Month: May 2015

No Shame

All “10 of the top-paid C.E.O.s received at least $50 million last year,” according to Equilar, a firm that tracks executive compensation. Much of the “overall compensation came in the form of stock.” But, in addition, many “chief executives received generous cash bonuses, a form of compensation that does little to incentivize long-term performance.”

“It’s really an outmoded way of paying,” notes Robert Jackson Jr., a professor of corporate governance at Columbia Law School.

According to The New York Times, these ballooning payouts occur “despite sustained efforts to restrict excessive executive compensation . . . . Employers are no longer footing the tax bills for departing C.E.O.s who enjoy golden parachutes. Supplemental pension plans, which heaped benefits on executives regardless of how well the company did, are largely a thing of the past. Stock awards are mostly tied to performance, not simply awarded at regular intervals.” Moreover, there is more public disclosure of executive compensation, because, it was believed that if “companies have to report C.E.O. pay that is 1,000 times that of the average worker or justify growing pay in spite of weak results, perhaps shame will kick in.” A recent study concluded that C.E.O pay as “a multiple of the typical worker’s pay rocketed from an average of 20 times in 1965 to 295.9 in 2013.”

But The Times concluded, shame “hasn’t worked.” (See, “For the Highest-Paid C.E.O.s, the Party Goes On.”) We have to wonder why?

C.E.O.s actually form a club, a tight-knit oligarchy, and in that group there is only one measure of success. C.E.O.s know where they stand relatively to each other, and they want to be treated with respect. For one thing, many of them sit on the boards that determine the salaries of other C.E.O.s, and the boards make a point of knowing what the “standards” are. They may actually believe that compensation works as an incentive, but it’s probably more a matter of playing by the rules and being “appropriate” and “fair” to members of their group – in that rarefied world.

But there is another factor: the status and power of the oligarchy depends on large sums of money required to sustain their social position. In paying each other such immense sums, they are also ensuring the continuation and power of their class.

It takes a lot of money to pay for the armies of lawyers, accountants, advisors, consultants, lobbyists, and others enabling them to protect the wealth through which they maintain control of the political process, and guard their wealth against taxation. To be sure, they also spend a great deal of cash on their private homes and planes, their art collections, and so forth. And they also want to donate hospital wings, museum galleries, while funding their favorite charities. But the essential expense is about preserving the power and control of the oligarchy itself.

It sometimes seems as if our growing wealth inequality is a mystery, an insoluble problem. But simple changes in the tax code could do much to levy reasonable rates on the income of oligarchs’, eliminate tax shelters, and deplete the estates the super-wealthy pass onto their children.

The “invisible hand” of oligarchy keeps that from happening.

Can Anything Be Done?

Given the amounts of money involved and the sprawling global landscape within which it occurs, it’s no surprise how much insider trading, bribery, deception, and just plain theft occurs in business. This is been augmented by the powerful role played by the financial industry, promoting mergers, acquisitions, restructurings, and divestments, without much interest in making more reliable goods or providing truly useful services. The sums of money involved are irresistible.

Recently, The Economist looking into the effort of containing bribery, noted that “the cost and complexity of investigations are spiraling beyond what is reasonable.” It cited the fact that Siemens, convicted of handing out bribes in developing countries, has “spent a staggering $3 billion on fines and internal investigations” while Walmart “will soon have spent $800m on fees and compliance stemming from a bribery investigation in Mexico.” (See “Daft on Graft.”)

It complained of “a ravenous ‘compliance industry’ of lawyers and forensic accountants” as well as “competing prosecutors” in different jurisdictions getting into the act and, in the process, inflating costs.

In his recent book, Too Big to Jail, Brandon Garrett notes that many efforts to get companies to reform themselves have inevitably backfired. Many regulators and watchdogs tried an approach of “rehabilitating” companies, based on a legal strategy developed with youthful, first-time offenders. The idea is that punishment is deferred, pending efforts by offenders to fix themselves.

Garret notes that some companies really try, but the record is mixed, to say the least. The essential problem is that changing a company’s culture is truly difficult, and even those that set out with good intentions have little idea of the complexities and resistances they will inevitably run into. Moreover, in only 25% of cases is any over-sight provided, and, even when monitors are charged to track compliance with reforms, seldom is any real effort made to check that the monitors are trained, adequately motivated or free from bias.

Fundamentally, the incentives for corruption usually remain in place. In the cases of Siemens and Walmart, western companies were dealing with officials in Africa and parts of Asia where bribery is an accepted way of doing business. No doubt, the company officials charged with managing their entry into those markets felt they had no choice but to go along with those culture’s practices. To be sure, they could have refused to engage in “corruption,” but almost certainly they would have been replaced by others less troubled by the unorthodox requirements of the job.

Corruption is not acceptable, but it will never be fully eradicated. Like the weather, it is something we have to understand and monitor if we are going to be able to cope effectively and limit the damage it can do. It requires constant vigilance, oversight, and, yes, money. It needs regulatory agencies and ambitious (even over zealous) prosecutors, expensive trials, and punishments that target the perpetrators.

Garrett notes the vital role of whistle blowers and informants in calling attention to corruption. Those who go public with their company’s crimes play an indispensible role, though often vilified and shunned by “loyal” co-workers. But he also notes the valuable effects of a simple hot-line to report ethical abuses, something many companies fail to offer.

Among other things we have to over come our own ambivalence about the battle. And he gives a nicely detailed account about how Siemens did finally engage in a massive and successful effort to change its culture. It replaced most of it top management and hired a former minister of finance in Germany to over see its efforts at reform.

Progress is not impossible – just very, very hard.

Our Problem with the Wealthy

It has been a bedrock idea of modern democracy that those who have more should pay more, but throughout history the rich have been remarkably successful in beating back attempts by the poor to dip into their pockets.

To start with, the rich usually have more authority and power. In more recent times, armies of lobbyists and donors to political campaigns, advisors, accountants and lawyers have worked tirelessly behind the scenes to ensure that the tax laws remain favorable to the rich. Oddly, though, the poor themselves seem at best ambivalent about taxing the rich. Why don’t they clamor for a more equitable tax system?

One reason is that so long as America remains “the land or opportunity,” even when that opportunity is increasingly restricted, the poor feel that money is being taken away from them – or will be taken away, that is, when they finally realize their dream of getting rich. It is hard for them to think of government as ever being on their side. They resent the taxes they do not yet have to pay.

In other words people find it hard to give up their illusions about this country even though it has long since ceased to offer what they want and need.

Another explanation was offered recently by a commentator on The Daily Kos, a liberal internet site. “I felt my own poverty was a moral failure . . . . To make up for my own failures, I voted to give rich people tax cuts, because somewhere deep inside, I knew they were better than me. They earned it. My support for conservative politics was atonement for the original sin of being white trash.”

Not everyone feels such depth of self-contempt, but many do feel inferior, inadequate, or self-blaming for their “failures” to achieve their goals. They avoid blaming the system stacked against them, crediting others with the superior qualities they lack.
Both sets of reasons speak to the fact that people have trouble accepting their own shortcomings and weaknesses, and engage in irrational projections onto others in order to protect themselves from deeper feelings of shame and inadequacy.

We are infatuated with wealth; we dream of it in our movies and TV shows. On the other hand, much work is increasingly dysfunctional, under-rewarded, unsatisfying and insecure. Moreover, those who do not have skilled jobs with good pay and mobility when their companies are restructured or bought out, face chronic poverty. The recent groundswell to shore up the minimum wage speaks to our grudging awareness of this problem.

And then there are those in the middle, with skills that are being gradually replaced by robots and smart machines that are cheaper, more reliable, and don’t get sick or protest.
These trends seem inexorable, but they seem to take place in the half-lit world of the unconscious. They are things we don’t really want to face squarely. To be sure, there are statistics, headlines, and occasional news items that refer to these trends, but we seem to prefer to keep the big picture blurry.