Corporate Excess: Flying High in the Corporate Sky

I’m just finishing up a book manuscript showing how the right-wing revolution is destroying the economy. I believe it’s the best work I’ve ever done.

This is a brief extract from a section showing why the distribution of income is even far worse than the appalling level that the official statistics indicate. It uses corporate jets as an indication of the sort of unmeasured benefits that the superrich enjoy. A recent article in Golf Digest encouraged me to make some revisions. Read on and you will see why. Here it is:

Flying High in the Corporate Sky

Over and above tax‑related distortions in the distribution of income, the wealthy have access to resources that do not even count as income. Because corporations must disclose some information, the rest of the world can enjoy a glimpse into this world. Consider executives’ personal use of corporate jets:

When William Agee was running the engineering firm Morrison‑Knudsen into bankruptcy, he replaced its one corporate jet, already paid off, with two new ones and boasted about how the way he financed them polished up the company’s financial reports. His wife, Mary Cunnigham Agee, used the extra jet as her personal air taxi to hop around the United States and Europe. When Ross Johnson ran the cigarette‑and‑food company RJR Nabisco, which had a fleet of at least a dozen corporate jets, he once had his dog flown home, listed on the manifest as “G. Shepherd.” And Kenneth Lay let his daughter take one of Enron’s jets to fly across the Atlantic with her bed, which was too large to go as baggage on a commercial flight. [Johnston 2003, p. 62]

This description seriously understates the situation. Consider this fuller account of the RJR‑Nabisco case:

After the arrival of two new Gulfstreams, Johnson ordered a pair of top‑of‑the‑line G4s, at a cool $21 million apiece. For the hangar, Johnson gave aviation head Linda Galvin an unlimited budget and implicit instructions to exceed it. When it was finished, RJR Nabisco had the Taj Mahal of corporate hangars, dwarfing that of Coca‑Cola’s next door. The cost hadn’t gone into the hangar itself, but into an adjacent three‑story building of tinted glass, surrounded by $250,000 in landscaping, complete with a Japanese garden. Inside a visitor walked into a stunning three‑story atrium. The floors were Italian marble, the walls and floors lined in inlaid mahogany. More than $600,000 in new furniture was spread throughout, topped off by $100,000 in objets d’art, including an antique Chinese ceremonial robe spread in a glass case and a magnificent Chinese platter and urn. In one corner of the ornate bathroom stood a stuffed chair, as if one might grow fatigued walking from one end to the other. Among the building’s other features: a walk‑in wine cooler; a “visiting pilots’ room,” with television and stereo; and a “flight‑planning room,” packed with state‑of‑the‑art computers to track executives’ whereabouts and their future transportation wishes. All this was necessary to keep track of RJR’s thirty‑six corporate pilots and ten planes, widely known as the RJR Air Force. [Burrough and Helyar 1990, p. 94; also see Strauss 2003; and <>]

David Yermack of New York University’s Stern School of Business produced a paper with the delightful title “Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns,” in which he investigated the relationship between this particular luxury and corporate efficiency. He found that the cost of this luxury for CEOs who belong to golf clubs far from their company’s headquarters is two‑thirds higher, on average, than for CEOs who have disclosed air travel but are not long‑distance golf‑club members (Yermack 2004).

Yermack’s paper reported that “more than 30 percent of Fortune 500 CEOs in 2002 were permitted to use company planes for personal travel, up from a frequency below 10 percent a decade earlier.” Since Yermack’s study, the problem has continued to escalate. Between 2004 and 2005, the reported value of personal use of corporate aircraft increased 45 percent, according to government filings of the 100 largest public companies (Fabrikant 2006).

The personal use of corporate jets does not seem to be correlated with profitability. Of course, some of the firms that supply their executives with corporate jets for personal use are successful, despite such wasteful excesses, but many floundering corporations do so as well. According to Yermack: “Firms that permit personal aircraft use by the CEO under‑perform market benchmarks by about 4 percent or 400 basis points per year, after controlling for a standard range of risk, size and other factors” (Yermack 2004).

A Wall Street Journal article entitled “JetGreen” followed up Yermack’s report. It described corporate jets “as airborne limousines to fly CEOs and other executives to golf dates or to vacation homes where they have golf‑club memberships” (Maremont 2005). Although executives must report such personal use of corporate jets as income, they rarely disclose anything near the full cost. Besides, hiding golfing expeditions as business activity is not particularly difficult.

Golf Digest provided further evidence of the negative consequences of corporate jets. Every two years, this publication informs the golfing public about who are the best golfers among executive leaders. A USA Today reporter investigated whether their companies performed as well as their leaders did on the golf links. The result was not surprising: the stock of two‑thirds of the top 12 golfers have seen fared worse than the Standard & Poor’s 500 index in 2006 (Jones 2006).

[Maybe Venezuela is onto something with its plans to take over a golf course; see

Not surprisingly, Raghuram Rajan, the chief economist of the International Monetary Fund, gallantly came to the defense of the corporations. He suggested, without the slightest hint of humor, that these expenditures may have actually been justified because they encouraged executives to be more efficient (Rajan and Wulf 2004). This justification does not seem particularly credible since the study did bother to distinguish between planes used for business or personal purposes, including the serving of executives who had already retired.

In summary, the clever tactics of tax avoidance, which prevent the Internal Revenue Service data from capturing a good deal of the wealth and income of the top 10 percent of the population, also mask the extent of inequality in the United States. Access to benefits, such as corporate jets, also contributes to inequality. While those who want to minimize inequality point to paltry government programs that aid the poor, they never mention the hidden wealth of the wealthy.

Of course, high‑level corporate executives enjoy many other perqs besides free travel, including the provision of luxury boxes at sports stadia, chefs, yard work, and a multitude of other benefits that ordinary people would have to pay for on their own, if only they could afford them. New York Times business columnist, Gretchen Morgenson, described the excesses of Donald J. Tyson, former chairman of Tyson Foods, ranging from the personal use of corporate jets to housekeeping and lawn care. Echoing Leona Helmsley, she appropriately titled her article “Only the Little People Pay for Lawn Care” (Morgenson 2005).

Sociologist Robert K. Merton, father of a Nobel Prize‑winning economist, introduced the concept of the Matthew Effect. Writing in the context of the accumulation of scientific prestige by elite scientists, called attention to biblical passage from the book of Matthew: “For to everyone who has will more be given, and he will have abundance but from him who has not even what he has will be taken away” (Merton 1968, p. 58; citing Matthew 25:29). Today, we are witnessing an economic Matthew effect well beyond what anybody could have imagined only a few decades ago.


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