This isn't to say that an executive's personal use of his or her company's jet(s) single-handedly explains why some banks are less profitable than others. Even if an executive does so regularly, racking up hundreds of thousands of dollars in personal travel expenses, the added costs are bound to be negligible compared to the revenue of a Fortune 500 company. And in most cases, the executives are required to reimburse their companies for the added expense.
Take Bank of America as an example. Its CEO, Brian Moynihan, used the bank's jets for personal use more than any other CEO of a publicly traded company in 2013, racking up $478,545 in expenses related to personal travel. Even assuming he didn't reimburse the company -- which, according to the bank's proxy statement, he did -- that amounts to a mere 0.00053% of the bank's 2013 net revenue.
The issue in a case like this, in other words, isn't the cost per se; it's rather the precedent that an executive's personal use of his or her employer's airplanes sets for the rest of the company. How can a CEO realistically expect the rank and file to run a lean operation if they themselves aren't willing to do so? This is a rhetorical question, of course, because I don't believe they can.
William Thorndike makes this point in his excellent book The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success . A textbook example shared by Thorndike was the 1986 acquisition of the ABC Network by Capital Cities (now a part of Disney ). At the time, Capital Cities was run by Tom Murphy, a close affiliate of Warren Buffett and one of the most successful corporate executives over the past half century measured by shareholder returns.
ABC . . . was a limousine culture -- one of the most cherished perks for an industry executive was the ability to take a limo for even a few blocks to lunch. Murphy, however, was a cab man and from very early on showed up to all ABC meetings in cabs. Before long, this practice rippled through the ABC executive ranks, and the broader Capital Cities [cost-conscious] ethos slowly began to permeate the ABC culture. When asked whether this was a case of leading by example, Murphy responded,
The point here is that running a lean operation requires sacrifices. And for those sacrifices to be absorbed into a company's culture, they must be exemplified first and foremost in the executive suite. It may not be necessary to go to the lengths of Wells Fargo, which hasn't updated the décor in its executives' offices for decades, but the least one can expect from the officers of a publicly traded company is that they don't make a habit out of using the company's jets for personal use.
This $19 trillion industry could destroy the Internet
One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... But you'll probably just call it "how I made my millions." Don't be too late to the party -- click here for one stock to own when the Web goes dark.
The article When a Bank's CEO Uses Company-Owned Airplanes for Personal Travel, Investors Should Generally Steer Clear originally appeared on Fool.com.
John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Bank of America, Walt Disney, and Wells Fargo. The Motley Fool owns shares of Bank of America, Walt Disney, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .