I’m no economist nor management or business guru, so I have
no idea how widely shared are Prof. Mintzberg’s views. I recount them here in
some detail first, because they make a lot of sense, and second, because they
expose many of the flaws of economism in the form that it takes in actual
practice (which is quite distinct from economism as theory, which has its own
set of problems).
Mintzberg starts off noting that many are recommending
changes to the system of paying bonuses to top corporate execs. This, he says,
is a waste of time; it is far better just to eliminate all such bonuses. The
system, he argues, is not fixable. He goes on to call it like it is: “Executive bonuses—especially
in the form of stock and option grants—represent the most prominent form of
legal corruption that has been undermining our large corporations and bringing
down the global economy.” Note the key word corruption—we
are far too ready to attribute corruption to banana republics and to ignore
corporate behavior in the U.S. that fits that description.
Mintzberg
next explains what sorts of incentives bonuses provide for executives. Instead
of real corporate leadership, they tend to act like gamblers—which is easy
because these bonuses allow them to gamble with other people’s money and with
all the rules rigged in their favor. When the stock price of the company goes
up in the short run, they win—which is, as Mintzberg comments, a good incentive
to “make
sure to have your best cards on the table, while you keep the rest hidden in
your hand.” And if, despite all the rules in your favor, you still
lose, then you quit, and you get to cash in your golden parachute. As Mintzberg
summarizes, “Who, playing such games, wouldn't take substantial risks? What's to
lose? If more executives these days were as creative in doing their jobs as
they are in getting compensated for them, we would be in a period of boom, not
bust.”
Still,
optimists insist that if they just tinkered around the edges, they could fix
exec bonuses so that they rewarded the right behavior and then everything would
be great. Mintzberg goes on to say, no way, because that way of thinking is
based on three big myths:
·
A company’s overall health is represented accurately by its financials,
especially by the current stock price.
·
Performance measures, if suitably calibrated for the long term, show the
company’s real strength and so could be used to set executive pay.
·
It’s primarily a few guys at the top, today, who are responsible for a
company’s performance.
Mintzberg
says all these ideas are crazy. He seems to believe in some old-fashioned ideas—like
for example that a company’s true strength might lie in its goodwill and its
reputation, which in turn might be based on something like (gasp) the quality
of its products and services. And stop giving all the credit to the CEO as if
he’s some sort of god. If the company does well three years from now, it may be
that the CEO was a whiz, or that the old CEO made some good moves that are just
now starting to kick in, or that the line workers are doing a great job and the
CEO is clueless, or any number of other things.
The
very idea that the CEO is such a big deal is part of what today undermines the
modern corporation: “Put differently, executive compensation these days reinforces a class
structure within the enterprise that is antithetical to its effective
functioning. Because of its symbolic nature, executive compensation as
currently practiced sends out the worst possible signal to everyone in the
enterprise.”
So what are bonuses good for?
Mintzberg concludes that the only thing they do is weed out the people you don’t
want to be the CEO, if they demand a bonus: “At the worst, you get a self-centered narcissist. At the
best, you get someone who is willing to be singled out from everyone else by
virtue of the compensation plan. Is this any way to build community within an
enterprise, even to foster the very sense of enterprise that is so fundamental
to economic strength?
“Accordingly, executive bonuses provide the perfect tool
to screen candidates for the CEO job. Anyone who insists on them should be
dismissed out of hand, because he or she has demonstrated an absence of the
leadership attitude required for a sustainable enterprise.”
If the end result is that a lot of the folks now being
considered for CEO jobs are weeded out, that’s a good thing, says Mintzberg.
Much better we get rid of those yo-yos and find a new generation of corporate
leaders who actually care about the corporation and its success: “All this compensation madness
is not about markets or talents or incentives, but rather about insiders
hijacking established institutions for their personal benefit.”
And
that, I believe, is a pretty good working definition of corruption.
I appreciate Mintzberg’s statement that this business of
paying big bonuses to CEOs is not about “markets” at all—yet corporate
apologists keep on saying that you have to pay these bonuses because it’s what
the market demands. This is how economism, when people actually try to put its
incoherent and illogical ideas into practice, ends up breaking down. The market
is invoked as a shibboleth for all sorts of cronyism and corruption that is all
about the privilege of those in power and has nothing to do with any semblance
of “free” markets.
