Executive Compensation (Part II): Paying Failure

In late September 2011, Léo Apotheker was fired after 11 months as CEO at Hewlett-Packard. As a reward, he walked with $13.2 million in cash and stock, in addition to a sign-on package worth about $10 million, according to the New York Times. A month earlier, Robert P. Kelly received severance worth $17.2 in cash and stock when he was fired as CEO of Bank of New York Mellon. Even his clashing with board members and senior managers did not obstruct his nice severance package. A few days later, Carol Bartz was let go as CEO of Yahoo with nearly $10 million in spite of the company’s poor performance. Back in April 2011, John Chidsey, the CEO of Burger King, had departed with a severance package worth almost $20 million in the fact that McDonalds had been outcompeting Burger King. Baxter Phillips, the CEO of Massey Energy, got a package worth over $34 million in spite of “presiding over a company barraged with accusations of reckless conduct and with legal claims stemming from one of the deadliest mining disasters in memory,” according to the New York Times. Unfortunately, the list goes on and on. Is this a system of pay-for-failure? Moreover, do chief executives, who seem to outward appearances to be almost exclusively motivated by what they can get in additional compensation, have too much leverage over boards, and thus over even the owners as well? If so, is corporate governance itself severely broken? I answer in the affirmative.

The full essay is at "Executive Compensation: Paying Failure."

Eric Dash, “The Lucrative Fall from Grace,” New York Times, September 30, 2011. 

Executive Compensation (Part I): Systemic Risk

In the wake of the financial crisis, according to the Huffington Post, “a number of the nation's largest banks were excused from the government's rescue program before they had returned to a position of complete financial security -- in part because they wanted to avoid restrictions on how much their executives would get paid, according to a new report from the program's government overseer. Citigroup, Wells Fargo, PNC and Bank of America successfully lobbied to leave the federal bailout program early in 2009, even though the Federal Reserve Board and the Federal Deposit Insurance Corporation had recommended they take additional steps to shore up their assets, according to a new report from the Special Inspector General for the Troubled Relief Asset Program, a government watchdog office. Regulators, including the Treasury and the Federal Reserve Board, eventually ‘relaxed’ their criteria for letting the banks out of the program, the report says, leaving questions about whether the banks had strengthened their holdings enough to be able to withstand another systemic crisis.”[1]

The full essay is at "Executive Compensation: Systemic Risk."

1. Alexander Eichler, “BofA, Wells Fargo, Citigroup Left TARP Early to Avoid Restrictions on Executive Pay,” The Huffington Post, September 30, 2011. 

The American City: A Police State in the Making

Crime in 2017 was down the 30 largest cities in the U.S, but police levels remained robust. Specifically, less crime did not result in fewer cops on the street. “In 2016, there were slightly more officers per capita than in 1991, when violent crime peaked,” according to the FBI.[1] American cities were on a trajectory toward becoming police states. A mentality of excessive dominance, I submit, lies behind the excessive show of force.

The full essay is at "The American City: A Police State"

1. Jose Del Real, “Crime Is Falling, But Police Levels Remain Robust,” The New York Times, January 8, 2018.

A Megachurch Pastor and Sexual Assault: A Compromised Christian Leader

“A Memphis megachurch pastor received standing ovation during a church service on Sunday after he admitted that he had engaged in a ‘sexual incident’ with a high school student 20 years ago in Texas.”[1] That the woman had made the man’s prior misdeeds public just days before throws into doubt whether the pastor deserved the ovation by his loyal flock. Prompted by the firing of Matt Lauer, the anchor of NBC’s “Today” show, the woman emailed the pastor more than a month before his public acknowledgement at his church; he had not responded to the woman’s email to apologize. Letting his flock in on the secret hardly added much value to the man’s character, for damage-control is not laudatory. The standing ovation connoted not only praise on the man and a revalidation of the pastor’s continuance as a religious leader. That a Christian leader could be validated as such, rather than invalidated and thus shown the door, throws into question the integrity of religious leadership itself.

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1. Matthew Haag, “Megachurch Pastor Admits to Illicit ‘Sexual Incident’,” The New York Times, January 10, 2018.

The full essay is at "A Megachurch Pastor as a Christian Leader."

CEO Pay: American and European Values

To what extent do inequalities in wealth accrue based on structural elements, such as tax deductions that only wealthy people can use, as distinct from factors pertaining to individuals, such as talent, sacrifice, and effort? The two clusters can build on each other, as people who have become rich primarily by exercising a talent and working hard use some of their accrued power to “reform” the system to their advantage at the expense of the poor and middle class. Such structural reforms in turn can make it easier for wealthy people to become even richer. In the context of a society in progress, structural and idiosyncratic factors doubtlessly interact—the trend being of an increasing chasm between the rich and poor. 

 

 

The full essay is at "CEO Pay in Europe and America."

Political Psychology: Syrian Human-Rights Abuses

According to the New York Times, “masked gunmen severely beat Syria’s best-known political cartoonist,” Ali Farzat, on August 25, 2011. The attack came days after he had published a cartoon showing Bashar Assad hitching a ride out of town with Qaddafi. To be sure, it seems foolhardy for the cartoonist to have published such a cartoon in Syria unless he meant it as an act of non-violent civil disobedience. If the latter, willingly taking the beating without hitting back would be of such moral fortitude that the injustice of the regime would be made transparent and discredited. How moral strength can overcome physical force is a point on which Gandhi had much faith.

The full essay is at "Syrian Human-Rights Abuses."

Banking on Buffett’s Bank

Beyond wondering what could Ken Lewis have been thinking when he ok’d Bank of America’s purchase of Countrywide, it might be worth pondering why the Dodd-Frank Financial Reform Law of 2010 did not mandate splitting up banks such as Bank of America, which with over $1 trillion in assets are too big to fail. In other words, is simply increasing their reserve requirements tantamount to gambling with the financial system in a reckless manner? Should the elected representatives of the people and the states in the U.S. House and U.S. Senate, respectively, have displayed more fortitude in resisting the banking lobbyists even when that industry was known to have been culpable in the 2008 credit crisis?

The full essay is at "Banking on Buffett."

Royalty: Natural or Exaggerated?

On April 29, 2011, the world watched in utter fascination as a crown prince in one of the E.U. states married a wealthy commoner in London's Westminster Church--the same edifice in which Queen Elizabeth had married in 1947.  The prince is of course William, and his bride is Kate (or Catherine to the purists), who in one hour's time went from being the daughter of two wealthy commoners to royalty.  It is as though she leap-frogged from “the many” past “the few” to join “the one”--the firm. My question is whether these distinctions, involving birth as well as wealth, are natural in terms of human nature or exaggerated artifices borne of excessive privilege and power.

The full essay is at "The Wedding of the Century: Royalty as Natural or Exaggerated?"

On the "Wedding of the Century": History Made or Manufactured?

In hyping the royal wedding of William and Kate in the E.U. state of Britain, the media even in other E.U. states applied the title, “The Wedding of the Century” in spite of the fact that the century was only in the second year of the second decade. It is rather presumptuous for people alive at such a time to claim so much for their time, and therefore for themselves. Lest our self-constructed bubble unexpectedly bursts, we might let some air out of our self-constructed balloon in a controlled manner such that our bloated egos can survive without too much bruising.

The full essay is at "Wedding of the Century."

See related essay: "On the 'Wedding of the Century': Royalty as Natural or Exaggerated?"

American Foreign Policy on Pakistan: Balancing Foreign Aid and Duplicity

Osama bin Laden “lived and died in a massive, fortified compound built in 2005 and located on the outskirts of Abbottabad, some 60 miles from the capital of Islamabad. It stood just a half-mile from the Kakul Military Academy . . . and close to various army regiments. . . . (C)ongressional Republicans and Democrats questioned whether bin Laden was hiding in plain sight, with Pakistani military and intelligence operatives either totally unaware of his location or willfully ignoring his presence to protect him."  Had it been smart of the U.S. to extend foreign aid to Pakistan?  That is, does this case point to the futility, even weakness, that attends foreign aid in general? 

                                                              

The full essay is "American Foreign Policy on Pakistan."

East Asia and Latin America: Economy & State

In the fall of 2011, the economic troubles in the developed countries were starting to hit fast-growing developing economies like China, Brazil and Indonesia. The governments of the developing countries were “girding themselves,” according to the Wall Street Journal, “to offset any economic and financial damage.” China’s government, for example, increased the investment of its sovereign wealth fund in Chinese banks. In September, China’s exports to the E.U. grew at 10 percent, compared with 22% in August. China’s increase in imports was also weaker, which did not bode well for emerging markets in Latin America and elsewhere that supply commodities for China’s construction industry.  Yet IMF projections depicted an interesting distinction between the projected increase of real GNP in Latin America and the developing Asian economies. The projections for 2011 were 4.7% and 7.9 percent, respectively. For 2012, the projections were 4.0% and 7.7 percent, again respectively. What can explain this pattern wherein Asian newly industrialized economies (NICs) were expected to fare better?

The full essay is at "East Asia and Latin America."

Source:

Alex Frangos and Patrick McGroarty, “Troubles of West Take Toll on Emerging Economies,” The Wall Street Journal, October 14, 2011. 

Federalism & Business: States in India Deregulating for Economic Growth

The gross domestic product in India for the year ended March 31, 2011 was estimated to have grown at a robust 8.6%. Gordon Chang at Forbes argues that besides Delhi’s own fiscal and monetary stimuli, competition between the states of India for business has been a formidable factor. Federalism, it turns out, can be good for business—yet at what cost? Chang omits this element, writing only that “As the states try to outdo each other, India’s investment climate improves.”

The full essay is at "Deregulating States in India: Federalism and Business in Action."

Automatic Standing: The American States in Federalism Cases

Unlike that of the E.U., the U.S. system of public governance is structurally biased toward  political consolidation at the expense of federalism. In fact, the bias extends to jurisprudence. This is evident in a ruling by the U.S. Court of Appeals for the Fourth Circuit on September 8, 2011 against Virginia on the 2010 federal health-insurance reform law.

The full essay is at "Spending in American Federalism."

Pope Francis: Possessing Nuclear Weapons is Indefensible

Pope Francis said late in 2017 that the nuclear arms race had become irrational and immoral. The irrationality itself rendered even just the possession of nuclear weapons as immoral, according to the pope. Whereas past popes had recognized deterrence as a legitimator, both irrationality and the extent and “upgrading” of such weapons were factors in Pope Francis’s admittedly personal view. Yet was his basis only moral, or religious in nature?

The full essay is at "The Pope on Nuclear Weapons."

On the Place of Religion in Business: Refusing to Serve Gays

The U.S. Supreme Court heard oral arguments in December 2017 in a case on whether a baker in Colorado had been justified in refusing to sell a wedding cake to a same-sex couple. He claimed that his Christian faith forbid him from making wedding cakes for gay couples. “I follow Jesus Christ,” he declared when interviewed at his store. The Gospels are silent on the issue of homosexuality—it being said to be a sin only in the Old Testament—so the inference that following Jesus requires opposition to gay marriage (not to mention that homosexuality is an important issue in following Jesus) can be questioned. If the inference is tenuous, then it is the baker’s ideological stance that was actually at issue before the court. More broadly, is religion vulnerable to acting as a subterfuge, or cover, for what are really personal prejudices?

In terms of constitutional law, the baker contended that the First Amendment, “whose guarantees of free speech and religious exercise supersede any state law, exempts him from [Colorado’s] antidiscrimination act,” which has covered sexual orientation since 2007.[1] The question, I submit, is whether free speech and religious exercise are salient in a business context. 

The full essay is at "Refusing to Serve Gays."

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[1] Jess Bravin, “Supreme Court Set to Hear Gay-Rights Case,” The Wall Street Journal, December 4, 2017.