Saturday, May 31, 2008

Lazard Shareholders Meet in Bermuda – Q&A!

Lazard held its shareholders meeting in Bermuda, and the event was hosted by Scott Hoffman - Lazard, Ltd - General Counsel. Other representatives from Lazard included legendary Bruce Wasserstein, Chairman and Chief Executive; Steve Golub, Vice Chairman; Mike Castellano, Chief Financial Officer.

Unidentified Audience Member
My name is [Robin Burson], and I live in New York City. My mother is a resident at Atria Riverdale, an assisted living facility in the Bronx that is part of the national Atria Senior Living chain. As you all well know, Atria is controlled by an affiliate of Lazard. I'm here today to ask you all to take some responsibility for what is happening at Atria, and to listen to the voices demanding change.
In my situation I have had such a hard time getting Atria to do what my 88-year-old mother needs. The facility management is unresponsive, and too often it seems that they're focused only on making money. The costs for these services are incredibly high, and I think Atria is exploiting a vulnerable population. For thousands of Atria residents, these are the final years of hard-working, decent lives, and it is appalling that they are suffering neglect, danger, short-changing and disrespect.
My mother didn't want me to come here. She was afraid. She was afraid for me to come here. She's afraid of retaliation from the administration of Atria. Unfortunately, it's clear that very little of the money you make from the care -- I use that term lightly -- of the elderly goes to the front-line employees at Atria's facilities who are the ones who provide the care to elderly residents.
Most of these workers earn poverty wages, and they cannot afford the health insurance you offer; they cannot send their children to see a doctor. Many of them lack the training and skills they need to guarantee that the elderly get the quality care that they're paying for.
The facilities are too short-staffed for even basic safety. Many of the residents suffer from disorientation and dementia, and wander the halls unsupervised. I know that Atria has had many problems with care failures and resident exploitation in several states. In Riverdale, there is sloppy administration of medication, leading to serious errors, and there are frequent food shortages. They run out. People cannot get food that is on the menu. My mother moved into Atria in 1999 and asked immediately about why there was no backup generator.

Scott Hoffman - Lazard, Ltd - General Counsel
Madam, I'm sorry. The meeting procedures are very clear. You need to limit the questions to two minutes, and you're past two minutes. Are you winding up your question?

Unidentified Audience Member
I am winding up my question, yes. I am asking you all to honor a commitment to community, to decency, and to ethics. Lazard is on record denying any responsibility for Atria, but the executives and directors in this room right now bear responsibility for what is happening at Atria. And you have the power -- you all have the power – to act decently and humanely, and to improve the lives of thousands, tens of thousands of elderly in the last years of their lives, and of decent workers who are just asking for a living wage and a right to unionize. Thank you.

Scott Hoffman - Lazard, Ltd - General Counsel
It's supposed to be a question-and-answer period, and if you'll allow me to answer that. We thank you, first, ma'am, for travelling down here to Bermuda, and we appreciate any concerns that our shareholders have. This company does not control the company that owns Atria. This is a meeting of Lazard Ltd, a publicly registered ompany in Bermuda. Lazard Ltd does not control Atria. I really appreciate your concerns, and to the extent we can do anything to facilitate your communication with the people who control Atria, we are happy to do so. I'll meet with you after the meeting to get your contact information, if that would be helpful. I would ask to the extent the rest of you have questions that are germane to this public company, we welcome them. But if they are speeches about a company that we don't control, I'm going to have to call you out of order. Thank you. Next question, please.

Unidentified Audience Member
Good morning. I'm living in New York. Atria Assisted Living in Great Neck, Long Island.

Scott Hoffman - Lazard, Ltd - General Counsel
Sir, is this going to be a question that is germane to the public company, or is it going to be about Atria? I just want to get to the question about the public company.

Unidentified Audience Member
We tried to form a union with our co-workers. The Atria facility, they fired me because I tried to work with a union. So they don't care about how [I'm feeling]. We tried to work the best in Atria, but they don't care. The [managers], they don't care how well I am working or how

Scott Hoffman - Lazard, Ltd - General Counsel
Sir, I'm very sorry that you've lost your job, truly. But I need, out of respect for the other shareholders of the Company that are here and that are on the telephone, to get to the business of this company, not to the business of Atria. Thank you.

Unidentified Audience Member
My name is [Daniel May], and I work with the Service Employees International Union and the Campaign to Improve Assisted Living. We are very concerned about Lazard's consistent denial of its corporate social responsibility to taxpayers, and refusal to pay its fair share. While average Americans worry about the economy, jobs and their homes, Lazard head Bruce Wasserstein earned 41 million in 2007, a staggering 25% of Lazard Ltd's entire profit his total net worth to over 2 billion.
To compare that to a man like (inaudible), who traveled 600 miles from New York City to be here, who works for the Lazard-affiliated portfolio company, that's just the beginning of the story. Lazard has used questionable means to avoid or reduce corporate income tax liability. Some of these tax avoidance measures have recently come under congressional scrutiny. At the time Lazard went public in 2005, it established an extremely complex ownership structure to reduce its taxes and limit its liability to shareholders. This structure, coupled with its offshore incorporation in Bermuda, is apparently intended to permit Lazard to be taxed as a partnership, making its effective tax rate substantially lower than most, if not all, of its peers in the investment and brokerage industry.
Since Lazard Ltd has elected to be treated as a partnership for US federal income tax purposes, the Firm does not pay any US federal income tax except on net income derived from or "effectively connected" to its US-based subsidiaries. Exemption from corporate taxation and executive compensation at this level is just outrageous, especially when our country's economy is struggling. Lazard plays a [leading] role in driving the vast income inequality that challenges our democracy, our economy, and our [civic health]. Rather than avoiding public responsibility, we urge Lazard to uphold a higher standard of corporate stewardship.

Scott Hoffman - Lazard, Ltd - General Counsel
I won't respond to the factual inaccuracies which were replete in your question, just to let the people know that they were distortions, and we pay tax in the United States. We pay exactly, if not more, what we're supposed to pay.

Unidentified Audience Member
Thank you. Good morning. I work for the Service Employees International Union and the Campaign to Improve Assisted Living as well. I'm here today because, like others who have spoken, I am concerned that Lazard may be failing in its responsibility to its shareholders and other stakeholders. Last year, as was stated, Bruce Wasserstein, your Chairman and CEO, took home $41 million in salary and bonuses. This payout was blasted in the press, and offended even those who normally don't blush at such things. But his 2007 payout didn't compare to the new contract that your board gave to Mr. Wasserstein at the same time, estimated by the press to be nearly $100 million.
And finally, the vote you've taken today to improve the new incentive compensation plan takes you even further down the road of unadulterated greed. This compensation plan for Lazard employees is at a level beyond comprehension to an average Atria employee, for example. By our calculations, the measure would limit executive compensation to almost $90 million a year, which is a token toothless gesture.
Such corporate largesse wouldn't be as big of a problem if Lazard were doing very well. But unfortunately, Lazard's share price has fallen by 30% since last year's shareholder meeting. By contrast, the S&P during that same period lost only 8% of its value. Unfortunately, shareholders can do little about this, because, as you know, Lazard seems to have gone out of its way to disenfranchise its shareholders.
Furthermore, the fact that you're having this meeting here today in Bermuda, out of reach of most of your shareholders, as evidenced by the attendance in this room, speaks volumes to the value you have for their concerns.
As your meeting agenda today included a vote on a new incentive compensation plan, we ask your chairman to explain to shareholders how your board plans to address potential risks posed by Lazard's widely-criticized executive compensation practices before implementing such a plan. It's our sincere hope that Lazard can move on to develop real value, long-term value, for its shareholders, rather than being a popular poster child for corporate excess.

Scott Hoffman - Lazard, Ltd - General Counsel
Thank you for your question. I'm glad you asked that question, actually. Let me just aggregate it, because you've raised three or four points within the question. First of all, with regard to our performance, if you look at our performance since the IPO until now, we've outperformed not only the S&P 500 index, 60% to 28%, we've vastly outperformed the S&P financial index, which are our peers, by 60% we're up; they're up 4%.
Similarly, just to take the time period that you referenced from the last annual meeting to now. We're down about 30%. The S&P financial index, which is the only relevant index, as opposed to industrial companies and companies that make widgets, that index is down 26%. So that's vastly in line. Would we like to do better? Of course we'd always like to do better.
The second question you talked about, you asserted, about Mr. Wasserstein's pay. Mr. Wasserstein, first of all, doesn't set his own pay. We have an independent compensation committee, people who have no affiliation with this company. With the help of outside consultants from one of the preeminent compensation consultants in the world, and one of the preeminent law firms in the world, they together determine what Mr. Wasserstein's pay should be because of the contributions he's made to this company since its inception. And independently, they looked at the parameters that you are required to look at from the SEC rules that lay out in exhaustive detail, which is set forth on pages 18 through 32 of our proxy, in our compensation discussion and analysis. And Mr. Wasserstein's pay fell well within those parameters, frankly.
With regard to the incentive plan that was voted on today, this is a business about people. The only thing that we have is our people. And that employee incentive plan is not just -- not for Mr. Wasserstein, that employee incentive plan is for our approximately 2500 employees, to incentivize them, to retain them, to attract new people that are just as talented as they are, in order to retain them, and also to give value to our shareholders.
I thank you for coming. I thank you for your questions. If there are no further questions, we'll adjourn the meeting. Thank you very much for attending our meeting.

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