The Business Ethics Blog

The Globe and Mail reported yesterday that Ontario hospitals are “scrambling” to eliminate executive perks, in the face of new rules stating that compensation practices must be made public. Ontario’s hospitals are funded by tax dollars, and clearly they don’t want to be seen spending those dollars on things the public is likely to find dubious.

A few quick thoughts:

1. To a certain extent, transparency is an alternative to good governance: we the public want access to the details if we worry that the people who are supposed to be taking care of those details aren’t doing a good job of it. Yet the Globe story makes no mention of governance. There are quotations from a couple of board members, but no discussion of what hospital boards do and whether they’ve been doing it well.

2. The comments under the Globe story provide reason (though not necessarily a conclusive reason) against transparency. In particular, many of the comments reveal lack of understanding of what it takes to run a hospital or other major institution, and a general cluelessness about executive perks. (Example: A perk like membership in an exclusive private club might look odd from the outside, but a moment’s reflection should reveal that an executive who is responsible for massive fundraising efforts genuinely needs to be part of the kind of clubs where he or she can network with the right sorts of people.) Of course, if the public has a genuine ‘right to know,’ then that cluelessness is lamentable but not decisive. The public ain’t always right, but it’s always the public.

3. The fact that this story is about taxpayer money makes no difference, ethically. Some people will be aghast at the perks being paid “out of taxpayers’ pockets.” That’s silly. If there’s a good business case for offering perks, there’s a good business case for offering them at a public institution. If there isn’t a good business case, then offering them would be just as much an affront to shareholders as it would be to taxpayers.

4. Beware the perverse effects of transparency. In the the world of corporate (private sector) executive compensation, it’s been suggested that transparency is part of the problem. The worry is that a CEO at one firm sees how much executives at other firms are making, and not surprisingly asks to receive the same or more. And boards, not wanting to publicly declare their own CEO to be “below average”, give in. So transparency fosters a ratcheting effect that is partly responsible for current insane levels of compensation. Will the same happen at hospitals?

5. Currently, it looks like transparency is driving hospitals to eliminate perks. But the more likely long-term effect is that, rather than accepting reduced overall compensation, executives will simply ask for the cash equivalent of the perks they no longer receive. I’m not an expert on compensation, but my intuition says that that would end up costing hospitals (and hence taxpayers) more. Compare: my own contract with the university I work for allows me some benefits that I don’t make use of (and that, hence, the university ends up not paying for). If I demanded the cash value of those benefits instead, it would cost my employer more. So again, we need to return to the question of governance. If institutions are well-governed, then we on the outside shouldn’t sweat the details. If they’re not being well governed, the key question should be why not?