Austerity must follow profligacy, more so when liquidity and solvency of companies is tied to tax payers' billions.
In February, President Barack Obama signed the $787 billion American Recovery and Reinvestment Act of 2009 which required Troubled Asset Relief Program (TARP) beneficiaries create policies and Treasury come up with definitions regarding "excessive or luxury expenditures". On June 15, 2009, the treasury announced an interim final rule regarding the same. Recipients that still retain TARP "investments" must each adopt an Excessive or Luxury Expenditures Policy (Policy) by September 14, 2009 and publish the Policy on its website. However, GM, which has received $50 billion in government aid and is one of the biggest beneficiaries of the program, has until October to report because it emerged from bankruptcy in July.
American International Group Inc. (AIG), Citigroup Inc. (C), Bank of America Corp.(BAC), General Motors Co. and Chrysler LLC among others are yet to repay TARP monies and so have started posting policies regarding "excessive or luxury expenditures" on their corporate Web sites.
These policies limit lavish expenses related to entertainment or events, office and facility renovations, aviation or other transportation services, among others. The Federal Deposit Insurance Corporation (FDIC) and other bank regulatory agencies have indicated that they will be reviewing compliance with all TARP requirements during their regular examinations of TARP recipients.
At a time when public confidence in companies, at least those bailed out, is low they have to take all measures including the token ones that help them rebuild their corporate image.
A quick look at the websites of the companies that are yet to repay TARP monies has revealed varying levels of disclosure. They covered issues like entertaining clients, use of corporate jets and renovations of office space.
Among those companies which posted Excessive or Luxury Expenditures Policy on their websites, Chrysler Financial Services (CFS) seems to have provided detailed guidelines to their employees CFS prohibits employees traveling on business from being reimbursed for lunch on trips that don't require an overnight stay and directs employees to fly coach if their flight is less than four hours. Employees also can't expense country club fees, massages and spa services, hotel frequent-guest programs and tuxedos or evening gowns. Tips are limited to 20%, and employees must choose mid-sized rental cars. CFS will not reimburse employees for personal items lost while traveling on business. (http://corp.chryslerfinancial.com/documents/Excessive_or_Luxury_Expenditures_Policy_TARP_FINAL_9-9-09.pdf).
GMAC Financial Services disclosure level is a little low on details. Its policy applies to expenditures for entertainment or events, office renovations or travel. Luxury Expenditures Policy of the most criticized company AIG is also shallow on details. Its website reads "Celebratory events are prohibited, except those acknowledging key AIG career milestones. Holiday parties and events must be approved by the Business Unit's CEO and should, where practicable, be held in AIG facilities."
Ill fated Merrill Lynch which spent $1.2 million last year renovating the office of then-CEO John Thain is now forced to follow the path of austerity as its parent Bank of America clearly says that senior management would have to approve renovations that were considered out-of-the-ordinary, including the purchase of antiques and customized finishes.
The policies of Chrysler Group LLC, Citi and GM also prohibit unreasonable entertainment or holiday parties for the benefit of employees among other luxury expenditures.
Good to be frugal
Some of the TARP recipients and members of the National Business Travel Association who would be negatively impacted by these guidelines are not happy. But it is good to be frugal. Excessive or Luxury Expenditures Policy, I guess, will help corporate America to ingrain much needed cost oversight as a matter of policy the lack of which spelt doom for many companies especially those that traded in financial derivates.
