Directors weigh AA Chairman Donald Carty's Ouster

Some AMR Corp. directors are considering replacing chairman and chief executive Donald Carty in an attempt to salvage the company's concessions agreements with its three unions and keep it out of bankruptcy, according to a person familiar with the board's thinking.

Although there is no formal motion before the 12-member board to fire Mr. Carty, his fate probably will be discussed during a Wednesday morning conference call among the directors and will be the main issue at a meeting Thursday in Dallas, the source said.

It's the first sign of displeasure among board members with Mr. Carty's tardy disclosures of executive-retention packages at the parent of American Airlines. American employees learned of the perks just hours after they finished voting on $1.62 billion worth of pay and benefits cuts.

Investors also aren't happy. AMR shares fell 42 cents Tuesday to close at $3.43, off almost a third since the unions erupted in anger over revelations of the executive perks.

American spokesman Bruce Hicks said Tuesday night that he would not "respond to the speculation that is floating around right now, some of which is quite ludicrous."

The source, who spoke on condition of anonymity, said several board members feel that they were misled by repeated assurances from Mr. Carty – himself a board member – that labor leaders had been briefed about the retention bonuses and protected pension fund.

"Some members of the board felt as betrayed as labor union members," the source said. "The board was told by the CEO that labor was fully informed of the details."

Some AMR directors believe they must replace Mr. Carty with someone who can rebuild trust with union leaders to avert bankruptcy, the source said.

CNBC was also reporting Tuesday night that some board members were considering ousting Mr. Carty.

It wasn't clear Tuesday evening where Mr. Carty stands with the 11 directors from outside the company. They didn't return phone calls or refused to comment.

The person who provided the account of the board's discussions is close to the company and familiar with the board's workings. Mr. Carty, the source said, is not preparing to leave.

Union board members have demanded that Mr. Carty step down, but none of the three major labor groups has officially said it wants him out.

Two of AMR's three unions also have said they will revote on the concessions, although the pilots group said Tuesday that it saw no need to reconsider its deal. Fort Worth-based AMR has said it would declare bankruptcy if even one of its unions rejects the deal.

AMR's board unanimously approved the protected fund for 45 executives – including Mr. Carty – and bonuses for seven top officials in early 2002, with the understanding that management would disclose the deal to labor leaders, according to the person familiar with the board's thinking. The executive perks came to light Thursday, a day after American's flight attendants reversed an earlier vote to reject wage concessions, narrowly averting bankruptcy. The disclosure, which came in a Securities and Exchange Commission filing, incensed employees.

Leaders of the Association of Professional Flight Attendants and the Transport Workers Union have vowed to reopen voting on the wage pacts because employees might have voted differently had they known about the executive perks.

Mr. Carty has repeatedly apologized, saying he was "enormously naive" about employee reaction to the disclosure. The company canceled the retention bonuses on Friday. The protected pension fund stands.

After learning about the unions' complaints from news reports last week, several directors called a last-minute meeting Monday. The group didn't directly address Mr. Carty's future, but several members, chief among them David Boren, expressed outrage with his handling of the disclosure.

Mr. Boren, who is president of the University of Oklahoma and a former Oklahoma governor and U.S. senator, said he wouldn't discuss his views.

"It would not be appropriate for me as a board member to comment on pending board business," he said. "The only thing that I would say is that I hope the employees know how deeply the board appreciates their willingness to work with the company to save it."

A management shake-up is not a foregone conclusion. Mr. Carty's close personal and professional ties to several board members may play an important role in any vote. AMR director Michael Miles and Mr. Carty both sit on the boards of Sears Roebuck & Co. and Dell Computer Corp. Another AMR board member, Edward Brennan, was chairman of Sears until 1995.

Mr. Brennan was chairman of and Mr. Miles sat on the AMR board's compensation and nominating committee, according to the company's 2001 proxy statement to the SEC. AMR hasn't released its 2002 proxy statement.

Mr. Brennan and Mr. Miles also are members of Morgan Stanley Dean Witter & Co.'s board, whose chairman and chief executive, Philip Purcell, is an AMR director. The financial services giant also has done work for AMR.

Experts say such "interlocking" board memberships, while not illegal, throw up ethical red flags.

"Interlocking directorships are always a problem situation for corporate governance, especially when it comes to compensation situations," said Dr. Bala G. Dharan, a Rice University management professor.

Another expert suggested that AMR may need a more diverse board, including a labor representative.

"Would this have occurred if AMR had a representative on the board from an employee group?" said Marc I. Steinberg, director of the Corporate Directors' Institute at Southern Methodist University's Dedman School of Law. " ... Practically all corporations don't. Are we getting the same individuals from the same backgrounds?"

Management experts also questioned the wisdom of granting retention bonuses at a time when other airline employees were taking big pay cuts.

But according to the person close to the company, the executive perks weren't out of line because AMR had lost its chief financial officer, Thomas W. Horton, in June to AT&T Corp. and others were taking early retirement and finding other jobs.

What rankled directors is that Mr. Carty didn't share the plan's details with the unions, which would have given the board a chance to change the package to ameliorate labor's concerns.

"A lot of people on the board were operating from the understanding that labor was on board," the source said.

The retention program would have paid six executives twice their base salaries if they stayed until 2005 and one other executive 1.5 times his salary.

Mr. Carty defended the bonuses as a way to keep top American managers from defecting to higher-paying jobs at a critical time in aviation history.

Mr. Carty has repeatedly apologized, saying he was "enormously naive" about employee reaction to the disclosure. The company canceled the retention bonuses on Friday. The protected pension fund stands.

Why is AMR paying so many $$$ to such an 'enormously naive' officer. I thought that paying Mr. Carty the big bucks would prevent such a thing.

How enormously naive of me!!!!

Sorry gang, the BS surrounding executive compensation has worn me down. When I see highly educated, and very talented, men and women sidelined because of the current slowdown, I have to ask myself about the current corporate leadership, 'is this the best these companies can do?'

AMR director Michael Miles and Mr. Carty both sit on the boards of Sears Roebuck & Co. and Dell Computer Corp. Another AMR board member, Edward Brennan, was chairman of Sears until 1995.
Mr. Brennan was chairman of and Mr. Miles sat on the AMR board's compensation and nominating committee, according to the company's 2001 proxy statement to the SEC. AMR hasn't released its 2002 proxy statement.

The highly educated and very talented people sidelined during the current recession that you mentioned lacked one qualification; the incestuous "good old boy" network.

Thanks for the info...how enormously naive of me!!!

I'd give this a big BWAHAHA, but I'm too PO'ed about this. I'm nowhere near perfect on the ethics front, but it is long past time to clean out the outhouse that's known as the executive suite.

>Sorry gang, the BS surrounding executive compensation has worn me down.

The whole exec compensation bonanza started out with a nice libertarian premise- that you pay someone big bucks to deliver profits. Now its just a cash grab.

They just buy growth by levering the balance sheet. Grab the money and bailout. Many times execs are raiding companies that cannot afford it. Often their compensation continues years and years after they've left.

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