Archive for the ‘corporations’ Category
The Corporation is Not a Psychopath
Filed under: corporations, critical thinking, definitions, film, personhood |
Comments (13) Readers may already be familiar with documentary that came out a few years ago, called The Corporation. The film has many flaws; I can’t show it to my students without pausing frequently to correct misleading assertions and half-truths. But the key problem with the film lies in its attempt to arrive at a single, simple diagnosis for the many problems we see in the corporate world. The central conceit of the film is that the corporation fits the diagnostic criteria for psychopathy — that corporations, quite generally, act in destructive ways that demonstrate an utter lack of empathy or remorse. The problem is, the claim is utter bunk, and is utterly unsupported by what the film shows to viewers. But it’s also an idea that has struck a chord with a lot of people, seemingly summing up their darkest fears about corporations.
Part of the problem is that the film is sloppy with language. The film is called The Corporation, and the makers of the film clearly intend to refer to ‘the corporation’ in the abstract, corporations as a group, the very idea of them. It’s not referring to any particular corporation — like, that one over there. But in building its case, it cites diverse behaviours by various particular companies, and uses those to check off, one by one, the diagnostic criteria that psychologists associate with psychopathy in humans.
Here’s the list of diagnostic criteria that the film uses:
1) callous unconcern for the feelings of others;
2) incapacity to maintain enduring relationships;
3) recklessness with others’ health & safety;
4) deceitfulness;
5) inability to feel guilt;
6) failure to follow social norms.
The problem is that in order to use this list as a diagnostic tool, you need to apply it to a single ‘patient.’ But the film doesn’t do that, not ever; instead, it cherry-picks examples of heinous behaviour from across dozens of corporations over dozens of decades. It finds an example of Callous Unconcern on the part of one company, Recklessness on the part of another, and Deceitfulness on the part of others still. And so on.
The result is a kind of sleight of hand, and not very subtle sleight of hand at that. You can do the same trick with any ‘patient,’ of course, when your ‘patient’ is an entire category. If you cherry-pick examples from across many many particular cases, you can easily arrive at a diagnosis of psychopathy not just for The Corporation, but also fo The Government, The University, The Church, The Union, The Charity, The Newspaper, or even — *shudder!* — The Highschool Volleyball Team.
Now it is crucial to note that by pointing out this flaw in the argument put forward by the film, I’m not defending any of the companies that it mentions. Many of those companies have done terrible things, including things that are outright criminal. The point is that the film fails utterly in its attempt to prove that the corporation as a whole is a “psychopath,” or anything like it. And the result is much more than a documentary that fails to make its point. The result is a distraction, as viewers duped by the film are told to write off the very notion of profit-seeking corporations, a prescription that ignores the enormous amount of human wellbeing that has resulted directly from the activities of corporations, and also diverts attention from a more focused critique of the very real flaws that exist in the way particular corporations are governed and regulated.
How Should Companies Memorialize 9/11?
Filed under: advertising, brands, corporate citizenship, corporations, disaster, marketing, philanthropy |
Comments (5) The day has passed, but it’s a question that’s sure to arise again — just under a year from now, and the year after that, and so on.
What can, or should, businesses do with regard to a relatively recent tragic event like 9/11? The cultural significance of an event like 9/11 is hard for anyone to ignore, especially on the tenth anniversary of that fateful day. And companies thrive on raising their profiles, a feat that can most readily be accomplished by riding the coattails of cultural significance. But when the culturally-significant event in question is a tragic one, corporations need to tread carefully.
This general topic can be split into two more specific questions:
1) Can or should companies use references to an event like 9/11 in their advertising?
2) Can or should companies do something to memorialize such events?
The pure advertising question seems easy. Using references to 9/11 in ads is tacky, if not outright unethical. (For some examples, see this nice slideshow by Jim Edwards for Bnet: “10 Advertisers Exploiting the Sept. 11 Attacks to Push Their Brands”.) Profiting from other people’s pain and grief just isn’t a socially-constructive business strategy.
The problem of course is that it’s hard to separate questions 1 and 2. Naturally, any effort on the part of a company to memorialize an event is likely to be seen as an attempt by that company to raise its own profile.
But memorializing an event like 9/11 in some way seems unobjectionable, and perhaps even obligatory. The hard question is what form such memorializing should take. The best ways, perhaps, are the small-scale and personal ones. Giving employees time off work to attend memorial services, for example. The same principle applies to expressions of sentiment: small and local seems best. A simple sign on your front window that says “Never Forget 9/11” seems to make the point best — better than, say, splashing that same slogan across millions of product packages — and is much less liable to engender suspicions that the expression of sentiment is self-serving.
As an final point, notice that this is precisely the kind of question for which the term “corporate citizenship” provides the right fulcrum. Some people try to use that term to cover all questions of corporate right-and-wrong , but that’s a mistake. Not all obligations or rights are rooted in a weighty concept like citizenship. But this one is. How we respond to national and international tragedies is clearly an issue of citizenship, in the full political sense of that word, the sense that implies a set of rights and responsibilities related to participation in public life. An alternative word like “sustainability,” which some people take to encompass all ethical questions, just doesn’t cut it here. How companies choose to respond to the anniversary of an event like 9/11 says a lot about how they see themselves as corporate citizens, as participating members of a still-grieving community.
If You Can’t Take the Heat, Get Out of the Banana Republic
Filed under: corporations, corruption, decision-making, energy, government, international, risk |
Comments (2) Some neighbourhoods simply are not worth the trouble, and the entire nation of Ecuador may be one of them. Ecuador is a significant producer and exporter of oil (ranked 30th in the world), but it is also a place where effective rule of law is being called into question.
See this story, from Americas Forum: Chevron says rule of law no longer exists in Ecuador
James Craig, Chevron’s spokesman for Latin America, said in a recent statement that Ecuador, in the past seven years, has seen a deterioration in the administration of justice, which in his opinion began with the removal of judges of the Supreme Court in 2004….
Of course, this statement is from a corporate spokesman, so we’ll surely take it with a grain of salt. But those claims are not unsupported. See for instance this report (only slightly dated) on Ecuador from Global Integrity Report: Ecuador, 2008. Ecuador ranked 127th on Transparency International’s Corruption Perceptions Index for 2010.
So, what should Chevron do? The short, harsh answer: get out of Ecuador. Multinational companies all need to acknowledge that there are some places where they simply cannot — should not — do business. For most kinds of companies, that includes war zones. But it also includes places where the kind of background conditions that make a market economy possible, including stable rule of law, do not exist. Naturally, corporate risk managers keep a close eye on such things. The risk that some cowboy government official is going to appropriate your earnings or toss managers into jail on trumped-up charges is not one to take lightly. But there’s also an ethical risk, here. The standard, conservative ethical rule for companies is that they should go about their business without force, fraud, or deception, and within the boundaries of the law. But that rule of thumb only makes sense — even a little bit of sense — where a reliable legal system exists. When the rule of law is in serious doubt, the preconditions for the ethical conduct of business simply do not obtain. Not only do such situations jeopardize the interests of a whole range of stakeholders; they eliminate the crucial fulcrum of ethical corporate decisions.
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Hat tip to legal scholar Errol Mendes (a.k.a. @3mendous on Twitter) for pointing me to this story.
The CSR Litmus Test
I wrote a short article for a forthcoming issue of Canadian Business, riffing on a recent Globe and Mail story about a South African winery that is working hard to face up to its slave-holding past. The Solms-Delta winery’s owners have done things like set up a museum in its wine cellar, and establish a trust for the benefit of workers. This is clearly admirable; other South African wineries generally prefer to sweep the past under a rug. But is highlighting the past this way an obligation owed to the winery’s current employees? If so, then Solms-Delta is simply meeting its ethical obligations. But if this is not something owed to current employees, it is better cast as a matter of social responsibility.
I’ve complained ad nauseum about the fact that there’s no clear, agreed-upon definition of CSR (Corporate Social Responsibility). Many definitions say something about “social contribution” or “giving back to the community.” But just what that amounts to is up for grabs. It might mean something trivial, or it might mean something unfairly burdensome.
Here’s a litmus test to help you figure out your own views in this regard, and what those views imply. Imagine a company that does all of the following, with reasonable consistency:
- Makes a decent product that people feel improves their lives in some small but meaningful way;
- Treats employees fairly;
- Deals honestly with suppliers;
- Tries to do a decent job of building long-term shareholder value;
- Cleans up their messes, environmental or otherwise;
- Does its best to follow all applicable laws, and trains and rewards employees suitably;
- Pay its taxes, making use of all relevant exemptions but not cynically seeking loopholes.
Next, if you consider yourself a fan of CSR, ask yourself this question: Would such a company count as a socially responsible company, in your books? Or is there something more they need to do in order to garner that designation? Are they ethically obligated to do something further?
If your answer is “Yes, that’s a socially responsible company!” then good for you. That’s a very reasonable answer. But then you should ask yourself two questions. One, why are you attached to the label “CSR”? Why not just call them a company that does right, or that acts ethically? Why try to shoehorn all the good stuff listed above into the little box of specifically social responsibility?
If your answer is “No, they’re still not giving back to the community!” then next you need to ask yourself what more and why. The company described above is engaging in voluntary, mutually-advantageous transactions with customers, making those customers better off (by their own lights). It is doing something good in the world, and being conscientious about how it does it. That seems pretty decent.
And whatever your answer is, taking this test should clarify both what your own views are, and perhaps why the term “CSR” is far less useful than it is popular. And whenever two people think they agree on the importance of CSR, each of them ought to doubt — or ask — whether they’re really agreeing on the same understanding of what social responsibility really means.
Pipeline Leaks and Stakeholder Theory
Filed under: accountability, corporate citizenship, corporations, CSR, management, pollution, shareholders, stakeholders |
Comments (2) When oil spills in a forest, does everybody matter? That’s the question posed by the events recounted in this recent CBC story: Wrigley residents voice pipeline spill concerns.
The story is about an Enbridge pipeline that sprung a leak in a tiny, remote town in Canada’s Northwest Territories. Not surprisingly, residents of tiny Wrigley are unhappy about the spill, and so Enbridge has to figure out not just what to do about the spill (i.e., how to clean it up) but what to do about the people of Wrigley. More generally, managers at Enbridge have got to figure out, on an ongoing basis, what their obligations are, and to whom those obligations are owed.
There’s an older school of thought (or more likely a caricature of an older school of thought) according to which shareholders are the only ones whose interests really need to be taken seriously. According to this view, an oil company’s managers’ only real obligations are owed to shareholders. After all, says this view, shareholders own the company, and they’re the ones who (indirectly) hired these managers to make money on their behalf. If anyone else matters, they matter in a strictly instrumental way. Don’t treat your customers badly, for example, because they’re the key to making a profit. Or, in the present case, don’t irritate the people of Wrigley, because if you do they might do something inconvenient, like protesting.
A leading modern alternative to the only-shareholders-matter view is sometimes called the “stakeholder” view (or sometimes, in academic circles, “stakeholder theory.”) The core of the stakeholder view is the idea that the real ethical task of corporate managers is to balance the interests of various stakeholders — various individuals and groups whose interests intersect with those of the corporation. After all, many people contribute to the success of a firm, from customers to suppliers to members of local communities. And if they all contribute, they all have the right to ask for something in return. (You can read a summary of my review of a recent book on the topic, here: Managing for Stakeholders.)
The pipeline story is an excellent example of both the strengths and the limits of the stakeholder perspective. It’s surely useful for executives at Enbridge (or any other company, in the midst of an environmental crisis) to survey the situation and ask, “Who do we need to talk to? Who has a stake in this?” So, are the people of Wrigley stakeholders in Enbridge? Pretty clearly, yes. But after that, things get complicated. Does the environment itself automatically count as a stakeholder of some sort, or does it only count if the well-being of the people of Wrigley is jeopardized? What about the residents of Zama, Alberta? That’s the little town, 850 km away from Wrigley, to which Enbridge is planning to ship the contaminated soil. What about me? Like most people, I’m a consumer of oil. I clearly have a stake, here, don’t I? Pretty clearly, there are stakeholders and then there are stakeholders.
But anyway, once you’ve figured out who the stakeholders are, then what? Let’s take the easy one, a group that’s directly affected, namely the people of Wrigley. What are they owed? Are they owed the cleanup? Are they owed a speedy one? At what cost? Do they have a right to participate in the decision-making, or just to be kept informed? Or are they owed, as one resident of Enbridge suggested, a “swimming pool or a hockey arena or something for the kids”?
As you can see, one problem with the stakeholder view is that the word “stakeholder”, itself, doesn’t actually clarify much. Yet some people tend to sprinkle it on like fairy dust, as if simply anointing someone a Stakeholder™ clarifies what is owed to them, ethically. Life in the little town of Wrigley should be so simple.
Academic Business Ethics and the Corporation as Political Actor
Filed under: corporate citizenship, corporations, CSR, ethics, governance, government, law, personhood, politics, regulations, rights |
Comments (1) I’m returning home today after spending the weekend at the Annual Meeting of the Society for Business Ethics, the world’s foremost association for academics engaged in the study and teaching of issues related to business ethics, corporate social responsibility, and so on. (It was a fantastic meeting and anyone with a professional interest in these issues should consider joining SBE.)
One of the dominant themes of this year’s meeting was the role of the corporation in the political realm. It’s an old topic, one revitalized by the US Supreme Court’s decision last year in the Citizens United case. Corporate involvement in the political sphere takes many forms (from lobbying to campaign donations to participation in collaborative approaches to regulation). Such involvement is probably inevitable, but definitely controversial, and so there’s lots to sort out regarding how we should understand corporations in the political realm, and what rights and responsibilities they should have in that world. Among several dozen scholars presenting their research at the SBE meeting, a striking proportion of them presented work related to this set of topics.
David Ronnegard and Craig Smith, for example, presented work that elucidated the connection between competing theories of business ethics, on one hand, and competing theories from political philosophy, on the other.
Anselm Schneider and Andreas Scherer presented their work on the changes in corporate governance necessitated by (what I would call) the quasi-governmental responsibilities that corporations sometimes take on in the international sphere.
Pierre-Yves Néron presented work arguing that the way we think of corporations in the public sphere ought to be strongly influenced by thinking about the kinds of corporate behaviours (including regulatory lobbying, for example) that can either improve or frustrate market efficiency.
Waheed Hussain presented his work on what it might look like to “civilize” the corporation to make its participation in the political realm less worrisome — essentially, by fostering among corporations a “public interest” ethos, and insisting that lobbying etc be framed in terms of the public good.
Wayne Norman encouraged his fellow business ethicists to pay more attention to regulation, rather than focusing (as the typically do) on the corporate ethical obligations that go “beyond mere compliance”.
I myself presented some of my current thinking on the various ways we might think of corporations in their interactions with government. In particular, I argued that while, in some cases, it makes sense to conceptualize the corporation as an agent in its own right, there are other cases (perhaps many more cases) in which it makes sense to think of the corporation as a tool or technology used by citizens to advance their goals. (This is something I’ve touched on before, informally, in a blog entry.)
Although I don’t want to speak for my colleagues, it seems safe to say that the scholars whose work is noted above share an interest in better understanding what it means, and what it should mean, for corporations to be political agents. They are part of a trend — I don’t yet want to say movement — that sees scholars attempting to take seriously the complexity of the practical and philosophical problems raised by having limited-liability, joint-stock corporations participate in a realm that is generally thought of as being rightfully the place of flesh-and-blood citizens.
Yes, there is such a thing as business ethics
Filed under: accountability, blogs, character, codes of ethics, corporations, critical thinking, definitions, ethics, values |
Comments (10) Marketing guru (blogger, author, etc.) Seth Godin posted a provocative blog entry called, “No such thing as business ethics”, in which he worries that the focus on “business ethics and corporate social responsibility” is distracting us from questions of personal responsibility:
It comes down to this: only people can have ethics. Ethics, as in, doing the right thing for the community even though it might not benefit you or your company financially….
Now I could quibble with Godin’s definition of ethics, which is actually a particular controversial view about what ethics requires, rather than a definition. But instead I’m going to take issue with Godin’s claim that all that matters in business is personal ethics, rather than organizational ethics. Godin writes:
I worry that we absolve ourselves of responsibility when we talk about business ethics and corporate social responsibility. Corporations are collections of people, and we ought to insist that those people (that would be us) do the right thing. Business is too powerful for us to leave our humanity at the door of the office. It’s not business, it’s personal.
Godin’s claim that “it’s not business, it’s personal” is problematic in two ways. First, it wrongly implies that business ethics somehow misses out on the whole personal integrity thing. That’s entirely false. Both the academic literature on business ethics and the “ethics and values” programs set up by individual companies put a lot of emphasis on individuals adopting the right values and making good decisions. Secondly, contrary to what Godin implies, individual ethics clearly is not enough. For one thing, people embedded in organizations have obligations that are role-specific. Just as lawyers and doctors have special duties that go along with their roles — they have to follow not just their own consciences, but also highly specific professional codes — so do people in the world of business. And for another thing, organizations can be set up badly such that all kinds of “good” individual decisions can still lead to problematic outcomes. The ethics of the organization, per se, matters a lot.
Interestingly, Godin tells us that he learned about all this from his dad. Unfortunately, while the homely lessons we learned at our parents’ knees tend to give us a good start in life, complex institutional settings tend to bring more complex duties, and hence require more complex principles.
Corporate Rights as Stand-in for Human Rights
Filed under: corporations, law, personhood, rights, shareholders, stakeholders |
Comments (5) The rights of corporations are back in the news this week, as the US Supreme Court decided that a California law restricting sale of violent video games to minors constituted an infringement of the constitutional right to free speech.
Far from being shocking, the notion that corporations should be protected by certain rights ought to be utterly commonplace. Here’s why.
Do you believe that human individuals should have a right against unreasonable search and seizure?
Do you believe that human individuals should have strong rights to free speech?
If so, then you must, logically, be in favour of according such rights to corporations. Why? Not because corporations are legally persons, and not because corporations are “like” human individuals in any particular way. We don’t necessarily need to appeal to any checklist of characteristics that a thing must have in order to be accorded rights.
The reason you must logically be in favour of granting such rights to corporations is that granting them to corporations is — in at least some cases — an essential part of protecting such rights for individual humans.
Consider the right against unreasonable search and seizure. Such a right (for individuals) is a central tenet of all civilized societies. It is crucial for our wellbeing that the government not be allowed simply to show up, search our homes, and take our stuff. What about a corporation’s “stuff”? It must be protected as well. Why? Not because corporations feel fear or have interests of their own to protect. No, corporations’ property must be protected because the interests of real, flesh-and-blood people depend on the protection of such property.
Roughly the same argument goes with regard to free speech. It is literally impossible to shut up a corporation without thereby shutting up human persons. If a human being has the right to speak freely, then she also has the right to speak freely about her commercial interests, including about the products and services and viewpoints of the entities (corporations, partnerships, unions, etc.) that advance those interests.
None of this suggests that the rights accorded to corporations must be exactly the same in kind and in character as those accorded to humans. Rights for corporations are largely instrumental, and need only be accorded where doing so protects important human interests. Nor must such rights be unlimited: there are limits on free speech for humans, and those limits generally should also apply to non-human persons such as corporations and unions and clubs and churches. What is essential, here, is to see that corporate rights are not the bogeyman. Just like human rights, they are a tool for helping us get along, and thrive, as a community.
Diversity on Corporate Boards: Board Challenge or Social Challenge?
Diversity of corporate directors is arguably the hardest challenge in the realm of corporate governance. It’s hard because what constitutes diversity in the relevant sense is controversial. It’s hard because it’s not always easy to find directors who both possess the right talents and experience and who come from a range of demographic groups. And it’s hard because, well, old habits (not to mention old biases and vested interests) die hard.
Financial Post Magazine recently ran this editorial by Pamela Jeffrey, president of the Canadian Board Diversity Council: A call to action
…the Canadian Board Diversity Council in partnership with KPMG published the first-ever baseline study of corporate board diversity. The results were disappointing: 15% of board seats are held by women; 5.3% by visible minorities; 2.9% by persons with disabilities; and 8% by Aboriginals including First Nations, Inuit and Métis. In spite of these results, the council does not support the introduction of quotas in Canada. We support a made-in-Canada approach: collaboration with FP500 directors, our growing group of member companies, governments, academic institutions, aspiring directors, individual shareholders and institutional investors to speed up the pace of change….
A couple of points to make here. First, It is interesting to note that, statistically, Aboriginals are actually OVERrepresented on Canadian boards (8% of directors, but only 3 or 4% of population). So it’s odd to include them in the “disappointing” results that Jeffrey cites. But I’ll return to those stats later.
Second, it is important not to confuse what is true of boards collectively with what is true of individual boards. It would be good if there were a lot more women on boards, for example. But from that it doesn’t immediately follow that there should be a lot more women on any particular board.
There are a couple possible reasons why an individual board should aim at including more women. One is the idea that diversity makes for better decision-making. There’s a fair bit of consensus on that point, though there’s disagreement on what kind of diversity matters most.
A second is the idea that having more women on your board will help to motivate and inspire women within your firm in various ways, and show them that you value them too.
A third is the idea that, as a society, we should give women a bigger role in corporate decision-making and so we need to do more to open doors that were previously stubbornly held shut. But in that regard, the question remains as to what obligation particular boards have to help achieve that social objective. A societal goal is not automatically a board obligation, especially given the special role-related responsibilities that boards have to the organizations they oversee. So the extent of such an obligation is a hard moral problem.
Now putting more women on the board might be thought of as part of a company’s “social” or “citizenship” obligations (as opposed to an obligation owed to the handful of women who would benefit directly from membership on that particular board). But even then, you have to consider the extent to which a given board’s actions can have an impact. Even if your board is 50% or even 90% women, that doesn’t fix the social problem.
But then, it also cuts the other way: the fact that Aboriginals are seemingly well-represented on Canadian corporate boards “in general” is no reason for any particular board to be complacent about that issue. There may well be more your board can do, and should do, in that regard.
Roger Martin on Executive Compensation
Filed under: CEOs, compensation, corporations, governance, leadership, pay, shareholders |
Leave a comment Yesterday I attended the Annual Meeting of the Canadian Coalition for Good Governance, along with a handful of colleagues from the Clarkson Centre for Business Ethics.
The meeting’s keynote speech was given by Roger Martin, Dean of the Rotman School of Management. (Disclosure: I am a Visiting Scholar at Rotman.)
Martin’s speech was basically a summary of the key ideas from his new book, Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL. (I mentioned Martin’s book a few weeks ago, in a blog posting called Business, Football, and Incentives.)
Here is a rough summary of what he had to say, paraphrased and condensed:
Prior to the mid-70’s, stock-based compensation for CEOs was rare. But starting especially in the 80’s, it became very common indeed. Martin traces the sea change to a famous paper by Michael Jensen and William Mecklin, called “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure” (PDF here). The basic idea at the time was that paying senior executives, and especially CEO’s, in company stock or stock options would align their interests with those of shareholders. Shareholders naturally want the value of stock to rise, and paying CEOs mostly in stock gave them a very concrete reason to want stock to rise, too.
It was a fine theory, says Martin, but it didn’t work out well. If you compare the era of stock-based compensation to an equivalent period before, you see that returns went down about 15% and stock volatility went up about 15%. Those definitely aren’t the kinds of results that shareholders were looking for.
And yet somehow people still cleave to the idea that stock-based compensation aligns interests. Why?
It’s clear enough why CEOs themselves are fans of the system. The reason, according to Martin, is rooted in the fact that stock prices only reflect the market’s collective expectations about a company’s future performance. That means in order to boost stock prices (and hence their own compensation) CEOs merely need to boost expectations. So, says Martin, that’s what CEOs have learned to do: manage stock analysts’ expectation, rather than managing actual performance. If analyst expectations are low when stock options are granted, and high when they get cashed out, a CEO stands to make a lot of money, independent of what that variation means in terms of actual performance.
But of course, says Martin, CEOs have realized that you can’t play that game for very long. So, they learned to look for opportunities to play a hit-and-run version of the game: get in, play hard, and cash out. That, he says, is the real reason why the average tenure of CEO is so short these days.
Is this malfeasance on the part of CEOs? Not really, says Martin. It’s just CEOs doing what they are payed — incentivized — to do.
Now, says Martin, compare this situation to the way quarterbacks are payed in professional football. Professional quarterbacks, he says, are paid for real, on-the-field performance. Additionally — and this is crucial — they are forbidden from profiting from outsiders’ expectations of how they will perform, i.e., from gambling on the outcome of the games they are playing in. Why? Because professional football leagues realize that letting quarterbacks gamble would give them all kinds of perverse incentives. The corporate world, it seems, has something important to learn from the world of pro football when it comes to incentivizing key personnel.
In the corporate world, says Martin, the only ones with something to gain from having stock-based executive compensation are CEOs and hedge funds. Both, he says, benefit from volatility of stock prices.
Martin’s prescription: performance-based compensation is fine. But don’t reward CEOs based on stock prices. Reward them based on real performance, in terms of something like earnings or sales or market share — different systems will make sense for different companies with different strategic objectives. But the point is to reward them for something more real than merely meeting the expectations of analysts.
It’s a provocative thesis, and a bold prescription. To say that stock-based compensation is “standard” is an enormous understatement. And Martin acknowledges that change, if it comes at all, will not come quickly. But given how widely-agreed-upon it is that current modes of compensation are not working, bold prescriptions may just be what is in order.
The Business Ethics Blog 