Stunning demise of United Airlines' Jeffery Smisek – just deserts or sacrificial lamb?

His downfall apparently began with dinner in a posh eaterie in 2011

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The Independent Online

Of all of the possible ways in which Jeffery Smisek, the (now former) chief executive of United Airlines, might have figured his career could end, an investigation into traffic on a bridge probably didn’t appear high on the list. And yet that’s what ended it, in one of the stranger cases of alleged corporate corruption in recent years.

Until very recently Mr Smisek was a high flyer, in every sense. He was top of his classes at Princeton and Harvard Law School (despite arrogantly claiming that he attended the latter only to be close to his girlfriend), and subsequently partner at a prominent New York firm of attorneys. Next up he was recruited to help turn Continental Airlines around before the coup de grâce – getting the top job at United following the merger with Continental that he was largely responsible for orchestrating. Now Mr Smisek is jobless following his resignation last week, forced out by United’s board in the middle of a federal investigation into traffic on a New Jersey bridge.

His downfall apparently began with dinner in a posh eaterie in 2011, where guests included Mr Smisek and David Samson, then chairman of the Port Authority of New York and New Jersey and one of New Jersey Governor Chris Christie’s top goons. In New Jersey they don’t have aides, they have goons.

Over the course of dinner, it is alleged Mr Samson “suggested” that getting Newark airport (United’s primary US hub and the budgetary responsibility of the Port Authority) refurbished and extended might be more likely to happen if United reinstated a direct flight between Newark and Columbia – where Mr Samson just happened to own a weekend retreat. The suggestion is that, hey presto, before you knew it the loss-making route was reinstated and the Port Authority found the funds to refurbish Newark airport. Funny that.

The alleged bribe, or the shakedown, whichever it was, came to light when federal prosecutors began looking into a seemingly unrelated scheme purposely to increase traffic on a bridge between New York and the New Jersey town of Fort Lee, a punishment for defying Mr Christie. Bridgegate, as it is of course now known, could still end Mr Christie’s career, as it has already effectively ended Mr Samson’s and Mr Smisek’s.

Federal investigators have yet to press any criminal charges against Mr Smisek or Mr Samson. However United took what seems to be the extraordinary step of asking its chief executive to fall on his sword pre-emptively. Mr Smisek walked away with $8.4m (£5.5m) in cash and stock plus free flights for life, which is a pretty good deal for getting fired amid a federal investigation.

The question is, was Mr Smisek the victim of a shakedown or was he guilty of bribing the Port Authority chairman? Or both? Actually it doesn’t really matter – nobody is coming out of this covered in glory.

If the allegations are true Mr Smisek can perhaps consider himself a tad unlucky to lose his job over what would have been a minor favour, by US corruption standards at least. By and large, Americans think corruption is something that other countries do, specifically their political enemies and economic inferiors. In fact, the US  judicial, political and even sporting systems are completely corrupt. Anything that is awash with cash is going to end up corrupt.

Every once in a while, a judge or a politician or a businessman will get caught and presented to the baying mob as a sacrificial lamb, just to make sure the masses remain blissfully ignorant of the insidious depths of corruption. It’s business as usual everywhere else, but don’t expect to see a heap of corrupt heads on plates – that would be decidedly un-American.

United perhaps wanted an excuse to be rid of an executive who failed to bring his Continental magic touch with him, but it should also be applauded for forcing him out rather than allowing him to cling on in the usual undignified manner while the investigation proceeded.

As for Mr Smisek, it might sound contradictory but being incompetent is often no barrier to getting a new gig. Yet the stink of corruption lingers far longer.

Alibaba stake a worsening headache for Yahoo’s Mayer

Marissa Mayer, chief executive at Yahoo, is only taking two weeks’ maternity leave, a decision for which she has (rightly) taken a fair amount of criticism. Her job is hanging by a thread anyway; she might have been better advised to let someone else take the flak for a few months.

Of more pressing concern than Ms Mayer’s maternity leave, for investors at least, is what Yahoo is going to do about its stake in Alibaba. What was once its crown jewel is looking more and more like paste as concerns over growth at the online Chinese retail giant have seen the value of Yahoo’s stake plummet. Now the Inland Revenue Service has gone and stuck its oar in and decided that Yahoo might have to pay some tax on its profit when the stake is spun off. Imagine that!

Yahoo asked the IRS for something called a private letter ruling, in essence an advance decision on the tax implications of spinning off the stake. The IRS declined to give a response, meaning that the tax implications remain unclear – although it is generally taken as a bad sign if the IRS won’t decide until the time.

Yahoo’s stake in Alibaba is currently worth about $23bn, although it was worth $46bn just 10 short months ago. The worst-case scenario is that the IRS takes a 45 per cent bite out of whatever it’s worth by the time Yahoo eventually gets rid of it. It’s tough to have much sympathy for Yahoo. Earlier this year, to much fanfare and in an extraordinary display of premature chicken counting, it announced the proposed spin-off, to be called AabaCo,  – while proclaiming that it would also be tax-free.

Ms Mayer is under immense pressure to come up with a creative way of cashing in on the Alibaba stake (while it is still worth billions) without it resulting in a huge tax bill for Yahoo. Wall Street analysts are increasingly sceptical that it can be done.

Given Yahoo’s own problems and lack of growth, she might be well advised to get out of Alibaba as soon as she can and pay whatever the IRS decides is appropriate. Alternatively, it’s still not too late to extend that maternity leave.

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