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"The CEO and the New Feudalism"
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Normally we don't comment on social issues. Because a healthy environment is a condition for the future of poor and rich people alike.
In 2007 we quoted Martin Wolf of the Financial Times, who wrote "Intense distributional conflicts must then re-emerge - indeed, they are already emerging - within and among countries", which demonstrates that resources are becoming increasingly scarce."
Despite the economic downturn over the past few years, the policies have not changed basically. The differences in income, described in the article are an indication of the elitist understanding of this world.
They fail to see, for example, that
- the increasing disparities and pauperisation of larger parts of society makes their own world less safe;
- the money used on luxury is depleting resources unnecessarily and irresponsibly;
- their wealth provides no guarantee for more happiness or a better chance for survival on the unavoidable post-peak-oil downslope.
The people at the rudder of our spaceship earth don't (want to) see the dangers.
Helmut Lubbers
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The CEO and the New Feudalism
By Murray Dobbin: 17 Jan 2011 12:12 PM PST (Copyright notice )
Few developments in our era of savage capitalism are so powerfully symbolic of the new feudalism than the obscene compensation paid out to the new economic elite: the CEOs of the most powerful corporations in the country. The CCPA’s Hugh MacKenzie now reminds us yearly of this economic and social sickness by identifying exactly when the average CEO (of the 100 largest firms) has earned as much as the average worker makes in a year (this time around it was by 2:30 p.m. on January 3rd.) [Recession Proof] The average total compensation for Canada’s 100 highest paid CEOs was $6,643,895 in 2009.
The social and political implications of this grotesque over-compensation are more important than the actual dollars. Socially, in terms of class, it represents the ruling elite’s deliberate and conscious declaration that they will take as much money as they want out of the system simply because they can. It is the most powerful way that the elite can make clear that they have nothing in common with the rest of us. Their excess compensation has little to do with their value to a firm, their contribution or their ability.
Yet, says MacKenzie, the disparity between CEO compensation and the average worker’s pay continues to grow: “In 1995, the average pay of Canada’s highest paid 50 CEOs was $2.66 million, 85 times the pay of the average worker. In 2009, the average pay of the highest paid 50 CEOs had skyrocketed to 219 times the pay of the average worker.” The ratio for the top 100 went from 104 times in 1998 but to 155 times in 2009.
It is the modern equivalent of the power and arrogance of the robber barons of the 1920s.
The CEOs’ virtual control of the public policy process which allows for this obscene level of inequality delivers another message: democracy, whose essence is equality, will not be allowed to mess with the natural order of things. Samuel Huntington, one of the US elite’s longest-running apologists, pined 35 years ago for the good old days: “Truman had been able to govern the country with the co-operation of a relatively small number of Wall Street lawyers and bankers.” He pines no longer. How is it any different today as the financial sector, supported by the resource and manufacturing giants, effectively dictate economic policy to whatever government is in power.
There is nothing in this compensation pattern that benefits the corporation itself or the economy more broadly. In fact it is clear that just the opposite is the case: Compensating CEOs for the share price (over which they have almost no control) rather than profitability, stability, employee loyalty, long term growth, modernization and strong capitalization actually weakens the corporation and distorts proper management. And inequality, to which this disparity contributes, damages competitiveness, innovation and productivity.
The flip side of the excess CEO compensation coin is the push by these same CEOs for so-called labour flexibility. Historically, this set of policies – which have had the effect in Canada of flatlining real wages since 1980 – are a reversal of Fordism, the principle established by Henry Ford whereby he paid his workers enough to allow them to purchase the cars they made. This reversal – with workers receiving almost none of the productivity gains for two generations – has resulted in the accumulation of unsustainable debt by Canadian (and American) working families. Government and corporate obsession with globalization and trade has allowed the domestic economy to erode. The geniuses in the economics departments and financial firms thought trade would grow forever. Now that it is faltering and they need the domestic economy to fall back on, planned inequality has critically weakened it.
It is rare for any commentators in the business press to even raise the question as to whether or not any of the CEOs receiving multiple millions in compensation are actually worth it. The pay levels, including bonuses, imply that the CEOs are geniuses – uniquely responsible for the success of their companies. But there is nothing in management theory or practice to support such a conclusion. One of the most famous management gurus, Peter Drucker, who conducted a ground-breaking study of General Motors, stated : “No institution can possibly survive if it needs geniuses or supermen to manage it. It must be organized in such a way as to be able to get along under leadership composed of average human beings. No institution has solved the problem of leadership…unless it gives the leader a sense of duty and a sense of mutual loyalty between him and his associates…”
That “sense of mutual loyalty” has long since been tossed in the dust bin of business history. Loyalty now has to be paid for in the millions. It is not enough that the hundreds of top executives in the largest firms get huge salaries – something that was once enough to ensure loyalty. Now the financial firms that created the global meltdown claim they must pay huge bonuses to keep the loyalty of their highest paid employees. The leader who once inspired trust and loyalty of his employees has been replaced by what UBC psychologist Robert Hare calls the “sub-criminal psychopath” CEO. These men are extremely destructive to their companies and “…maneuver to have detractors fired and ruin the other peoples’ careers without a hint of remorse.”
Former Harvard University president Derek Bok believes [] that CEOs are paid their huge bonuses precisely because they are being asked to work against their better judgement as managers and human beings – and against the best interests of their companies. By being paid huge sums to focus on the short-term returns means managers must consciously ignore the interests of their employees, the community and the long term interests of the company which is paying them.
The unconscionable compensation rates enjoyed by Canadian CEOs is part of a pattern of radical market ideology centred in the Chicago School of Economics. We are so accustomed to hearing about these gargantuan pay packages that we assume they are a global pattern. But in Japan the average CEO, by tradition, receives no more that 17 times the compensation of his lowest paid employee. In Germany (1999 figures) the ratio is twelve to one []. There is no evidence that CEOs in these two countries suffer from lack of motivation or loyalty to their firms.
So long as the English speaking developed world is infected by the radical market ideology that caused the economic meltdown, the issue of CEO compensation – and the specific issue of bonuses for bankers – will not be dealt with. And the bankers know it. In testimony before the British House of Commons, Bob Diamond, Barclays’ CEO, refused to commit to lower bonuses []. Demonstrating appropriate contempt for a toothless state, he replied to tough questioning by simply declaring: “There was a period of remorse and apology; that period needs to be over.”
Indeed, it is over – until we find a way to recover democracy and the principle of equality which is at its core.
Diamond says time for remorse is over
By Sharlene Goff and George Parker
Published: January 11 2011 14:48 | Last updated: January 11 2011 23:18
[Image: Bob Diamond, chief executive of Barclays, leaves Portcullis House, Westminster, after giving evidence on Tuesday]
Ed Miliband lashed out at the government over its failure to tackle bank bonuses during heated exchanges in parliament on Wednesday.
The Labour leader accused David Cameron, prime minister, of breaking a pre-election pledge that no employee of a largely state-owned bank should receive a bonus over £2,000 - a pledge that the Labour leader said was still on the Conservative party website.
Mr Miliband also demanded to know why the government had failed to implement Labour legislation which would force financial institutions to declare any bonuses over £1 million
The whole country was fed up with Mr Cameron’s “pathetic excuses”, and now knew that the prime minister was “out of touch because of his failure on the banks”, he said.
Mr Cameron countered that the Labour government bailed out the banks and asked for nothing in return. ”The reason we have difficulty this year is because of the completely inadequate contract that his government negotiated”.
The debate during prime minister’s questions followed a defiant performance by Bob Diamond, Barclays’ chief executive during questioning by a parliamentary committee.
Mr Diamond said the time for “remorse and apology” by banks over their role in the financial crisis should end, during rancorous exchanges with MPs over bankers’ bonuses.
Under gruelling questioning, he acknowledged the public anger towards bankers over pay and said he wished he could “make the issue of bonuses go away”.
But Britain’s highest-profile banker argued that it was not possible to stop paying bonuses without severe consequences for business and the broader banking sector.
In front of a packed audience, Mr Diamond refused to yield to repeated demands from MPs that he give up his own bonus, as he has done for the past two years.
He signalled that it was now time for the debate to move on.
“There was a period of remorse and apology; that period needs to be over. We need our banks willing to take risks, to be confident and to work with the private sector in the UK to create jobs and improve economic growth,” he said at a hearing examining the retail banking sector.
In a forthright defence of industry practices, the new chief executive of Barclays, who took home £18m last year in his former role as head of Barclays Capital, the investment banking division, said the bank must be able to pay competitive bonuses.
Mr Diamond’s comments came as Barclays Capital, the investment bank, this week prepares to tell several hundred of its staff that they are out of a job. The cuts, which will affect the bank’s offices in the US and Asia as well as the City of London, come after a period of expansion for BarCap, which acquired the US operations of Lehman Brothers in 2008 and has been building out its equities and advisory business in Europe and Asia.
The government is determined to force British banks to reduce bonuses this year, although its attempts have lost momentum.
George Osborne, chancellor, insisted that he had not given up efforts to impose bonus restraint on the banks and said Barclays could take a lead by cutting Mr Diamond’s pay.
Mr Osborne laid down five conditions for a peace deal with the banks, including increased business lending and a demand that bonuses should be lower than would otherwise have been the case.
He said: “If the banks can’t commit to that, nothing is off the table.”
But his warning was met with derision by Labour, which believes Mr Osborne is in full retreat on the bonus issue.
Alan Johnson, shadow chancellor, said: “The chancellor bows to the rich and powerful while bearing down on everyone else.”
Mr Diamond reaffirmed Barclays’ commitment to the UK – “this is the place we want to succeed, it is great for business, for attracting talent and raising capital” – but warned that forcing restraint on bonuses could drive banks overseas.
“The other option is that you don’t have investment banks located in the UK,” he said.
Copyright The Financial Times Limited 2011.
We have reproduced these article for scientific reasons only - because of the volatility of the internet. Copyright Murray Dobbin 2011
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