The treason of the executives

It has to be bad for business if we can’t trust corporate managers to steal FOR their shareholders rather than FROM their shareholders.

In an earlier post, I criticized the mangement of General Motors for preferring partisanship and class interest to corporate self-interest in turning down the Clinton health policy deal.

In response, Matt Yglesias points out that the GM managers were acting against the interest of their employer, but entirely consistently with their own personal financial interests. He writes:

…as long as corporate America is governed in such a way as to create incentives for this sort of irresponsible political behavior on the part of corporate managers, it will be very hard to cope with serious national problems.

That’s right. But it’s not just national problems that won’t get solved if managers act for themselves and not their companies, it’s business problems. As top corporate salaries have soared, the loyalty of the recipients of those salaries to their employers has become increasingly questionable.

John Stuart Mill thought that the shareholder-owned, employee-managed corporation, with its division of decision-making from ownership, wouldn’t work and would turn out to be a stepping-stone to socialism. So far, of course, that hasn’t turned out to be a problem. Indeed, we’ve had to deal with the opposite problem: corporate bureaucrats so fiercely loyal to their companies’ interests that consumers, workers, and the local environment need to be defended against their vicarious greed. (It’s been argued that business schools exist less to teach skills than to inculcate the value of loyalty to shareholder interests.)

Now, though, it’s clear that we can’t universally trust CEOs and CFOs and their tame board members to steal for their shareholders rather than from their shareholders. In the long run, that’s likely to be very bad for business. And, in the long run, what’s bad for business is bad for the country.

The article comparing overpaid disloyal CEOs to overpaid disloyal third basemen and quarterbacks is just begging to be written.

Update In honesty, I should report that William F. Buckley agrees that there’s something morally rotten in the executive-compensation system. Of course, Buckley’s assent is a strong reason for doubting the truth of a proposition.

Nonetheless, it might be true.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: