Archive for the ‘accountability’ Category
If Facebook Were a Country, Would Zuckerberg Be King?
Filed under: accountability, CEOs, corporations, governance, shareholders |
Comments (1) I’m serious. Is Mark Zuckerberg aiming to be the hereditary sovereign of the Kingdom of Facebook?
Amid all the ballyhoo about the Facebook IPO, concerns have arisen about the ownership structure — and, hence, governance structure — structure that the company’s plan implies. As Matt Yglesias recently outlined, the current plan implies considerable continuing power for Zuckerberg. Given the number of Class B shares he owns, along with proxies he controls, Zuckerberg effectively has “57 percent of the voting rights over the company.” In addition, his control will be transferred to whomever inherits his fortune.
Is this a good thing or a bad thing? A couple of points, both having to do with how Zuckerberg will use his power.
One is that, interestingly, Zuckerberg has (in a letter to investors) disavowed a focus on profits:
“Simply put: we don’t build services to make money; we make money to build better services.
And we think this is a good way to build something. These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits….”
Some will rejoice at this. But of course, when a company says it’s going to aim at things beyond profits, there’s no particular reason to think that they’ll aim instead at goals you approve of. Facebook is a powerful company, grounded on a potent technology. Whomever controls it has the power to do a lot of good, or a lot of evil. And as I’ve pointed out before, Zuckerberg holds some dangerous views about, for instance, things like privacy.
Some of the comments under Yglesias’s piece have suggested that Yglesias exaggerates just how unique Facebook is in this regard. Other companies have been controlled by powerful central figures. Fair enough, but Facebook isn’t your average company. In a very real way, Facebook is becoming part of the infrastructure of modern life. In its role, it is more like a public utility than a private company. That puts the company — and its leader — in a very different position than, say, Ford or Exxon. Facebook really is more like a nation, and so he who controls it really is more like a political leader. This casts a very different light on how we evaluate not just the man, but the processes that are in place to guide his judgment.
Should Penn State’s Board Resign?
Filed under: accountability, boards, education, ethics, excuses, governance, public relations, sports, stakeholders, transparency, trust |
Comments (4) In the wake of the Sandusky sex-abuse scandal the question has arisen whether Penn State University’s Board of Trustees should tender its collective resignation. And now, following the death of Coach Joe Paterno on Sunday, the question has taken on additional emotional resonance. The university’s Faculty Senate is scheduled to discuss a motion to strike an independent committee to investigate the Board’s role in the whole affair, and indeed has seen at least one motion calling for the entire Board’s resignation.
So, should the members of the Board be asked to resign? And if not, should they do so of their own volition?
To answer these questions, here are some questions that need to be considered:
Fist, did indeed the Board fail in its fiduciary (‘trust-based’) duties? It’s worth noting that the Board has been under fire from two different directions, here. Some think the Board failed in not staying sufficiently ‘on top of’ the Sandusky situation, and in resting satisfied with whatever dribbles of information the university administration saw fit to feed them. (The only detailed account I’ve read so far paints the Board in a rather sympathetic light, in this regard.)
Others think the Board failed in firing — in their eyes, scapegoating — the beloved Paterno. Both sides think the Board screwed up, but for very different reasons. Of course, both can be right at the same time. Perhaps the Board has just generally done a bad job, first by letting the situation get out of hand and then second by botching the task of responding to it. Rather than cancelling each other out, maybe these two sets of complaints just compound each other.
Next, we need to ask, if the Board failed, was it a failure of people or a failure of structure? A board, after all, is both an institutional structure and a set of people occupying that structure.
If it was a failure of structure (and, as governance expert Richard Leblanc wrote back in November, there are serious problems with how Penn State’s board is configured) then there’s little reason to think that a change of personnel on the Board is either necessary or sufficient to fix the problem. And if instead it was a failure of people, then getting rid of them all is a blunt, but perhaps effective, way to solve the problem — providing, of course, that the new people brought in to replace them are better.
Of course, the problem is that it’s difficult to distinguish between a failure of people and a failure of structure, in a case like this. Perhaps people better-suited to the job would have risen above the confines of a poorly-structured board, or lobbied to have its structure revised. Human behaviour and institutional structure shape each other.
And finally, regardless of the above questions about the sources of failure, it might be the case that the removal or resignation of the Board is necessary in order to restore public confidence. That is, even if the individuals currently on the Board are not in any way to blame, the fact that key stakeholders have lost faith in the Board might be sufficient grounds for calling for the entire Board to go. Without the confidence of key stakeholders, any Board is going to find it hard to do its job.
But then, while the current Board certainly faces challenges, so would an entirely new Board. The loss of continuity that would result from a 100% change in membership could seriously impair the Board’s functioning, and make it even more reliant on — and susceptible to control by — university administrators. There’s a good reason why well-governed boards have careful plans in place to make sure that new blood is brought in regularly, rather than en masse. In the end, it seems to me that the best prescription is this. The Board of Trustess at Penn State needs to see substantial structural change. It also needs enough new blood to restore confidence, while retaining enough of the old guard to ensure continuity. Beyond that, the Board is just going to have to do its best to muddle through whatever challenges lie ahead, with whatever strengths and limits it possesses, just like any other board.
Must the CEO Go Down With the Ship?
Filed under: accountability, CEOs, contract, decision-making, disaster, ethics, excuses, governance, leadership, shareholders |
Comments (2) 
Two days ago, I asked — in the wake of the Costa Concordia disaster — whether the captain is duty-bound to “go down with his ship.” The question, I said, bears not just on the obligations of sea captains, but on individuals in positions of responsibility at organizations of all kinds. It also has implications for how organizations enculture individuals so that they see following through on promises as more than just a contractual obligation.
But today I’ll make explicit the analogy that is likely on the minds of most readers of this blog: never mind sea captains…what about CEOs? Does the CEO of a “sinking” company have a duty to “go down with the ship?”
First, it’s worth pointing out that sea captains don’t literally have to go down with the ship: closer to the truth is that they’re supposed to be the last ones off, or as close to last as is possible and permits them to do their duty to preserve the lives of crew and passengers. Similarly, bankruptcy for the company doesn’t literally have to imply bankruptcy for the CEO. In some cases, surely, bankruptcy isn’t the CEO’s fault, and there’s no reason to think that justice demands that a blameless CEO walk away penniless. But they should stick around to see the job done, even if that implies some financial risk to themselves.
Second, it seems to me that, as in the case of sea captains, the answer here has to depend a lot on the details of the situation. Sometimes staying aboard will genuinely help, and sometimes it won’t. Also, a CEO’s ill health might be a decent excuse, in some cases. And indeed, some corporate “captains” aren’t even wanted on a sinking ship: in 2008, for example, the US government forced Robert B. Willumstad to resign as CEO of the faltering AIG, and replaced him with Edward M Liddy. The idea that the captain should stick around to help only makes sense where the captain’s services continue to be seen as having value.
Third, there are several different ways in which a CEO can “abandon ship,” and they might not all be equally ethically bad. Abandoning ship could mean selling shares that are about to tank, or it might mean resigning prior to bankruptcy. Or it might mean resigning prior to an inevitable criminal investigation: several rats are known to have abandoned Enron’s sinking ship — Jeff Skilling, for example. Worst of all, perhaps, are “take the money and run” situations. Arranging a bonus for yourself just prior to declaring bankruptcy is the moral equivalent of looting the ship’s safe (or perhaps scuttling all the lifeboats) prior to prematurely abandoning ship.
As always, we need to be careful when engaging in moral reasoning by analogy. A company is not a boat, and bankruptcy is not the same as sinking. But what’s certainly true is that in both cases, the ethical requirements of leadership don’t end at the first sign of trouble.
Must the Captain Go Down With His Ship?
Filed under: accountability, CEOs, character, codes of ethics, contract, decision-making, disaster, employees, ethics, excuses, leadership, professionalism, risk, workplace safety |
Comments (5) 
Italian cruise-ship Captain Francesco Schettino is in jail, following an incident that left 6 dead and (at present) 29 missing. Among the accusations levied against is that he fled the foundering vessel before it was empty. (According to maritime law, a captain doesn’t literally have to “go down with the ship,” but he or she is supposed to be the last one off after ensuring the safety of others.)
Legal requirements aside, is there an ethical obligation for a captain to risk life and limb to stay on board until the last passenger and crewmembers are off? The answer is pretty clearly “yes.” Like many jobs, the job of captaining a ship comes with a range of risks and benefits. As long as the risks were understood when the job was taken on, you’re obligated to follow through.
There’s a more general point to be made here about the nature of ethics, and about ethics education and training.
Ethics often requires of us actions that we’d rather not carry out. You should tell the truth, even when it would be more convenient not to. You should keep your promises, even when breaking them would be more profitable. This is necessarily the case: if ethics only ever required you to do things you already wanted to do, there’d be no need for ethical rules (or at least no need to think of them as rules in the prescriptive sense).
But there’s at least a superficial tension, here, with the idea that ethics should be useful. After all, if having and following an ethical code doesn’t benefit us in some way, why bother? Sure, it’s easy enough to say “The right thing to do is the right thing to do,” but a system of ethics needs some justification in terms of human well-being or it’s just not going to be very credible, not to mention stable. Indeed, some ethical systems are subject to serious criticism precisely because their implications for human well-being are negative. Yes yes, I understand that your code of honour requires you to kill the man who killed your brother, but don’t you see how crazy this all is?
So there’s got to be some connection between ethics and benefit. And it’s not enough to point to social benefit. After all, pointing out that the community benefits from me taking ethics seriously merely pushes the question of justification to a second level: why should I care about the good of the community, especially if doing so requires significant self-sacrifice?
None of this should engender skepticism or cynicism. It just means we need to think carefully about who benefits, and how, from a system of ethics.
It also means that we need to think about how we can help individuals keep the promises that it was in their interest, initially to make. Captain Schettino found it in his interest to make certain promises (albeit perhaps implicit ones) when he signed on to be captain of the Costa Concordia, but then all of a sudden found himself in a situation where it was not in his interest to keep that promise. Threats of punishment were understandably insufficient, here. Staying out of jail is no great incentive if you’re free-but-dead.
Organizations of all kinds — including especially corporations and professional associations — need to work hard to help members think of the relevant ethical rules as something more than the terms of a contract, to help members become the sorts of people who simply would never abandon ship when they are needed most.
Eggs, Ethics, and Supply-Chain Accountability
Filed under: accountability, corporations, ethics, food, supply chain |
Comments (2) Canadian Business recently reported that two major companies — McDonald’s and Target — have dropped egg supplier, Sparboe Farms, after concerns arose regarding animal welfare at the company’s egg-production facilities. It’s a small PR hassle for titans like McDonald’s and Target. But it’s clearly a huge hit for a company like Sparboe.
This case raises two important points, ones that go far beyond the relationships between mega-chains and their suppliers:
The first has to do with supply-chain responsibility. Notice that McDonald’s, for its part, doesn’t deal directly with Sparboe: it gets Sparboe eggs via Cargill Inc., the agricultural giant that supplies all of McDonalds’ eggs. This raises an interesting question about supply-chain ethics. Any company is clearly responsible for, and should be accountable for, its own behaviour. And a company is pretty clearly also partly responsible for, and should be accountable for, the behaviour of its suppliers, at least to the extent that it knows, or should have known, about those suppliers’ behaviour. But what about the behaviour of their suppliers’ suppliers? The modern trend is toward nearly infinite responsibility, up and down the supply chain. That much is clear. But the moral principle behind such responsibility is less clear.
Sensible thinking about supply-chain accountability has to differentiate, I think, between retrospective culpability, on one hand, and responsibility to make changes going forward, on the other. Is McDonald’s responsible for brutal behaviour by employees of a supplier’s supplier? No. But do they have a responsibility to take action, now that they know about it? Yes.
The other point has to do with the blurry boundary between practices that are unethical, on one hand, and practices that are in some more vague way unacceptable to the public, on the other. Animal welfare issues are a great example of this. Philosophers continue to debate the moral significance of animals and their suffering. Some will tell you that all suffering, human or not, is of moral significance. Others will tell you that ethics is a human device for making social living more congenial and sustainable. On the latter point of view, animal suffering might be ugly, but it’s not unethical, except to the extent that we have an obligation not to tread upon other people’s sensibilities. But this distinction matters little, in many cases: a company’s suffering can result from either — either from behaviour that is actually unethical, or from behaviour that is simply seen as being so.
Environmental Profit-and-Loss
Filed under: accountability, CSR, environment, pollution, pricing, sustainability, values |
Comments (1) It’s attractive, but very dangerous, to try to calculate a ‘bottom line’ for a firm’s social or environmental performance. Attractive, because key stakeholders are increasingly interested in knowing those kinds of details. But the main danger should be obvious: there’s just no way to add up the disparate factors that make up a firm’s social or environmental performance. How do you add together litres-of-water-used plus hectares-of-habitat-destroyed? On the social performance side, how do you sum up number-of-women-in-senior-management plus fair-trade-contracts signed?
The answer of course is that you cannot. You can’t add up things that are represented in different units of measure. That’s not to say that you can’t or shouldn’t track and report these various numbers; but it casts a dim light on the prospects of arriving at a global assessment of a firm’s social or economic performance.
Unless, of course, you simply put a dollar figure on everything, in which case the math becomes quite easy.
That’s what shoemaker Puma has done, with its new Environmental Profit & Loss Account (E P&L). They’ve attached a dollar value to their greenhouse gas Emissions and their water consumption, and compared that to the dollar value of the shoes they produce. And, interestingly, they’re publicizing the fact that, environmentally, they’re in the red. They extract more from the environment than they provide to consumers. Environmentally, they’re operating at a loss.
Now, in standard terms, any firm that uses more (in dollars) than it puts out (in dollars) is going to go out of business pretty quickly. But as Puma’s Jochen Zeitz points out, that’s not the case for many environmental inputs because so many environmental inputs are unpriced — that is, they cost a company nothing. Pollution, for example, when unregulated, costs a company nothing, and when under-regulated costs the company less than the cost such pollution imposes on others. So what Puma has done is put a dollar value on these things so that they can figure out what their environmental bottom line would be, if they actually had to pay for all they consume and all they emit.
There are two key problems with such attempts to calculate an environmental bottom line this way. One is practical: there just aren’t uncontroversial ways to put a dollar figure on every unpriced environmental input. Certainly there are people who can provide methods for doing so; but that doesn’t mean there’s a clear right way to do it.
The other problem is, well, philosophical. It’s not at all clear that everything we want to say about environmental ethics can be summed up in terms of economic impact. What’s the dollar value of the loss of a species? Is the value of beautiful scenery really captured by summing up how much each of us would be willing to pay to preserve it?
Still, Puma deserves credit for this rather striking bit of transparency. Even though the “E P&L” is a pretty incomplete picture, it nonetheless does tell us something about the company’s overall environmental impact, and its commitment to doing better.
(Thanks to Andrew Crane for pointing me to the Puma story.)
The Virtues of Local Ownership
Filed under: accountability, corporations, CSR, decision-making, entrepreneur, governance, retail, shareholders, SME, stakeholders, values |
Leave a Comment There’s plenty in the news these days about the supposed virtues of “buying local.” Buying local usually means buying from small businesses. As I’ve argued before, in at least some cases buying local also means opting for small-scale, inefficient production processes. And in other cases, it means an unhealthy kind of insulation from the outside world.
But what about the virtues of specifically local ownership, when the ownership in question is ownership of what is otherwise a standard-issue department store, replete with goods ‘Made in China,’ as the stereotype goes?
The New York Times recently reported on an effort by a small town in upstate New York to ensure its residents have access to some sort of local department store. When the local Ames department store went out of business a few years back, residents of Saranac Lake — pop. 5,041 — took matters into their own hands. They raised the capital, at $100/share, to open their own department store.
It’s a charming story, and an interesting experiment, but we ought to exercise some caution before attaching too much significance to it.
First, it will be tempting to see this as radical re-visioning of modern capitalism. To see examples of such a temptation, see the 2004 Avi Lewis and Naomi Klein documentary, The Take, about the takeover of a defunct Argentinian factory by its former employees. Lewis and Klein portray that takeover as an example of the pursuit of a real alternative to capitalism — despite the fact that the cooperatively-run factory is still buying inputs on the open market, selling goods on the open market, and so on.
Were it not for movies like The Take, it might go without saying that innovations in ownership structure don’t eliminate the fundamental challenges of capitalism, and certainly don’t eliminate the standard ethical issues that face all businesses. The department store in Saranac Lake is — setting aside a few nods to local sourcing — just a regular department store. It’s got employees, so it will face questions about how those employees are treated. It’s smaller than your typical Walmart, but it will still face questions (or at least it should) about where its products come from, the conditions under which they’re manufactured, and so on. And its managers will still face questions about how to balance the good of the community as a whole with their obligation to be fiscally responsible. And so on.
Not that we need to be entirely cynical about the Saranac Lake experiment, and others like it. There’s at least a prima facie case to make for the significance of local ownership. Managers of a locally-owned store have at least some sense of what kinds of things shareholders would want them to do, and hence seem less likely to violate the trust placed in them. When you know your shareholders by name, you can ask them what they want, and they can tell you what obligations they feel to the community, and they can then ask you, their representative, to make good on those obligations.
In the end, I think experiments in capitalism are good. Indeed, the way it fosters experimentation is one of the great virtues of capitalism. We ought to keep a careful eye on such experiments, both for what we can learn about their particular virtues, and for what we can learn about the nature and structure of capitalism more generally.
An Inside Trader’s $92.8m Fine: What’s the Point?
Filed under: accountability, corruption, crime, fraud, regulations, scandal, white collar crime |
Leave a Comment What is it that justifies the record-breaking $92.8m fine slapped on Raj Rajaratnam by the US Securities and Exchange Commission?
I’m not posing this question skeptically. That is, I don’t particularly doubt the fairness of the fine. But it’s still useful to ask what reasons lie behind particular instances of punishment, particularly when those punishments are record-breakers like this one.
It’s worth noting that Rajaratnam is also going to jail, as a result of a separate criminal proceeding related to the same wrongdoing. But let’s focus just on the monetary judgement issued as a result of the SEC’s civil case. There are at least 4 possible justifications for punishment by means of a fine.
1) Deterrence. Sometimes we punish in order to make the offender less likely to re-offend, or to set an example for others who might otherwise have been tempted to commit similar crimes.
2) Restoration. Sometimes a financial penalty can be used to “make whole” the parties harmed by the wrongdoer. This, of course, would require that (some of) the fine actually be given to those who lost out due to Rajaratnam’s hijinks. As far as I know, that’s not going to happen. But then, there’s a sense in which society as a whole loses out when someone violates market norms as aggressively as Rajaratnam did. So maybe American society is the ‘victim,’ here, and is being compensated through its representative, the SEC.
3) Retribution. The fine might just amount to imposing pain on a roughly eye-for-an-eye basis. From this kind of point of view, the goal isn’t to achieve any particular outcomes (like, say, deterring wrongdoing) but rather just to ‘get even’ with the wrongdoer. Retribution is rooted in some pretty primitive (and, frankly, ugly) emotions, but it certainly has its appeal and plenty of defenders.
4) Denunciation. Closely related to retribution, denunciation is essentially the act of saying “No!” in response to crime. From this point of view, a big fine is a way of saying, loud and clear, that the kind of behaviour in which Rajaratnam engaged is simply not OK in our society.
What does the SEC say?
“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
OK, that helps. But let’s get it from the horse’s mouth. Let’s look at the words of the judge. According to Judge Jed S Rakoff,
“S.E.C. civil penalties, most especially in a case involving such lucrative misconduct as insider trading, are designed, most importantly, to make such unlawful trading a money-losing proposition not just for this defendant, but for all who would consider it.” He added that it was a warning that, if caught, “you are going to pay severely in monetary terms.”
So there you have it. The rationale behind the historic fine is deterrence. The fine was a warning to others. Of course, the fact that deterrence was the goal doesn’t mean that the fine is actually going to deter anything, or that the outsized fine is going to be more effective in that regard than a more modest fine would have been. Does anyone seriously think that a $92.8m fine is going to work where a $50m fine would not have?
But anyway, the problem here is liable to be the same as that faced in trying to deter street crime, which is that no one expects to get caught. That’s likely to be doubly true of a man like Rajaratnam. After all, he was a Wall Street titan, a self-made billionaire. He was — to steal a phrase from Enron’s Jeff Skilling — the ‘smartest guy in the room.’ How could a man like that even imagine being caught by the mere mortals at the SEC and FBI? The result is that deterrence may well be futile. So what we really need is for our markets and regulatory agencies to be designed with the full expectation that, every once in a while there’s going to be a Raj Rajaratnam. We need institutions to put safeguards in place, precisely to deal with the inevitable lapses in conscience and lapses in our belief in our own fallibility.
Walmart, CSR Reporting, and Moral Grey Zones
Filed under: accountability, CSR, reporting, transparency, values |
Comments (2) It’s very hard to report on the good things you’ve done, when not everyone is sure that those things are actually good. Cutting CO2 emissions is pretty unambiguously good, as is working to reduce fire hazards in your suppliers’ factories. But in the realm of corporate responsibility reporting, there’s still lots of room for controversy.
Case in point: I recently had the chance to indulge in a careful reading of Walmart Canada’s 2011 Corporate Social Responsibility Report. Here’s a bit from the document’s intro, by CEO David Cheesewright:
We see this report as a powerful tool for corporate good. Our size gives us considerable influence and with it comes considerable responsibility – a role we embrace in order to help Canadians save money and live better.
Our goal is to present an open look into the impact of our operations in Canada over the past year. This latest report frames our diverse activities into four broad categories of CSR: Environment, People, Ethical Sourcing and Community.
In each area, we highlight our efforts and actions, both large and small – and summarize our current programs and challenges while outlining plans to keep improving in the future….
It’s a very readable 35-page document (more reader-friendly than some others I’ve read, which I think is really crucial if you want people actually to read the thing.)
One of the things that struck me about the Report is that there’s a genuine difficulty in reporting on this sort of stuff in a world replete with grey areas. There’s lots of lovely win-win stuff in the Report. But some of the stuff reported proudly is actually ethically controversial. A trio of examples will illustrate my point.
- Under the heading of “Community,” Walmart Canada proudly reports that “Walmart Canada thinks locally,” and that the retail giant does a lot to boost the prospects of Canadian businesses, to whom it funnelled just over $15 billion in 2010. This goes some distance toward countering a common criticism. But as I’ve pointed out here before, a focus on “supporting Canadian business” is often a mistake, both economically and ethically.
- Likewise, the Report indicates that their ‘Standards for Suppliers’ absolutely forbid the use of child labour. But there’s a good argument to be made that in at least some desperate parts of the world, child labour is a sad necessity. An absolute prohibition can make some kids’ lives worse.
- The Report also brags about its new line of organic baby food, despite the fact that there’s little clear evidence that organic foods are ethically better than other foods. The question is controversial, to say the least.
In all three cases, the company is portraying as ‘socially responsible’ something that, well, might or might not be, depending who you ask. But of course, child labour, healthy foods, and impact on local communities are precisely the sorts of things that critics (and maybe consumers more generally) want to hear about from Walmart. So it’s hard to fault them on doing, and reporting on, those things.
The point here really is not about Walmart Canada, but about the challenges of CSR reporting more generally. If CSR reports stuck to the unambiguously-great stuff, the reports would be vanishingly short and only minimally useful. And that would be a shame. The point of such reporting, I think is not to show that you’re doing everything right. It’s to show us what you’re doing.
Why $100-million Is Too Much
Filed under: energy, governance, accountability, corporations, boards, CEOs, compensation |
Comments (3) It was widely reported yesterday that former CEO of Nabors Industries Ltd., Gene Isenberg, will be the recipient of a $100 million severance payment. Except, he’s not leaving the company — he’s staying on as Chairman of the Board. Confusion and criticism has ensued.
For the most part, I think that executive compensation, even outlandish executive compensation, is in principle a private matter. If a bunch of shareholders want to pay their CEO a gazillion dollars — whether because they think he’s the one guy who can build long-term value or because they just think he’s a swell guy — well, that’s none of my business. I may think those shareholders are fools, or spendthrifts. But there’s little reason for me to be morally concerned. I don’t tell you how much to spend on your babysitter or your dry cleaning or your car. And I shouldn’t tell you how much to spend on your CEO.
In principle.
But two factors get in the way of applying my in-principle argument to the present case.
One factor begins with the observation that shareholders don’t, in fact, generally make the decisions regarding how much total compensation the CEO gets. That task is delegated to the Board of Directors, who in turn generally delegate it to their Compensation Committee. Now again, in principle, this is purely a private matter. If the Board isn’t serving the shareholders well, the shareholders have cause to complain, and (yet again, in principle) they can always fire the Board if they feel sufficiently poorly served. But we have ample evidence that shareholders very often aren’t well-served by boards. Add to that the fact that proper functioning of corporate governance (and hence of capital markets) is clearly a matter of public concern, and you have at least the beginnings of a public-interest argument for interference in what would otherwise be a private matter.
The other reason why excessive pay isn’t always a purely private matter has to do with the government’s (i.e., the public’s) role (and support of) an industry. Note, for example, that Nabors is an oil-drilling contractor. So the $100 million that Isenberg is getting isn’t merely a share of privately-gained profits. It’s a share of the profits from a heavily-subsidized industry.
So boards of directors do have some public obligations related to how they choose to compensate executives (even if, as I’ve argued before, outsized compensation isn’t automatically unfair). Corporate directors are not just part of private institutions; they’re part of a system justified, in part, by its public benefits. And the more they seek to gain private benefits in the form of subsidies, the greater their obligations to the public become.
