Bailouts, Corporate Jets, and Moral Outrage

Last year I saw a talk by economist Robert Frank, on “Moral Outrage.” His overarching theme was that moral outrage is a useful thing, and that we therefore ought not to squander it by aiming it at undeserving targets.

That talk came to mind when I read about how the CEO’s of the big 3 automakers got raked over the coals for showing up in Washington to plead for a government bailout — and arriving in 3 sleek corporate jets.

For a glimpse, see this story from Business Week: Auto Bailout: Seeking Signs of Sacrifice

Maybe it would have been a good idea for the chief executives of the U.S. Big Three auto companies and the president of the United Auto Workers to save a few dollars and share a ride to their appearance before Congress, where they are asking for at least $25 billion to keep from going bankrupt.

Three different members of the House of Representatives pointed out on Nov. 19 that the three CEOs and the union chief were flown to Washington in separate, private planes. The representatives used that example to express skepticism that the executives are prepared to make the needed changes in their operations, accountability, and culture to turn around their sinking industry.

(See also: Big Three auto CEOs flew private jets to ask for taxpayer money, from CNN.)

For some people, the initial flash of moral outrage comes from the apparent contradiction involved in showing up in an expensive jet to ask for a handout. But (using rough numbers here) a single CEO to spending $20,000 to fly to Washington to ask for $20billion is spending 1 one millionth of the proposed bailout of his company. For a company the size of GM or Ford or Chrysler, $20 grand just isn’t a lot of money. Pocket change. (Or look at it this way: a CEO who makes $20 million a year is making about $10,000 an hour. Waste 2 hours of time waiting for a commercial flight and you’ve “paid” for your flight on a corporate jet.)

Some people will realize the above — surely the angry members of congress did — and still express moral outrage at the symbolic aspect of the flights. How could these execs each spend, on a single flight, the equivalent of a few months’ salary for one of their workers? Why such a visible show of wealth? Isn’t that unseemly? Perhaps. But at least a partial response to that lies in the surprising fact that these CEOs may not have had much choice. As is the case at many large companies, the Boards of the Big Three actually require their CEOs to fly by corporate jet, for reasons of security and efficiency. See this story from the Chicago Tribune: For many CEOs, private jets the only way to fly.

So, is moral outrage totally misplaced here? The money is a drop in the bucket, and the CEOs were simply following what are arguably reasonable corporate policies. Probably. Outrage is likely better reserved for other aspects of their performance as CEOs, or perhaps for having the gall to ask for public money in the first place.

Still, it’s hard not to find something unseemly here. These CEOs apparently didn’t even see the irony, superficial as it might be. They didn’t even think ahead enough to apologize for their lavish trips, or to make some symbolic act of contrition. Now that’s not reason for outrage. Being out of touch with the sensitivities of regular people on a particular day isn’t necessarily a grave sin. But it’s not exactly great, either. I was once asked if it’s unethical to be rude. The answer to that question seems relevant here: we might not want to label a single lapse in manners as unethical, but we’re quite justified in calling it unethical when we see a pattern of rude — or insensitive — behaviour.

Thanks to Laura, Lori, Jared, and Ralph on the SBE list for their thoughtful discussion & helpful links. Inadequacies in the stuff above are all mine.

5 comments so far

  1. dgebler on

    I think it’s more than just unseemly. Here is a good case where following the rules leads to an unethical result. The root cause is the failure of the CEO’s to understand which stakeholders other than their shareholders they need to consider in their decision-making

  2. Chris MacDonald on

    OK, but fill in the blanks for me…why is it an “unethical result?”

  3. Suresh Kumar G on

    Corporates are already footing huge bills for maintenence of their aircraft. Keeping them in the hangar itself incurs huge costs. There are so many personnel involved in the upkeep of these machines. So also the cost of time spent by the CEO’s.When looked at from this angle, it would seem appropriate for the CEO’s to use the company aircraft than use commercial flights. It would surely look good politically,if they used the regular service, but is it absolutely necessary to be symbolic in such matters? Or should they be effective as managers?

  4. Colleen Lyons on

    Yes, the CEO’s jet jaunt to DC infuriated Congress. Keep in mind that the nest was feathered by the Wall Street-FannieMae-FreddieMac hijinks that preceded the Big Three debacle. If our lawmakers do their job, the outrage should escalate and DC should be awash in transparent investigations of those CEO’s. The SEC and DOJ investigations appear to be white glove affairs distinctly removed from Congress, and therefore, the public. The focus here, however, is on the auto industry crisis. The not-so-big 3 executives are guilty of astounding isolationism. Quite simply, the irony of the jet jaunt outrage was beyond their sensibility. More profoundly, the CEO’s mea culpa and associated Congressional commitment to embrace new technologies sparks a bit of rage in this writer. Detroit writ large- unions, car companies, legislators, & lobbyist- refused innovation. Refused the magnificent opportunity to create a new & sustainable business model for the US auto industry (ref: GM’s Saturn). Refusing innovation is not a small crime and misdemeanor; it is a homicide. Frittering away a previous government bailout (Chrysler) is first degree murder. These paper tigers do not have the instincts, courage, or ethical fortitude to change their stripes. A plan for thoughtful and drastic personnel change in Detroit’s executive suites must accompany any Federal bailout assistance. These guys do not deserve the right to right the ship. Hand over the helm. Shoals ahead.

  5. […] As an example of the latter possibility (ethical blindness), picture a company sending its CEO to Washington on a private jet, with the aim of asking for money, and being utterly oblivious to the idea that the public might […]

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