Finally he is back. Bill Maher’s new season of ‘Real Time’ started again last Friday. He is one of the funniest guys on TV in North America right now, and certainly one of the smartest. The first show this season was all about – yes – the economy. Could you have imagined that in normal times? ‘The economy? On a comedy program??’ But here we are.
The show started off with reminding us that the crisis on Wall Street is just about to unravel, we have just seen the beginning. ‘Skank of America’ or ‘Shittybank’ (BM) are still close to the abyss, despite the earlier $700bn bailout. The central contention of the show was this: should the government be involved with another bailout, or should we just allow the system to collapse. After all, this is America, the home of the free market and individual liberty. Let the market sort it out, so Ron Paul on the show.
That didn’t go down well with the other guests. Crystia Freeland, North America Editor of the Financial Times, wasn’t having any of it. Her best comment was that since the bankers of the private sector had failed on such a megalomaniac scale, putting government bureaucrats in charge could certainly not make things worse, hopefully even better. Could you have imagined such a benevolent statement about government involvement in the economy from a Financial Times editor a year ago?
It was fascinating to see how ethical issues dominated the entire program. Congresswomen Maxine Waters, another guest, made an interesting suggestion: there should be the ‘Nuremberg trial for bankers’! That, however, was at least more realistic than Bill Maher’s very funny black humored piece on just ‘hanging’ two bankers, you know, symbolically. As they did in China with the managers who caused the milk scandal some months ago. That might teach these Wall Street guys a lesson…
It is a time of deep navel gazing in America and beyond. Bill Maher’s suggestion was that the last years have given rise not to the ‘American dream’ but rather to the ‘American fantasy’. What happened was not the pursuit of happiness through hard work which makes dreams come true but luring people into the illusion to raise their standard of living based on money that didn’t exist. And he concluded: ‘There is a difference between a fantasy and a dream. Boy do I know!'…
Monday, February 23, 2009
Sunday, February 8, 2009
Ethics of executive pay limits
As discussed in our last blog, executive compensation is a hot ethical issue at the moment. There's been lots of talk about the ethics of excessive salaries, especially for the Wall Street 'fat cats' and the rogue's gallery of bosses who took home big bonuses whilst their firms went looking for government bailouts in the wake of the financial crisis.
But now we have a new ethical question: what about the solution proposed by Barack Obama this week? Should we applaud Obama's proposal to limit the compensation of all senior executives at any companies receiving 'exceptional' government loans to $500,000? Has Obama's executive 'paydar' hit ethical pay dirt?
The executive pay limit has certainly stirred a lot of debate. On the one side are those that view it as an appropriate response to protect the public interest given the amount of public money that is being pumped into failing companies. Many believe that government's have moral duty to ensure that the taxpayer's money does not simply disappear into the pockets of senior executives. On the other side are those that argue that the pay limit will burden already struggling firms with an inability to attract the best executive talent. As one analyst told Bloomberg Television "No one goes into Wall Street to save the world ... compensation is the motivating factor." These folks tend to think that governments shouldn't interfere in labour markets to 'fix' wages as this leads to unnecessary inefficiencies - and can harm the very industries that the government is seeking to rescue.
From an ethical point of view, and put rather crudely, this is largely a question of principles versus consequences. But given that we're off the page at the moment in terms of the usual 'rules of the game', this is pretty much an ethical free for all. No one really can say for sure what the rights or responsibilities are of governments in situations like this because we haven't got too many precedents to work it all out from. And who knows what the consequences will be when no one is very sure at the moment what's going to happen next anyway. These are uncertain times indeed. One thing we do know though is that if the big threat looming over all this is that Wall Street will lose it's best talent because the grass is, well ... greener elsewhere, then maybe we shouldn't really be all that concerned anyway. After all, executives that have no concern for the public interest, who think that paying themselves bonuses while their employees are being laid off is good management, and who pretty much launched us into the most devastating financial crisis of our times might not be exactly the kind of 'talent' we need right now.
But from our point of view, all this ethical to-ing and fro-ing is probably missing the bigger point anyway. The real issue here is not so much the rights or wrongs of the Obama proposal itself, but the bigger message it is sending about executive compensation and corporate governance. Read between the lines and what the US President is saying is this: 'the system isn't working right, so get your act together and fix it or we'll do it for you - and you won't much like the results if we do'. And it's not just in the US - according to the FT, European governments are beginning to float similar ideas too.
Now, it is unlikely that any of these governments will step further than paycaps in bailed out institutions - after all this is where they have a more direct stake. But the writing is on the wall that they will have their eyes on deeper governance reforms if firms continue to revel in what Obama calls 'shameful' compensation deals. Smart firms and industry bodies, not to mention the more forward thinking think tanks and reformers, should be taking this opportunity to get ahead of the curve and start crafting a new moral direction for corporate governance. The deeper questions about what kinds of success should exec comp be rewarding, and how should this be structured to achieve fair rewards for all stakeholders need to be back on the front burner - and quickly so. Time is of the essence before another dirty bomb gets launched into mangled mess of Wall Street.
Photo copyright David Paul Ohmer. Reproduced under Creative Commons license
But now we have a new ethical question: what about the solution proposed by Barack Obama this week? Should we applaud Obama's proposal to limit the compensation of all senior executives at any companies receiving 'exceptional' government loans to $500,000? Has Obama's executive 'paydar' hit ethical pay dirt?
The executive pay limit has certainly stirred a lot of debate. On the one side are those that view it as an appropriate response to protect the public interest given the amount of public money that is being pumped into failing companies. Many believe that government's have moral duty to ensure that the taxpayer's money does not simply disappear into the pockets of senior executives. On the other side are those that argue that the pay limit will burden already struggling firms with an inability to attract the best executive talent. As one analyst told Bloomberg Television "No one goes into Wall Street to save the world ... compensation is the motivating factor." These folks tend to think that governments shouldn't interfere in labour markets to 'fix' wages as this leads to unnecessary inefficiencies - and can harm the very industries that the government is seeking to rescue.
From an ethical point of view, and put rather crudely, this is largely a question of principles versus consequences. But given that we're off the page at the moment in terms of the usual 'rules of the game', this is pretty much an ethical free for all. No one really can say for sure what the rights or responsibilities are of governments in situations like this because we haven't got too many precedents to work it all out from. And who knows what the consequences will be when no one is very sure at the moment what's going to happen next anyway. These are uncertain times indeed. One thing we do know though is that if the big threat looming over all this is that Wall Street will lose it's best talent because the grass is, well ... greener elsewhere, then maybe we shouldn't really be all that concerned anyway. After all, executives that have no concern for the public interest, who think that paying themselves bonuses while their employees are being laid off is good management, and who pretty much launched us into the most devastating financial crisis of our times might not be exactly the kind of 'talent' we need right now.
But from our point of view, all this ethical to-ing and fro-ing is probably missing the bigger point anyway. The real issue here is not so much the rights or wrongs of the Obama proposal itself, but the bigger message it is sending about executive compensation and corporate governance. Read between the lines and what the US President is saying is this: 'the system isn't working right, so get your act together and fix it or we'll do it for you - and you won't much like the results if we do'. And it's not just in the US - according to the FT, European governments are beginning to float similar ideas too.
Now, it is unlikely that any of these governments will step further than paycaps in bailed out institutions - after all this is where they have a more direct stake. But the writing is on the wall that they will have their eyes on deeper governance reforms if firms continue to revel in what Obama calls 'shameful' compensation deals. Smart firms and industry bodies, not to mention the more forward thinking think tanks and reformers, should be taking this opportunity to get ahead of the curve and start crafting a new moral direction for corporate governance. The deeper questions about what kinds of success should exec comp be rewarding, and how should this be structured to achieve fair rewards for all stakeholders need to be back on the front burner - and quickly so. Time is of the essence before another dirty bomb gets launched into mangled mess of Wall Street.
Photo copyright David Paul Ohmer. Reproduced under Creative Commons license
Saturday, January 31, 2009
‘Shameful’.
That was President Obama’s comment on this week's news that Wall Street Bankers had been paid a total of $18.4bn in bonuses for 2008. The very banks in fact that had just received a multibillion dollar bailout package from the government, i.e. the American taxpayer. The most blatant case being Merrill Lynch (annual loss 2008: $15.3bn) which paid bonuses earlier than normal in December, just before being taken over by Bank of America with expected new government funding of $20bn.
The news came on the day when we discussed the corruption perception index of Transparency International in class at Schulich. We had a nice discussion why it is that often poor countries range high on the list and one student suggested that in poorer countries bribes are just that much more seductive as people are relatively poorer, and therefore more tempted to take advantage of a situation. But its not just poverty: comparing Sweden and Italy – countries of similar wealth one could argue – it is interesting to see the difference of more than 4 points on the 10 point scale. Italy is a more collectivist culture, where family ties and long term relationships matter more than in individualistic and meritocratic countries.
From an ethical perspective the question really is: why is it so much more corrupt to succumb to the temptations of poverty or to give preferential treatment to friends and family (earning you a bad score on the TI index) than to do what has been standing practice in business now for decades: to reward managers according to the market performance of the assets under their fiduciary trust?
These practices raise eyebrows and produce anger (one has hardly seen Obama so agitated in 2 years on the campaign trail) now where these bonuses come directly out of the taxpayers’ pockets and happen in the face of utter failure of the rewarded managers. But in our view it just exacerbates the general issue: what exactly is the ethical justification for the explosion of executive compensation particularly in the Anglo-Saxon parts of the world? Being rewarded for success – fine. But more often than not, the link between stock prices and individual managers’ performance is more than tenuous.
This ‘height of irresponsibility’ (Obama) will ask for new rules for the game. Obama will hardly avoid addressing this problem of executive compensation. Certainly in the eyes of most Americans (and the rest of us, for that matter) there is something deeply questionable about these practices. Bank of America CEO Thain has resigned over the scandal. Whether he paid back his bonus though was not reported…
The news came on the day when we discussed the corruption perception index of Transparency International in class at Schulich. We had a nice discussion why it is that often poor countries range high on the list and one student suggested that in poorer countries bribes are just that much more seductive as people are relatively poorer, and therefore more tempted to take advantage of a situation. But its not just poverty: comparing Sweden and Italy – countries of similar wealth one could argue – it is interesting to see the difference of more than 4 points on the 10 point scale. Italy is a more collectivist culture, where family ties and long term relationships matter more than in individualistic and meritocratic countries.
From an ethical perspective the question really is: why is it so much more corrupt to succumb to the temptations of poverty or to give preferential treatment to friends and family (earning you a bad score on the TI index) than to do what has been standing practice in business now for decades: to reward managers according to the market performance of the assets under their fiduciary trust?
These practices raise eyebrows and produce anger (one has hardly seen Obama so agitated in 2 years on the campaign trail) now where these bonuses come directly out of the taxpayers’ pockets and happen in the face of utter failure of the rewarded managers. But in our view it just exacerbates the general issue: what exactly is the ethical justification for the explosion of executive compensation particularly in the Anglo-Saxon parts of the world? Being rewarded for success – fine. But more often than not, the link between stock prices and individual managers’ performance is more than tenuous.
This ‘height of irresponsibility’ (Obama) will ask for new rules for the game. Obama will hardly avoid addressing this problem of executive compensation. Certainly in the eyes of most Americans (and the rest of us, for that matter) there is something deeply questionable about these practices. Bank of America CEO Thain has resigned over the scandal. Whether he paid back his bonus though was not reported…
Tuesday, January 27, 2009
World's stupidest Gaza boycotts?
As a follow-up to our last post, this interesting blog entry from the folks at Foreign Policy may raise some laughs .. or a few hackles. The comments are interesting too. Thanks to Kejia for alerting us to this one...
The world's stupidest Gaza boycotts
Predictably, Israel's continued assault in Gaza has led to renewed calls to boycott Israeli products. Everyone has a right to express their political views any way they see fit, but it's safe to say that some proposed boycotts are less productive than others.
More than 2,000 restaurants in Malaysia have removed coca-cola because of the United States' support of Israel. The Malaysian Muslim Consumers Association has also pushed for boycotts of Starbucks, Colgate, McDonald's and Maybelline in order "to protest Zionist cruelty."
Coca-Cola is a particularly odd target since it's bottled and sold locally by a Malaysian-owned company, so the activists are really just hurting their own country's economy. (I remember from college that students campaigning for a campus boycott against "killer coke's" Latin American business practices faced the same problem.) It's also ironic given that the company was once criticized as anti-Semitic because of its reluctance to break an Arab League boycott by selling coke in Israel.
Post continues ....
The world's stupidest Gaza boycotts
Predictably, Israel's continued assault in Gaza has led to renewed calls to boycott Israeli products. Everyone has a right to express their political views any way they see fit, but it's safe to say that some proposed boycotts are less productive than others.
More than 2,000 restaurants in Malaysia have removed coca-cola because of the United States' support of Israel. The Malaysian Muslim Consumers Association has also pushed for boycotts of Starbucks, Colgate, McDonald's and Maybelline in order "to protest Zionist cruelty."
Coca-Cola is a particularly odd target since it's bottled and sold locally by a Malaysian-owned company, so the activists are really just hurting their own country's economy. (I remember from college that students campaigning for a campus boycott against "killer coke's" Latin American business practices faced the same problem.) It's also ironic given that the company was once criticized as anti-Semitic because of its reluctance to break an Arab League boycott by selling coke in Israel.
Post continues ....
Thursday, January 22, 2009
Should business boycott Israel?
With all the excitement in Washington over Barack Obama's inauguration, it may be tempting to put to one side for a little while the continuing problems in Gaza that so occupied the public and media attention throughout the last month. But one person clearly not watching Obama's swearing-in ceremony was the UN Secretary-General Ban Ki-moon who spent the day visiting the Gaza strip and Southern Israel. As the world's media widely reported, Ban, standing in front of the smoking rubble of a UN building described the scenes as "heartbreaking", and condemned the destruction as "outrageous, shocking and alarming".
It was an important and symbolic visit by the UN leader who was careful not to take sides in his condemnation of the "excessive force" used by both Israel and Hamas. And it clearly serves to highlight the fragility of the current ceasefire and the need for more determined resolve in finding a lasting solution to the problem. But the burning question, of course, is how can genuine progress to be made in such a complex and volatile political situation?
One suggestion recently put forward by the Canadian activist and author Naomi Klein is that businesses and consumers should take a role in addressing the conflict by actively boycotting Israel. Citing the Palestinian campaign group Boycott, Divestment and Sanctions (BDS). Klein argues that "economic sanctions are the most effective tools in the nonviolent arsenal." And she is not just talking about economic sanctions at the governmental level, but at the level of individual consumers and businesses too.
In fact, her two main examples of anti-Israel boycotting are both business-level actions: first, her own decision to switch publishers in Israel from a commercial publishing house to a small, anti-occupation acivist publisher; and second, a British telecom company, Freedomcall, which had recently sent an e-mail to the Israeli tech firm MobileMax saying "as a result of the Israeli government action in the last few days we will no longer be in a position to consider doing business with yourself or any other Israeli company."
Boycotts against Israel have been mooted, or activated, by academics, journalists and others in recent years - typically to storms of controversy. In the US, companies participating in anti-Israel boycotts can even be fined. However, recent developments in Gaza have clearly prompted a fresh look at some of these tactics by some, although specific instances of boycotts by western companies still appear to be very rare. Our very unscientific search only came up with one other report from the last two weeks - of a London-based Pashmina company which had joined a voluntary boycott on Israel due to "the horrors committed by the Israeli army". However, Ethical Performance also recently reported on Unilever selling its stake in a factory in an illegal Israeli settlement on the West Bank – but also noted that despite the protestations of campaign groups, had done so as part of a broader divestment process from non-core business rather than any "ethical considerations".
Similar protestations of what Klein calls "cold business calculation" are also evident at Freedomcall, where the managing director is quoted by her as saying "We can't afford to lose any of our clients, so it was purely commercially defensive." Such amoral language and the refusal by business to acknowledge that they are also involved in politics is not unusual. But what is unusual is Klein's appararent readiness to accept that business should be taking an active role in state politics, depsite (or even because of) their focus on commercial self-interest. The author of No Logo and The Shock Doctrine is better known for criticising the role of the private sector in the public domain.
It seems unlikely to us that too many companies will feel comfortable joining an anti-Israel boycott, whether for commercial or political reasons. Why? Well, the ethics are simply too contentious for most business leaders to be comfortable making that kind of a call. Apartheid-era South Africa, or the current situation in Burma have a degree of moral consensus that presages corporate decision-making in a way that the problems in Gaza do not. Yes, maybe business leaders should be encouraged to stand up for what they believe in, but this is less likely to happen when they think their customers and other stakeholders might not agree with them. If even Ban Ki-moon is so careful in choosing and balancing his words of censure, corporations will no doubt tread even more carefully. Only concerted efforts by consumer groups and NGOs will be likely to change their views on whether a political boycott makes good sense. For better or for worse, that is the cold hard logic of business that Klein will have to recognize.
Photo copyright Tom Spender
It was an important and symbolic visit by the UN leader who was careful not to take sides in his condemnation of the "excessive force" used by both Israel and Hamas. And it clearly serves to highlight the fragility of the current ceasefire and the need for more determined resolve in finding a lasting solution to the problem. But the burning question, of course, is how can genuine progress to be made in such a complex and volatile political situation?
One suggestion recently put forward by the Canadian activist and author Naomi Klein is that businesses and consumers should take a role in addressing the conflict by actively boycotting Israel. Citing the Palestinian campaign group Boycott, Divestment and Sanctions (BDS). Klein argues that "economic sanctions are the most effective tools in the nonviolent arsenal." And she is not just talking about economic sanctions at the governmental level, but at the level of individual consumers and businesses too.
In fact, her two main examples of anti-Israel boycotting are both business-level actions: first, her own decision to switch publishers in Israel from a commercial publishing house to a small, anti-occupation acivist publisher; and second, a British telecom company, Freedomcall, which had recently sent an e-mail to the Israeli tech firm MobileMax saying "as a result of the Israeli government action in the last few days we will no longer be in a position to consider doing business with yourself or any other Israeli company."
Boycotts against Israel have been mooted, or activated, by academics, journalists and others in recent years - typically to storms of controversy. In the US, companies participating in anti-Israel boycotts can even be fined. However, recent developments in Gaza have clearly prompted a fresh look at some of these tactics by some, although specific instances of boycotts by western companies still appear to be very rare. Our very unscientific search only came up with one other report from the last two weeks - of a London-based Pashmina company which had joined a voluntary boycott on Israel due to "the horrors committed by the Israeli army". However, Ethical Performance also recently reported on Unilever selling its stake in a factory in an illegal Israeli settlement on the West Bank – but also noted that despite the protestations of campaign groups, had done so as part of a broader divestment process from non-core business rather than any "ethical considerations".
Similar protestations of what Klein calls "cold business calculation" are also evident at Freedomcall, where the managing director is quoted by her as saying "We can't afford to lose any of our clients, so it was purely commercially defensive." Such amoral language and the refusal by business to acknowledge that they are also involved in politics is not unusual. But what is unusual is Klein's appararent readiness to accept that business should be taking an active role in state politics, depsite (or even because of) their focus on commercial self-interest. The author of No Logo and The Shock Doctrine is better known for criticising the role of the private sector in the public domain.
It seems unlikely to us that too many companies will feel comfortable joining an anti-Israel boycott, whether for commercial or political reasons. Why? Well, the ethics are simply too contentious for most business leaders to be comfortable making that kind of a call. Apartheid-era South Africa, or the current situation in Burma have a degree of moral consensus that presages corporate decision-making in a way that the problems in Gaza do not. Yes, maybe business leaders should be encouraged to stand up for what they believe in, but this is less likely to happen when they think their customers and other stakeholders might not agree with them. If even Ban Ki-moon is so careful in choosing and balancing his words of censure, corporations will no doubt tread even more carefully. Only concerted efforts by consumer groups and NGOs will be likely to change their views on whether a political boycott makes good sense. For better or for worse, that is the cold hard logic of business that Klein will have to recognize.
Photo copyright Tom Spender
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