In1 the 70’s CEO compensation was based on the size of the company. So, companies became bigger and bigger, even when it didn’t make sense. In the 80’s unscrupulous/valiant corporate raiders/shareholder rights advocates took advantage/fought this trend in frequently lucrative ways.
As a result, there was a desire to tie management and CEO compensation directly to owner wealth creation, so companies started issuing stock options. Which still didn’t align management and owner’s interests because management suddenly was more interested in stock volatility than in long term growth. So, the 2008 financial crisis happened.
And no, it wasn’t because of unscrupulous business men, unless you want to include unscrupulous government actors, the largest of which is Congress (both sides, all of them, with very few exceptions). Congress had already passed Sarbanes Oxley, as if we could legislate away already illegal behavior, under the theory that auditors self interest can be managed by government managers2. It did approximately squat in 2008, and unlike the 1980’s S&L scandal, virtually nobody went to jail, retired, or even lost their promotion.
We have a leadership problem in this country. We have managers and politicians running our organizations, not leaders or stewards. Google stewardship. Go ahead, I dare you. On the front page I found five definitional or lexical links (e.g. Merriam-Webster), five religious, and Wikipedia, which mostly talked about stewardship of the environment. Apparently, we have the concept of stewardship. but only religious nuts3 care about it.
It’s not like this is a new issue4:
When power, therefore, is placed in the hands of so small a number of men, as to admit of their interests and views being easily combined in a common enterprise, by an artful leader, it becomes more liable to abuse, and more dangerous when abused, than if it be lodged in the hands of one man; who, from the very circumstance of his being alone, will be more narrowly watched and more readily suspected, and who cannot unite so great a mass of influence as when he is associated with others.
In government, we talk about governance theory, because it would be disreputable to tie manager compensation to organization outcomes, or something. And when government bonuses come up, it’s usually not in a good way. Despite the potential for bonuses to tie managers self-interest to organizational results, without a profit motive, there is little tying those granting the bonuses to those same outcomes. It quickly devolves into managing optics, not results.
Despite all the crap I pulled prior, during, and after the 2014 Grand Jury document release; after a $1.2 million forensic audit documenting, amongst other things, a pay for play scheme: after at least $30 million in illegal payments to a single vendor; I got in trouble for a draft internal report reviewed by a couple outsiders, because it would make the District look bad if released, and imperil its ability to raise bond funds5.
In our talking about managerial conflict of interest, the most obvious conflicts are never mentioned. The interest of managers to look good, please their boss, go on vacation, not work hard, pull a nice paycheck, jump to that next rung, or better job, and retire handsomely. At my work, I don’t know anyone in management6 that is willing to risk any of this to do right. If they were, they wouldn’t be management7.
The idea of doing what’s right, instead of what’s rewarded is so endemic we don’t even notice it. When I was a whistleblower, occasionally I would get asked why I was doing it. I always wondered about that question, because I thought it was obvious. I doubt anyone in management ever understood any of my answers. But if they did, they only understood in the way bird watchers understand how birds fly.
I hope where you work is better, but I doubt it. I’m willing to be wrong.