my own. And the greatest period of his benefaction may lie ahead. The millions he has received in salary, bonus and stock may someday finance a great university, or fund the cure to a disease that now plagues millions. Although I would not agree with everything he has said or done, taking the larger perspective, Tom Siebel has clearly given more to the world than he has taken.

Since he has been such an extraordinarily productive person (Siebel Systems' return since the IPO is 1,100%), Tom does not make the ideal poster child for unfair corporate compensation. This is underlined by the fact that Tom's annual salary and bonus for the past two years have been $1 and he recently surrendered $56 million in stock options. Tom Siebel has felt the pain of the last few years.

At this point, Tom Siebel must be wondering why he ever took his company public in the first place. Since he funded it himself and has made little use of the money raised by the public sale of shares, Tom Siebel could now be sitting on a cool $2.2 billion in cash and be spared lectures by irate shareholders who can not even pronounce his name correctly.

Outside the meeting a handful of demonstrators, some in plastic pig's noses, chanted, "Tom Siebel, rich and rude. We don't like your attitude!" in somewhat anaemic protest.

Yet the pain reflected by the protesters is real for many. For millions of Americans, hopes of economic security are slipping away as businesses fail and jobs go overseas. From its height, Siebel stock has lost some $50 billion dollars in value - money that people were counting on to fund their retirements. For those who lost it, asking what happened to that money is a legitimate question. Yet it should be clear to any objective mind that Tom Siebel is not the person to hold responsible. It was not his compensation that caused the price of the stock to go down. Yet if Siebel Systems is not being run for Tom Siebel's personal benefit, then who is the company being run for? Is it specially being run for customers, employees, investors, partners or for the general social good?

Ideological boosters like to point to the tremendous ability capitalism has to create jobs, careers and reward individual effort. The equally tremendous ability capitalism has to destroy wealth, careers and lives is not so often touched upon. Capitalism is a mediocre economic system at best. The most that can be said in its defense is that it is the best system any society has been able to devise so far.

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