Excess Among the CEOs

                     By Kenneth Bagnell

 

      A month or so ago, a major newscast  took a moment to mention that when some American CEOs  are handed the pink slip, it can come with a settlement of millions upon millions. Naturally,  that extravagance justifies friends of mine — lifelong skeptics of the corporate world — in their ever deepening conviction that big business is  about one thing: “looking out for Number One.”

    Well, now they’re  getting  credible support. It’s from senior business people. In the last two years, business academics — the people who prepare thousands of our brightest and best for the business world — are agreeing.  And they’re blowing the whistle. Loudly.  Many regard what’s happening not just as extravagant but destructive. One of the first to do so in Canada is Roger Martin, a business scholar heading the University of Toronto’s Rotman School of Management. His book, Fixing the Game, has drawn wide attention, piling fact upon fact to illustrate that at the corporate top, wealth is a way of life: bank CEOs making as high as 11 million. That leaves the average Canadian on another planet.  For example, an erudite article on Martin by Jason McBride in Toronto Life last March observed: “In 2010, the average Canadian income was $44,366, while that same year the average compensation for the country’s 100 highest paid CEOs was more than $8 Million.” I guess that what’s called “income disparity.” Moreover, many senior business insiders in North America, have begun to ask  if  executives are actually worth all that money. One who has is the legendary Warren Buffett who says with his cutting wit that CEO compensation is no longer connected to performance. “The upshot,” he says, “is that a mediocre or worse CEO, aided by his handpicked VP of human relations and a consultant from the ever-accomodating firm of ‘Ratchet, Ratchet and Bingo’ — all too often receives gobs of money from an ill-designed compensation arrangement.” Well, after all that’s Warren Buffett.

          What happened? I turned to a longtime friend, a former senior vice president of one of Canada’s historic firms. “In my opinion,” he said, “the subject is totally out of hand and obscene.” He points to the late 1970s and early 1980s. In part, he said, corporate compensation committees, became captivated by payouts to big time athletes. “An argument often heard inside corporations at that time was,” he recalls, ‘Our CEO is certainly worth more than that basketball player.’” So up went the pay. He also notes that back then, US executives were being transferred to Canadian branches, bringing along US income expectations. What about today? “Compensation committees,” he says, “are advised by consultants what other CEOs are being paid and this results in a never ending ratcheting upwards.”        

    So what’s the current consequence? Well, as we’ve seen, crowds of partly anarchistic protesters, congregate here and there, trashing public spaces, diverting police from critical duties, and calling themselves The Occupy Movement. We should remember that it’s democratic and that counts for much. On the other hand, to his credit, Roger Martin declined a visit to an Occupy camp perhaps to have his picture taken in a gesture of common cause. As he told writer MacBride: “I would not find myself in common cause with the ones who don’t have an alternative for democratic capitalism. But the ones who say we’ve got to fix some fundamental things about Wall Street… how it works, how we regulate it, I have common cause with that segment.”

          There are varied consequences to all this excess. One is broad demonization of any and all senior business leaders, thereby questioning reputations of ethical and altruistic people. (One died as I began this, Edmond Odette, a practicing Catholic and successful builder (Roy Thomson Hall and CBC Broadcasting Centre being examples) whose affluence and  generosity helped  finance Sunnybrook Health Centre,  Windsor University Business School and much else.) That said, the most unfortunate outcome is that wealth has become a litmus test of a life well lived. It’s not. A man with broad and balanced insight on this is Dr. Rob Oliphant, whose education includes business (his commerce degree is from U of T) and theology (his doctorate is from Chicago Theological Seminary). From 2008 to 2011 he was Liberal MP and member of the Shadow Cabinet for a Toronto riding. As he puts it: “Inflated, disproportionate compensation is not good for the individual since it creates an artificial bubble in which a few live disconnected from the rest of humanity. Nor is it good for society which is at greater risk of disharmony and instability.”

          So, if we accept the developing situation as the so-called “new normal”, it will make for an ever worsening social culture. That’s explored in a fine new book by a man who may well be our era’s best known philosopher, Michael Sandel of Harvard.  It’s “What Money Can’t Buy: The Moral Limits of Markets.” ($29.95) It explores the widening attitude which CEO excesses help spread.   In an excerpt from his book in The Atlantic,  Sandel writes: “There are some things money can’t buy, but not many. Almost everything is up for sale.” He gives several examples, including these: (1) in Santa Ana, California, if you go to prison but have the money, you can buy an upgrade for $90 a night. (2) how about getting your family doctor’s cell phone number? It could be purchasable for about $1,500. (3) You can sell your forehead as space for a tattoo advertisement netting you $10,000. “The most fateful change that unfolded in the last three decades was not an increase in greed,” he writes, “it was the reach of market values into spheres of life traditionally governed by non-market norms. To contend with this condition, we need to do more than inveigh against greed. We need to have a public debate about where markets belong – and where they don’t.” I guess that’s what’s meant by food for thought.

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All past blogs are archived on my website: your comments are welcome there: wwwkennethbagnell.com. To email me: kbagnell@aol.com

 

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