The CEO Myth and Romney’s Misleading Rhetoric

The Health Care Renewal blog talks about how hospital systems today are often being run into the ground by executives that don’t know squat about health care. The nice folks at the blog were therefore pleased to tell us about an article by Gretchen Morgenson in the New York Times in September:

http://hcrenewal.blogspot.com/2012/10/more-reasons-to-doubt-how-ceos-are.html

http://www.nytimes.com/2012/09/23/business/ceos-and-the-pay-em-or-lose-em-myth-fair-game.html?_r=0

Morgenson in turn reported on a study conducted by Charles M. Elson and Craig K. Ferrere of the University of Delaware. These folks looked at the argument used by corporate boards to justify sky-high pay for their CEOs—that the CEO of one successful company is likely to jump ship and go work for another big firm unless well compensated, and so to decide fair CEO pay, the board needs to look at a wide range of comparable firms. That in turn assumes that the successful CEO has extensive general knowledge of how businesses work, and can easily transfer those skills from a company that makes automobiles to one that makes computers or pharmaceuticals.

Elson and Ferrere looked at the record and decided that this idea of easily transferable skill is a myth. CEOs, it turns out, do better by far when they stick to the company that they know and understand. If they try to take on a very different sort of firm, they usually flop. In short, it really does matter whether the company you run makes widgets or something else.

What does this have to do with today’s presidential politics? Somehow Gov. Romney has pulled the wool over most everyone’s eyes through his mantra that as a successful businessman, he knows what it takes to get the nation’s economy back on track. Now, this is wrong at almost too many levels to count. As Paul Krugman has pointed out repeatedly, what a businessman needs to know to run a firm and what government leaders need to know are radically different things. Krugman also recently pointed out:

http://www.nytimes.com/2012/10/19/opinion/krugman-snow-job-on-jobs.html?partner=rssnyt&emc=rss

--that Gov. Romney has had the gall to say that not only is he an experienced businessman; he’s also experienced in small business—pointing to the few employees Bain Capital had when it started up.

Now, my daughter may know something about starting up a small business. She worked for a while making artfully decorated cake pops for some local shops and private parties, and had to fill out a ton of forms to get the required permits. But if she was bankrolled when she started out to the tune of $37 million—the amount of dough that Bain Capital had at its disposal as a “small business startup”—then somehow I missed hearing that fact.

So Romney is wrong when he tells us that because he once ran a business, he knows how to be President and run the nation’s economy so as to make more jobs. But the Delaware study shows that he‘s even more wrong because he suggests that because he knew how to run one business, he must know all about all businesses. That, as their CEO survey reveals, is pure hogwash.

So why does the American voter so eagerly lap up this nonsense? That’s where we’re back to the seductive powers of the quasi-religion known as economism.