Forget the Bailout – CEOs Need To Stop Stealing
In one important way, I am a lot like John McCain. When it comes to money and finance, I know what I don’t know. Case in point: I am not allowed to touch the checkbook in our house, under any circumstances. I am not exactly certain what drawer the checkbooks are kept in. Trust me, it’s better that way.
I pretty much get an allowance, including a role of quarters for parking meters, and I always overspend on that. My wife, bless her, anticipates this. As I said, I recognize my shortcomings.
Up until about a month ago, the Republican Presidential candidate never had a problem admitting this, either. I’m not all that well-versed on the economy, Senator McCain told us, paraphrasing. That’s why I look for good people to help me there – including Warren Buffett, who’s voting, he claims, for Barack Obama. And, presumably, Mrs. McCain, a beer-distributor zillionaire, who can handle my money for me, any time she wants. Like her husband, I can spot talent, too.
All that changed, of course, when Wall Street suddenly fell down and couldn’t get up. Then came news of the government-backed bailout, and then came Senator McCain’s October surprise – he was taking time off from the Presidential race to figure out what was happening in Washington and in Congress and on Wall Street. And he invited his adversary to join him. This was about three days before one of their nationally-televised debates.
It was at that precise moment, I believe, that the majority of the American people, stopped whatever it was that they were doing, gulped, and decided to take one more long, hard look at both of these candidates. That was also when McCain’s numbers started to go down and have never stopped. The minute the American people wise up and start counting the change in their pockets, you can pretty much depend on them to snap out it and do the right thing.
Barack Obama probably just rolled his eyes when he heard that, pretty much the way he must have rolled his eyes when he saw Sarah Palin being introduced as McCain’s running mate for the very first time. I have this secret vision of Michelle Obama reaching over to her husband that night, maybe they were watching television in the living room of a hotel suite after putting the kids in bed for the night, sipping drinks and trying to get enough rest to get ready for the next day. His tie was off and she had her shoeless feet propped up on the living room table in the suite, resting them on a pillow. They both looked and felt exhausted.
Obama took another drink – a big one – and his wife muttered something to him about, “that pig in lipstick.”
At least that’s the way I want to believe it happened, because that’s how it would have happened between me and my wife, if one of us were running for President.
Money will ultimately decide this election – not leadership, or patriotism or the war on terror. And, there is nothing wrong with that. People have been voting with their wallets for generations.
This time, in terms of money – our money – there have been so many hands in the cookie jars of corporate America that if you started arresting people for grand theft, you would run out of federal prison cells so quickly that you would have to start using tents, instead.
That’s the current moral outlook of the men and women (but mostly men) who run corporate America. That is, never steal anything small. Never leave any money on the table. Never give the investors an even break, not if you can chisel them, instead.
This isn’t business strategy. This isn’t anything-goes-hardball on Wall Street. This is stealing. This is jamming your pockets with cash and getting the hell out of town. This is the kind of stealing that, if you do it in the Third World, and you get caught, they make you stick out your right hand and then they cut it off.
No one is calling for that to start happening here, in America, but no one is talking against it, either. That’s how bad things have gotten, money-wise, and that’s why this will be a money election.
Every once in a while I do some work for the Wharton Business School at the University of Pennsylvania. I take the brilliant research that’s done by their faculty members and I write stories about it for their online publication – Knowledge@Wharton.
Last month, one of their top professors, Peter Cappelli , a management expert, among other things, was the focus of a very insightful article (not one of mine, unfortunately.)
AIG, Bear Stearns, Fannie Mae and Freddie Mac needed government bailouts or takeovers to survive. Lehman Brothers is in bankruptcy. Merrill Lynch has been sold. The shocking succession of corporate meltdowns signals a massive leadership failure across the financial services landscape, according to Wharton faculty. Executives at these troubled firms may have ignored or failed to see the level of risk their companies were taking on in a crusade to enhance results and their own compensation. When markets turned against them, their firms — big as they were — crumbled.
Wharton management professor Peter Cappelli says this type of lapse in leadership dates to the 1980s when companies began to focus on aligning executive incentives with shareholder interests. He believes an excessive focus on individual financial goals, at the expense of managing in the best interests of the company overall, is at the root of the leadership debacle that has rocked the financial services sector.
“We ought to start thinking about whether this idea is really working,” says Cappelli. “It seems to work for the people in charge, but is it really working for the company? It’s certainly not working in the broader society. The shareholders and the executives who have shares in the company are in trouble, but this is spilling over into the economy in a way that I haven’t seen before.
Cappelli says too many managers simply choose not to lead. He says managers believe that if they hire smart people and provide huge financial incentives for individual results, management of the firm will take care of itself.
“If they hire smart people . . . management of the firm will take care of itself.” Unless I am mistaken, this is the economic plan that John McCain originally proposed. It is also the plan that George W. Bush endorsed and it is unmistakably the greed-is-good philosophy that Ronald Reagan created back in the anything-goes 1980’s.
There’s one big problem here: it doesn’t work, it has brought us to our knees, financially-speaking, and it gives the CEOs and bosses at the top a license to steal.
The way it works right now is that if you are the big, big boss, your salary is tied-in directly to how much money the stock-holders are making to be making, on paper. No limits. Feel like making $200 million a year? That’s cool; just keep churning the shares of your company in the stock market to manipulate the numbers, inflate them and keep them artificially high. If that means making bad loans and taking too many huge risks, so be it. Churn and churn and churn. You always pay yourself, first. The first place we saw this was in the old business. Now, it is everywhere.
This is stealing. This is wrong. There are no other words. You are getting paid, not for what you do, or know, but for the phony paper profits you can generate in Wall Street’s thin atmosphere.
Before the 1980s and the Reagan greed revolution, this was not the case.
There was a limit to how much you could make and there was also an expectation that you had to be good at something – sales, marketing, management, invention, whatever – in order to get the top job, in order to get any job.
The “trickle down” philosophy of greed – the one that George Bush, the father, ridiculed as “voodoo economics”, when Ronald Reagan first proposed it, has brought us to the catastrophe we now face.
I have a piece of advice for the people in the government who are now writing the checks for the Great Corporate Bailout.
Stop tying-in executive compensation to artificial stock market profits. That’s killing the economy.
Start paying CEOs and big bosses a salary, just like everybody else, a salary that a board of directors has the guts to set and stick to. And, if the CEOs and the bosses at the top don’t like that – let them go out and look for another job, just like everybody else.Tags: Bailout, Money