So I've been thinking about the compensation for CEOs and such people. Everyone knows it's obscene and keeps getting more so, both in absolute and relative terms. Apparently it's not even the CEOs who get paid the best—it's the fund managers, which reflects the whole turn towards the dominance of the financial over issues of actual production. According to this article, the top four fund managers are taking home more than a billion dollars a year each. Yes, that's B, as in nine zeroes, illion, and that's per year, not how much they have. Makes the poor CEOs look downright impoverished.
But that's not really what I want to talk about. The standard defense of the obscenity is that it's the price they have to pay to compete for the best person. I want to unpack the whole “best person for the job worth megadollars” idea and look at the underpinnings a bit and pick them apart. There are a lot more assumptions there than it looks like. For instance—so apparently as long as someone is “the best”, you can hire them from anywhere. It doesn't matter if they know beans about the particular company they're supposed to run, often not even whether they know anything about the specific industry. This is not even worth mentioning these days—it's just part of the core assumption, apparently, but I don't see what makes it particularly obvious. Basically, the idea is the same one behind the rise of Business Administration degrees at universities: There is a general science of bossing, which is broadly about manipulating money and to a lesser extent about manipulating people, and more specific knowledge of how to do things in any particular business is irrelevant. Not only that, but this general science of bossing is such that a genius boss who knows nothing about his business can successfully generate far more profits than a merely very competent one who knows the business well. Sounds kind of dumb when you put it like that, doesn't it?
Probably why it's rarely discussed. Because after all, if you instead assume that the specifics of running a particular business—the technologies involved, the cost structures, which work is essential and which is less so, where you can skimp for a while and where you need to modernize, what kind of customers you're dealing with and what they respond to, what kinds of process changes might be important and useful and what kinds will go splat like a doctor gunned down by Dick Cheney—are in fact important, you come up with very different conclusions. You might conclude that someone with long experience in a particular company who is very competent might actually do a better job than someone from outside who has managed very different companies, even if the latter is reputed not to be merely very competent but to be one of the ten most brilliant managerish people on the continent. In which case you might in turn conclude that doing a wide open search and offering millions and millions of dollars might in fact get you a poorer result than simply promoting the best person working currently at the firm and giving them a couple hundred thousand dollars. Sure, they might only be the smartest person among a few thousand rather than hypothetically one of the smartest among millions, but sheesh, that's still plenty smart, and this one would actually know what they're doing.
Then there's the question of whether this offering of millions and millions really does get the smartest people on the planet to be CEOs—and whether, for that matter, that is necessarily useful for the company. Consider: Capitalism is based around the idea of every man for himself, basically. You're supposed to be greedy. CEOs are recruited from the ranks of people who have been thoroughly steeped in the me, me, me mantra. So, you want to put the smartest personally greedy person you can in charge of your corporation? Won't that person be smart enough to loot the company and skip without being caught? Why would they want to do something outward-directed like help the company prosper? Shareholder oversight? Don't make me laugh. And of course that's what broad advertising of massive salaries does—it attracts greedy people, not smart ones. I mean, whenever there's an interview or discussion of things CEOs are doing or saying, if you look past the sycophantic descriptions, how many of them seem like minds of great stature? Sure, not that many are really stupid, and nearly all of them can sling a fairly good line of “This shit and darkness I'm dumping on you is good for you—it'll develop healthy mycelium”. But there are dozens of people like that in the administration of my university alone. Much of the time when you listen to the pronouncements of CEOs what you're getting is pretty much platitudes, conventional wisdom, in some situations some standardized tough talk. When they drift off the predigested line, they rarely sound that impressive, and sometimes nutty. Are most of these people really worth the bets made that if you offered a few million less, the person you'd end up with would spout less effective platitudes?
For that matter, while I do believe that there is more or less something like intelligence, and certainly if you're going to have a system where someone is the CEO it can make a difference who it's going to be, I'm less clear that there's much difference once you get into the range of “really smart”. Think about the very smart or highly competent people you know. Can you really figure which of them is smarter or more competent? Sure, once or twice a generation in any given field you might get an Einstein—but none of them want to be CEOs anyhow. The only real genius I can think of in a CEO-type position would be Steve Jobs, and he isn't there because someone offered millions to try to find the best talent, he's there because he founded the company in a garage and was later persuaded to come back to his baby. The other really smart guy I can think of who's a top corporate dog would be Bill Gates, whose expertise at lying, cheating and stealing to get what he wants seems head and shoulders over everyone else around. Once again, not a product of a megamoney talent hunt. Of course he's semiretired from Microsoft now. Maybe if you offered him a yacht full of money he'd come and head up something else. And more than likely by the time he was finished that something else would be owned by Microsoft, and he would mysteriously have *two* yachts of money out of the deal.
Massive CEO compensation and the “best white male credentialled old boy for the job” theory is good for CEOs, it's good for the doctrine of financial supremacy over production, it's good for credentialism and the importance of elite business schools, and it's good for consolidating upper class elites. It's probably actively bad for the productivity and financial health of the actual companies these vultures head up. And its broader, longer term impacts are certainly bad for nearly everybody else.
Let face reality and stop paying these CEO's the top dollars for doing little or nothing, all the companies are doing is feeding the individual's ego hungery and materialistic minds.
So many of the little guys or the actual workers are being overlooked within companies and can offer much more in job expertise and insight into doing business with people etc on an daily basis.
These CEO's don't want trouble in their positions or it would hurt their own pockets, and they maybe would not receive the big huge bonuses each year. These big financial institutions who post the bonuses they get each year are feeding their own ego madnesses.
These huge financial institions are a bunch of money hungry, greedy bastards and to achieve their big bonuses they will screw their customers, employees (whether the employee is on disability or not) and anyone else they can to line their own pockets.
Let's expose these inadequately equipped CEO's for who they are and let the employees have their say. Lets ask a CEO if they really know any of their employees jobs and put them in that job for a day so see if they can handle it. Most CEO's probably don't have a clue what their employees job entail on a day to day basis.\
Let hear it for the employees as they are the ones that run the company on a daily basis.
A question for anyone who understands corporate culture better than I do:
What do the legal counsel for ginormous multinational corpses do? What would be their actual work, and why are they needed?
They do a lot of things. They threaten the competition, they make sure nobody at the company does anything useful for fear someone will threaten them over it, they ensure that the customers have as few rights as possible over any good or service they buy (marketing makes sure the customers don't find out until it's too late), they come up with opaque language to allow the successful claiming of ludicrous patents, they defend those patents (see threatening the competition), they defend trademarks (see threatening the competition, although sometimes there's some point on this one), they ensure that any violations of employees' rights are very difficult to prosecute the company over, they ensure that any corporate violations of environmental and other regulations are very difficult to prosecute the company over . . .
At the RIAA and member media corporations, they come up with rationales for why only the corporations should own copyrights and not any jumped up artists who think they might have written something, and generally work tirelessly towards a world in which nobody would actually be able to say, write or sing anything without paying someone a royalty.
They're really quite essential to the ongoing effectiveness of the corporate power grab as we know it.
Oh, on my initial post I forgot one thing: Massive CEO compensation is actually incompatible with the core characteristics of Homo Economicus. Market theory assumes everyone is equal. That may sound bizarre, but it does--efficient market theory can't work unless everyone is a completely efficient maximizer, with both access to and the ability to instantly process and apply perfect information about everything. Theoretically, then, *everybody* would be the perfect CEO. The fact of massive CEO compensation--indeed, in general the fact of much difference in pay between people at all--is, oddly, by its very existence a scathing indictment of the theory of efficient markets.
"What do the legal counsel for ginormous multinational corpses do? What would be their actual work, and why are they needed?"
I have often asked this question (modified) of the HR departments of the same corpses. The answer, of course, is that they provide the company with full time people who have naught else to do all day but figure out ways to screw the workers.
The workers can retaliate and counter their moves, but FIRST they have to perform the service they were hired for - or some HR flack will see them fired.
My theory is that CEOs of large corporations have to do quite a few things that are criminal. The large salaries are compensation for the risk that they might wind up having to hire lawyers to defend themselves, and maybe even go to jail.
The Greedy Corporations and the Profit Hungry Shareholders
Honesty and integrity went out the window – anything goes
Corporate greed and the insatiable thirst to make a profit, to satiate shareholders share- holders’ profit expectations have changed American values, where anything is justified in order to derive enormous corporate profit and satisfy the expectations of the share-holders; maintain the image of profitable corporate America. It is a vicious cycle that feeds itself to ultimate disaster.
These attitudes have brought corporate executives to exercise the drive and mentality that anything goes, no holes barred.
Inflating earnings, hiding debts and liabilities, outright fraud and deception. Theft by executives, theft of corporate assets, graft, bribery, illegal contributions to politicians, trips, gifts and favors to politicians, crooked lobbying organizations.
Where and when does it all stop? When are Americans going to wake-up and realize they are on the path of disaster of magnitude proportions that will bring our downfall?
We still have honest ethical hard working people in America. Let us all rise and protest these money hungry actions and methods, before it is too late.
Work hard to better America, institute honesty and integrity.
It starts at the top – the politicians, the legal system, corporate America and progresses to the masses.
The media is not exempt. Honest reporting is a must, the public expects no less.
Exercising - Sincerity, honesty and integrity is a good beginning.
If you work hard, perform your duties sincerely and honestly, you will be able to earn a better profit/living. You will not have to worry about covering up for your wrongdoing and you will be able to sleep better at night, look at yourself in the mirror.
Corporate America should be required by law to insure pension funds of employees. This will protect employees from losing their pensions to greed and fraud as happened with Enron and others.
We should learn to respect each other.
Bring back family values.
Am I asking too much?
Jay Draiman, Northridge, CA – Sept. 25, 2007
PS
An essay concerning the origins, nature, extent and morality of this destructive force in free market economies. Definitions. Paradoxes and omissions in Adam Smith's original theory permit - encourage - greed without restraint so that in a very large society [USA] over two centuries it has become an undemocratic force creating precipitous inequalities; divisions in this society now approach a kind of wealth apartheid, and our values are quite unlike Smith's: this is an immensely wealthy society but it is not a humane society. Wealth and poverty are connected, in fact recent sociological theory shows our institutions routinely design inequality in, but this connection is largely avoided in texts and in the media, as is the notion that greed is a moral wrong. Problems created by greed cannot be solved by technology. We are also distracted by already-outdated environmental rhetoric, arguments that scarcities and human suffering follow from abuse of our ecology. Rather, these scarcities are the result of what people do to people. This focus opens practical solutions.
"The Social Responsibility of Business Is to Increase Its Profits." The future Nobel laureate in economics had no patience for capitalists who claimed that "business is not concerned 'merely' with profit but also with promoting desirable 'social' ends; that business has a 'social conscience' and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of re formers."
He wrote that such people are "preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting pup pets of the intellectual forces that have been undermining the basis of a free society these past decades."
He argues that corporations add far more to society by maximizing "long-term shareholder value" than they do by donating time and money to charity.
He said "there is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." That's the orthodox view among free market economists: that the only social responsibility a law-abiding business has is to maximize profits for the shareholders.
I said. But we have not achieved our tremendous increase in shareholder value by making shareholder value the primary purpose of our business. In my marriage, my wife's happiness is an end in itself, not merely a means to my own happiness; love leads me to put my wife's happiness first, but in doing so I also make myself happier. Similarly, the most successful businesses put the customer first, ahead of the investors. In the profit-centered business, customer happiness is merely a means to an end: maximizing profits. In the customer-centered business, customer happiness is an end in itself, and will be pursued with greater interest, passion, and empathy than the profit-centered business is capable of.
Many thinking people will readily accept my arguments that caring about customers and employees is good business. But they might draw the line at believing a company has any responsibility to its community and environment.
This position sounds reasonable. A company's assets do belong to the investors, and its management does have a duty to manage those assets responsibly. In my view, the argument is not wrong so much as it is too narrow.
First, there can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors.
That said, I believe such programs would be completely justifiable even if they produced no profits and no P.R. This is because I believe the entrepreneurs, not the current investors in a company's stock, have the right and responsibility to define the purpose of the company. It is the entrepreneurs who create a company, who bring all the factors of production together and coordinate it into viable business. It is the entrepreneurs who set the company strategy and who negotiate the terms of trade with all of the voluntarily cooperating stakeholders—including the investors.
The shareholders of a public company own their stock voluntarily. If they don't agree with the philosophy of the business, they can always sell their investment, just as the customers and employees can exit their relationships with the company if they don't like the terms of trade. If that is unacceptable to them, they always have the legal right to submit a resolution at our annual shareholders meeting to change the company's philanthropic philosophy. A number of our company policies have been changed over the years through successful shareholder resolutions.
The Theory of Moral Sentiments. There he explains that human nature isn't just about self-interest. It also includes sympathy, empathy, friendship, love, and the desire for social approval. As motives for human behavior, these are at least as important as self-interest. For many people, they are more important.
When we are small children we are egocentric, concerned only about our own needs and desires. As we mature, most people grow beyond this egocentrism and begin to care about others-their families, friends, communities, and countries. Our capacity to love can expand even further: to loving people from different races, religions, and countries—potentially to unlimited love for all people and even for other sentient creatures. This is our potential as human beings, to take joy in the flourishing of people everywhere. Whole Foods gives money to our communities because we care about them and feel a responsibility to help them flourish as well as possible.
The business model that should be embraced could represent a new form of capitalism, one that more consciously works for the common good instead of depending solely on the "invisible hand" to generate positive results for society. The "brand" of capitalism is in terrible shape throughout the world, and corporations are widely seen as selfish, greedy, and uncaring. This is both unfortunate and unnecessary, and could be changed if businesses and economists widely adopted the business model that I have outlined here.
To extend our love and care beyond our narrow self-interest is antithetical to neither our human nature nor our financial success. Rather, it leads to the further fulfillment of both. Why do we not encourage this in our theories of business and economics? Why do we restrict our theories to such a pessimistic and crabby view of human nature? What are we afraid of?
Businesses such have multiple stakeholders and therefore have multiple responsibilities. But the fact that we have responsibilities to stakeholders besides investors does not give those other stakeholders any "property rights" in the company, contrary to those' fears. The investors still own the business, are entitled to the residual profits, and can fire the management if they wish. A doctor has an ethical responsibility to try to heal his/her patients, but that responsibility doesn't mean his/her patients are entitled to receive a share of the profits from her practice.
Many probably will never agree with my business philosophy, but it doesn't really matter. The ideas I'm articulating result in a more robust business model than the profit-maximization model that it competes against, because they encourage and tap into more powerful motivations than self-interest alone. These ideas will triumph over time, not by persuading intellectuals and economists through argument but by winning the competitive test of the marketplace. Someday businesses like these, which adhere to a stakeholder model of deeper business purpose, will dominate the economic landscape. Wait and see.
The first is that running a profitable business requires using soft values. It's easy to caricature the greedy profit-maximizing business owner as ruthless. But the best businesses are led by people who excel at soft values, who treat their customers and employees well. Business that treat customers and employees badly find it harder to thrive.
Running a family like a business destroys it. Running business like a family destroys it and leads to tyranny.
“Always tell only the truth, and all the truth, and do so promptly – right now.”