Thursday, June 04, 2009

The Culprit In The Socialization of America

Several years ago I gave a speech to an industry association. In it I posited that the absence of serious, independent corporate governance had resulted in inflated executive compensation and that one day corporate America would pay a severe price for not policing itself.

The speech was not well-received.

Under the heading of "I told you so," we now see the price that has been exacted due to companies existing for the benefit of their officers and upper management rather than for their shareholders. Had boards of directors done their job and paid based on performance and paid based on market, executives would make far less than they do today and would not have made themselves such obvious targets for the class war that has begun in America. Moreover, we would not face the socialization of industry that exists today.

We would not be allowing the government to take control of entire industries and interfere with impugnity the market process of determining compensation at the executive level. Had the market, not the good old boy network, determined executive comepensation all along, just as companies determine the compensation of low-level employees, those who wish to empower government to destroy the free market system would not have the executive compensation banner to raise as evidence that the market doesn't work.

Of course, the problem was never the market. The market was never allowed to work when it came to executive compensation. Regretably, just as my argument years ago did not resonate, neither will this argument if only because the General Public wants to punish corporate America for its excesses, even if it means putting a bullet in the back of the free market.

Corporate America has a lot of work to do to regain a modicum of credibility. They can begin by appointing truly independent boards of directors who hold executive management to high standards, pay based on results delivered, and pay the least, not the most, they can justify in base compensation to garner the talent they need to succeed.


Anonymous Dave said...

I completely agree, but will it happen?

Seemingly obvious changes needed around executive compensation are met with such distaste by more than just the elite executives using the same logic the middle class majority applies when they vote for agendas that only benefit the wealthy. They think they will eventually be in that club and want get the benefits due them when they arrive. The sad truth is that they never will.

2:35 PM  

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