CEOs today make an estimated 400 to 500 times the average U. S. worker. When they made just 40 times the average paycheck five decades ago, and apparently had about one-tenth the incentive they have today, it makes you wonder how anything important got done. They just helped to change the world. That’s all.
“It is not a coincidence that the Dow Jones industrial average, which stood at 5,000 in 1996, is now well above 13,000,” the authors write. “While U.S. executive pay practices do not entirely explain this rise, there is little doubt that it would not have occurred without them.” (more…)
Alan Greenspan, whose selective vision we have written about before, appears to have been “shocked, shocked” that tax cuts were contributing to the mounting deficit in the Bush administration. That is, if you believe his just released autobiography The Age of Turbulence. This is a man who, as head of the Fed until just 18 months ago, had nothing but praise for these same deep tax cuts when asked about them before Congress on several occasions. He wanted them made permanent, in fact. He also seemed to have lost his tongue when it came to raising red flags about other aspects of deficit spending that took hold of Mr. Bush and his fellow Republicans the likes of which no liberal would have dared attempt. Now both figure prominently as a source of outrage in the mind of the once revered oracle of U.S. monetary policy.
I recall Dr. Greenspan having a similar change of heart when it came to Sarbanes-Oxley legislation, which he initially supported along with the White House and both houses of Congress. More recently, however, private citizen Greenspan, who consults regularly to American business, expressed chagrin at the dampening effects of such legislation.
There is a very old toy, still popular with children, called Silly Putty. It is remarkably malleable and can be molded into just about any shape. It is an amusing property for a toy, but not so much for the character of those who hold high office. The public is entitled to expect that its leaders will be forthright in their views when it comes to the responsibilities they hold —not hold back their real thoughts for the best seller list.
How many other momentous events will later turn out to enjoy less support than met the eye at the time? What faulty decisions are being made today in Washington and around the world by figures who could stop them if only they had the courage to speak out. The lessons of Vietnam, and now Iraq, are painful testimony to the consequences of the voices unraised, the silent doubters and those who just could not bother to ask the tough questions.
The world needs leaders who are on the job today, when it matters and when they can effect change for the better, not in the book store telling us about what they really, really sincerely felt —tomorrow.
An essay on icons of privilege and power in a skeptical world
Here and there, the turning leaves of autumn have begun to fall. A few leaders, or those who would have the world cling to such notions, have already preceded them. Alberto Gonzales has finally ended the torment of his pathetically inept performance as U.S. Attorney General, his tumble from a post he never should have held no doubt accelerated by the high-ranking members of the senate judiciary committee from both parties who publicly questioned his integrity. In addition to possessing unimpeachable credentials of honesty, it is always a good idea for holders of important public office to have —and be seen to have— an IQ above room temperature. It is hard to imagine an Attorney General in the 21st century who could make John Mitchell, Richard Nixon’s disgraced and eventually imprisoned AG, look better. But with his almost terminal state of amnesia about what was happening around him and his frequent reconstruction of key events which was later discredited by first-hand witnesses, Al Gonzales, the good friend of President George W. Bush, seems to have made that feat his defining accomplishment.
U.S. Senator Larry Craig (R-Idaho) fell from office on the floor of a men’s washroom of all places. But with his guilty plea to a misdemeanor charge, which he later recanted, followed by the announcement of his resignation last week and its sudden reversal a few days later, it would seem that Senator Craig has revealed an almost criminal level of indecision which itself should constitute grounds for his departure.
Former senator and recent TV star Fred Thompson’s entry into the Republican race for president would have fallen considerably short of the high expectations he generated —if it had ever gotten off the ground. A formal announcement on Jay Leno? Is this man really running for president or is he just planning to play one on TV? Many are already asking why this grumpy looking late entry thinks he could, or should, be elected president. His early appearances in Iowa and elsewhere suggest he hasn’t gotten around to figuring out the answer yet. Call in the Law and Order screenwriters.
The war in Iraq is increasingly viewed by Americans as the greatest foreign policy blunder in the country’s history. With the decline in support for the war, the popularity of its presidential chief architect swiftly follows. A majority of voting Americans believe the war has been a mistake and is not worth the cost. Only 26 percent approve of President Bush’s handling of the war, a figure that brings him perilously close to the low reached by President Lyndon Johnson during Vietnam.
In Toronto, movie stars have descended upon that city’s annual film festival in their private jets and block-long limousines. The carnival atmosphere of actors, groupies, paparazzi and high-powered parties has once again overtaken the town —or at least its better bars and hotels— that regularly appears in movies as New York, Boston or Chicago but rarely its actual self. It is an industry that is given to illusion, where it is difficult to distinguish between facts and myth and where hype often overshadows reality. Some stars are at the festival to promote their newest films. Others are there to promote their special cause and just coincidentally have a new movie to promote, too. Is it not remarkable how things work out with almost mathematically serendipitous precision for those with wealth, fame and cosmetically enhanced features?
Efforts to make the world better on the part of those endowed with privilege and opportunity are always to be commended. But sometimes, between the posing and the parties, the lavish displays of self-indulgence and the overreaching strides of the ever-glittering ego, the gravity and significance of the cause seem to get lost somewhere in the back of the limousine.
Why do so many leaders seem ultimately to be impostors in that role and ill-suited to its demands? Why do so many celebrities need to have their favorite causes accompanied by a traveling sideshow of parties, acolytes and five-star hotel suites? I suppose one should leave those answers to the psychologists. But even to the untrained eye there seems to be a narcissistic compulsion on the part of some members of the rich and powerful for constant attention and adulation. The applause and approval of the crowd become an irresistible addiction; the exercise of influence and power a thirst that can never be fully quenched. We are seeing the rise of what I call the virtue celebrity, where the pursuit of charitable endeavors and the recognition they bring has become one more weapon in the arsenal of personal and career marketing on the part of stars and billionaires. It is a world where success and public approbation has always required a good publicity agent. Now it requires a popular social cause as well.
Yet the more rich and powerful leaders and celebrities become, the more out of touch with reality they seem to drift. Britney Spears, Michael Jackson and Bill Clinton during his Monica days spring to mind. So does the procession of disgraced billionaire business figures and those more recently caught backdating stock options in order to grab a handful of extra dollars. More than a few have resorted to philanthropy and the pursuit of a socially laudable cause as a means of repairing a reputation damaged by their own misconduct or trying to impress regulators and prosecutors in the midst of investigations of wrongdoing. There is, it seems, never a shortage of announcements of gala dinners for yet another award ceremony or full-page advertisements extolling some stock option-rich benefactor whose endowment will be honored by his name appearing in large chiseled letters over the transom (the exterior of the Rotman business school building at the University of Toronto, for instance, displays the name of the donor financier in eight separate locations before you even reach the lobby). It becomes difficult even for the Panglossians among us not to occasionally wonder if such exercises are more about the feeding of oversized egos, and the creation of more places for the exalted to further exalt one another, than they are an authentically altruistic desire to make the world happier, healthier or wiser.
Some, of course, are genuine in their aspirations to make the world better. But a litmus test for sincerity is often humility —one of those rather underrated virtues that mothers try to teach but regrettably enjoys few adherents in the pantheon of the self-elevated.
Having worked with many of these kinds of people over the years, I have been struck by the fact that while they bask in the title and adulation that goes with being a public figure or celebrity connected to a special cause, often they fall measurably short when set against the lives, actions and sacrifice of more ordinary folks. The most impressive leaders I have known are those we generally never hear about. They are among the millions of individuals quietly performing acts of leadership and philanthropy who would never dream of making a side show out of it or posing for celebratory photos. They know their own limits and have a sense of perspective —two attributes which often elude the high-profile elite. They mentor the kids from broken homes, help out at the local hospital and travel to far-off parts of the world to fight hunger and disease. They seek no reward or title. They are always dipping into their own pockets to help out. You will not see their great feats of daily heroism on network TV, nor will you read about them besmirching the office they hold in the New York Times or elsewhere. They go about the important business of helping and inspiring others with a quiet dignity and strength of character that is often infectious. They are cut from the same powerfully modest mold as Lou Gehrig and Jackie Robinson —two of my personal heroes. They don’t need gala dinners, praising cover stories in major magazines or induction in, say, the Order of Canada whose membership still includes convicted felon Conrad Black and fugitive from U.S. justice Garth Drabinsky. And while many are incredibly generous in their charitable giving, they would not dream of having something named after them. Unlike the nouveau billionaire class, who seem to need the accompaniment of a brass band, klieg lights and a posse of publicity agents every time they make a donation, several millionaires I know write substantial checks each year and don’t even bother claiming the gifts for tax purposes.
The world will always need its larger than life figures —its Winston Churchills, its John F. Kennedys, its Pierre Elliott Trudeaus— to envision and inspire in new directions. They are few and far between, as their successors in office regularly confirm. It will always be captivated by its screen stars, though hopefully will not elevate them to the status of entire planetary systems rivaling the discoveries of Galileo. But from the boardroom betrayals of Enron and Hollinger and the epidemic of greed illustrated by out-of-control CEO pay to the quagmire of Iraq and the primacy of the privileged which has given rise to the greatest income gap since the 1920s, it is a world that is too often let down and disappointed by those whom it has entrusted and revered. We have discussed this phenomenon before in the context of the vanishing stakeholder. It is a reality that will increasingly see society turn to what I call its quiet heroes —the everyday leaders around us who are changing the world for the better in the voluntary organizations they run, the causes they support and the social needs they fill. Perhaps astonishingly to some, they are doing it without scandal, award ceremonies, private jets or gas-guzzling limousines.
If conventional leaders and cause-oriented celebrity icons are genuine in their aspirations and are looking for a model to work and live by that gets the job done well, they could do worse than follow the example set by their more unassuming counterparts.
It is a legacy that stands in sharp contrast to the so-called hedge fund and LBO heroes of today, who instantly appear then quickly vanish from the scene, and where the celebrity status of self-proclaimed movers and shakers has about the same shelf life as a prize in a cereal box. It is also a lesson that gentlemen, too, can rise to great heights but still keep their feet on the ground.
A remarkable man passed from the scene this week. His name was Rowland Frazee and for many years he was chairman and CEO of Royal Bank of Canada, the country’s largest bank. He was remarkable not just because he was a highly successful business leader, but because he managed to rise to the pinnacle of success while being a gentleman with a strong social conscience.
I first met Mr. Frazee some three decades ago, when he was on a jury which gave me some award. He was interested in social responsibility issues long before they became a fad. One way you can tell a genuine leader is by his capacity to show an interest in others and make them feel important. And I felt very important after my meeting with him. He was like those baseball greats of yesterday who managed to hit more than a few out of the park but always had their feet planted firmly on the ground. He started working in a small bank branch, answered freedom’s call in the second world war, where he was wounded three times in the Italian Campaign and in battles in Europe, and then returned to raise a family and resume his career. He presided over a period of impressive growth and change at Royal Bank that kept it solidly in the lead of its competitors. And, believe it or not in this day of numbingly common ethical debacle and almost daily corporate embarrassment, he managed to do it all without a hint of scandal or making a giant size payout because somebody at the bank dropped the ball.
He was, like many who have come this way and are now sadly gone, part of the greatest generation. They knew what was important. And they knew what many in my generation and a few others forgot or perhaps never learned: a virtue called humility and the concept of “enough.”
Rowland Frazee’s life and career seem such an astonishing contrast to the so-called hedge fund and LBO heroes of today, who instantly appear then quickly vanish from the scene, and where the celebrity status of self-proclaimed movers and shakers has about the same shelf life as a prize in a cereal box. They strut around the stage for a while. Some even manage to acquire billions and ever more youthful wives. But in the end, they don’t seem to leave very much behind that can be measured or appreciated in human terms. Egos die. Legacies endure.
Mr. Frazee retired some years ago to the small New Brunswick town where he was raised, and contributed his time and ideas to the community. He touched many people in far-reaching ways, not the least of which was to remind us all that there is room for a gentleman in the world of big business who can still accomplish a lot without being nasty, garish or boasting about the size of his mansions.
I am not generally one to suggest more awards in a world already overcrowded with prize-winning real estate agents and endlessly honored show business types. But there would be no better way to celebrate Rowland Frazee’s legacy than for Royal Bank’s board of directors to establish an award that recognizes and encourages in others the kind of civilized conduct he exemplified in business and public life. It is a model which both business and society need to see much more of these days —and very soon.
In too many ways, the primacy of the ordinary individual —as citizen, employee and investor— which has long been the backbone of modern social progress, is being left to disappear amid an onslaught of privileged special interests, civil rights-invading bureaucrats, unwatchful corporate guardians and greedy financial contortionists.
In Canada, it was the no-fly list, which the Harper government created to ban certain individuals from flights inside or leaving the country. In the United States, it was the no-sue list, which directors, executives and corporations now find themselves on courtesy of the Supreme Court’s 8-1 decision raising the bar for shareholders to commence litigation in respect of civil fraud. While they may seem unrelated, these two decisions share a common connection with an unsettling trend in the exercise of corporate and government power.
In too many ways, the primacy of the ordinary individual —as citizen, employee and investor— which has long been the backbone of modern social progress, is being left to disappear amid an onslaught of privileged special interests, civil rights-invading bureaucrats, unwatchful corporate guardians and greedy financial contortionists. We call this the Vanishing Stakeholder. Left unchecked, it is a trend that threatens to undermine the fabric of our society, our prosperity and our freedoms.
The U.S. decision, which was handed down this week, imposes standards that most investors, because they do not have the power to subpoena documents or to interview corporate parties such as directors and executives, can never meet. As a result of the Court’s ruling, investors must show “cogent and compelling” evidence of intent to defraud. Some, including Justice John Paul Stevens who dissented from the decision, believe the standard being set for this kind of civil litigation is as high as, if not higher than, that applied in criminal prosecutions. The decision pleased Bush administration officials and a large platoon of business lobbyists who have been moving toward a general loosening of post-Enron era reforms of the kind found in the Sarbanes-Oxley Act of 2002.
Under the Canadian program, which came into force this week, the government will identify people who pose “an immediate threat to aviation security” and place them on its no-fly list, without due process or prior notice. They might be part of a terrorist group, or, as Senator Ted Kennedy found himself after the U.S. introduced its version, someone with the same name as an embargoed passenger. They will only find out that they are on the list —or that they have been confused with some other person of the same name— just as they are about to board a plane. And the onus rests upon innocent people improperly placed on the list (has there ever been a major government effort that has not been bungled by bureaucratic incompetency or twisted by the vanity of some power drunk official?) to prove their innocence while being interrogated by law enforcement officials at the airport, in a closed room and without legal counsel. We thought that only happened in authoritarian regimes and in George Orwell’s fictional world.
But in the world that is becoming all too real for the treatment of individuals, shareholders are regularly seen as an inconvenience who need to be treated like annoying children instead of the owners of the corporate enterprise which they actually are. Citizens are viewed as suspects and potential lawbreakers in a time when even the library reading habits of young children cannot escape the alarmed and ever watchful gaze of law enforcement officials.
No sensible person wants to make it easier to clog the courts with frivolous lawsuits or for terrorists to plot their evil plans. But there has been a rising tendency of late to allow big corporations and big governments to become even more powerful and to make more difficult the ability of ordinary stakeholders to hold them to account. When that happens, fewer individuals, whether investors, employees or citizens, are inclined to stand up and assert their rights. Many fear the fix is in and that it is impossible to challenge the excesses and abuses of either government or business.
Last month, the U.S. Supreme Court made it more difficult for workers to sue in cases of pay discrimination under Title VII of the Civil Rights Act of 1964. In a 5-4 opinion, the Court held that such lawsuits —which almost invariably involve lower paid women— must be brought within 180 days of the initial alleged discriminatory act, not when the worker discovers it. And finding out what others in a factory or office are paid is not the easiest thing. Workers should not have to become pay stub sleuths in order to ensure that they are being fairly treated.
Ordinary investors, like average workers, are also getting the back of the hand from those in charge. Just look at the number of shareholder resolutions that have failed to win a bare majority in recent months when boards and management have opposed them —even resolutions like say on pay, which would have had only an advisory influence upon compensation committees. As for shareholder lawsuits —frivolous or otherwise— they are hardly an epidemic. Their numbers are considerably down in the years since Sarbanes-Oxley.
An equally disturbing trend is seen in the swallowing up of North American and European business icons by the elusive and expanding private equity whale. The stake that individuals have had as investors, and the benefits that come from being able to witness transparently the use of economic power and how it is wielded, seem now to be regarded by many commentators as only a passing fad in the natural evolution of a more concentrated form of capitalism —concentrated in fewer and richer hands, that is.
The current model of the publicly traded, widely-held, corporation, and its espoused link to the well-being of individuals, developed over a considerable period of time. Symbolized by the huge American flag that drapes the facade of the New York Stock Exchange, the motivating idea was that individuals could be something more than cogs in the wheel of capitalism; they could be the owners of its engines as well. Under this vision of the capital markets system, Wall Street and Main Street were inseparably linked. This idea was taken even further in the aftermath of the attacks of 9/11 with the posting of military personnel around the New York Stock Exchange. An attack on Wall Street was generally considered to be an attack on the financial nerve center of America itself.
Corporate leaders have consistently expressed the view that individuals have a genuine stake in American business —through pensions funds or mutual funds or as direct investors—and that such roles create a level of harmony between what’s good for most folks and what’s good for the modern corporation. As more and more companies begin to be taken over by essentially anonymous actors, or become absorbed by entities controlled by a few multi-billionaires, those interests may be starting to diverge. Indeed, there is some concern now as to exactly what role countries like China, headed by a dictatorial and communist regime, will have as their level of investment and alliance with private pools of corporate gobbling capital expands. Is this in the long-term interests of either democracy or society? Are policy makers and business leaders even pondering these kinds of questions? Again, the role of the individual in these new equations of commerce and capital seems essentially overlooked, if not regarded as entirely disposable.
The trend in this regard is paralleled by another significant phenomenon in the United States: widening economic division as reflected in the fact that the top one percent of households controls more wealth than at any time since 1929. As we have noted previously, it was a gap that ended abruptly –some might say catastrophically– at that time. There is little evidence that those at the top today are giving much thought to the impact of the current trend or exactly how much further it can be permitted to advance before serious damage is done to the social contract that has existed between the class of ordinary individuals and those in the upper tier of power and wealth. The average stakeholder has been just as absent from the cares of the corridors of privilege as he and she has been from participation in the income gains enjoyed in recent years. And, as we have documented repeatedly on these pages, few inside major corporations, much less the wider workforce, have seen anything approach the soaring level of pay advancement or galloping annual increases that CEOs and senior executives have received over the past decade.
Bear Stearns’s $3.2 billion bailout this week of a troubled hedge fund, and the sudden decline in the Dow Jones average as a result, is just one more in a series of telling reminders of how dependent individuals are on the guardians of capitalism and the watchdogs of sound business practice, including the credit rating agencies that seemed to miss the red flags. Recent testimony at the trial of Conrad Black from the high profile directors on Hollinger International’s audit committee, who admitted under oath that they did not read documents put before them, provides a vivid illustration of how boards so often fall short in their duties as stakeholders’ sentries. We would not be surprised to see further disturbing developments over the next several weeks as the world discovers (again) that the hedge fund kings and Wall Street wizards have not entirely rewritten the laws of market physics and may not be quite the extraordinary wonders their publicity departments or their huge fees would suggest.
As the Outrage of the Week prepares to take some time off for the summer, we think it is appropriate to leave on the larger note of concern for what we see as the receding role of the individual in society. We view this trend, where leaders in business and government are a little too quick to trample on a right here or remove a benefit there because it is the expedient or profitable thing to do when it comes to dealing with average stakeholders, as emerging on too many fronts to ignore.
Some of us actually believe that we live in a democracy. We like it that way. We take its freedoms and responsibilities seriously, including the idea of a market economy where individuals ultimately control even the mightiest pools of power. We are mindful of the continuing sacrifices made by men and women in countless battles around the world who have made our freedoms possible. If we wanted a different system, we would be living under any number of regimes that do not share a respectful belief in the role of the individual and who take a dim view of the rights of citizens or investors when they are exercised. The worry is that too many entrusted with power here are apt to forget that under our concept of democratic government and accountable markets, they are answerable to the people, not the other way around.
The Outrage may drop in from time to time, but will otherwise return to its regular weekly slot in early September. In the meantime, we thank our readers —affectionately known as our Outrangers— for your many suggestions for this well-read feature at Finlay ON Governance. We understand it is a frequent topic of conversation around the water cooler and at the kitchen table and has caught the eye of a few tycoons and political shakers on more than one occasion.
We wish them and everyone a safe and pleasant summer. There is much in the use and abuse of power and leadership that properly warrants our indignation. But there is also a good deal in the world around us among families and hard working people and in the wonders of nature that commends itself to our admiration and our gratefulness.
We hope you all have a chance to experience the latter to the fullest over the next several weeks, and that our many readers in the southern hemisphere have an equally pleasant winter.
I must confess I get a little emotional on those annual occasions in Canada and the United States when men and women who have made the ultimate sacrifice in service to their country are honored. I have had relatives on both sides of the border fight and die in battle over several generations. I lost a cousin who was the same age as me in the Vietnam war.
It has been said that war is the ultimate testimony to a failure of diplomacy and political leadership. Whether that is true, it is a time that never fails to produce remarkable heroes who renew the ideal of duty and sacrifice. They serve today in Iraq and Afghanistan, while their families share their burden at home. It is work that pays too little and often demands a cost that cannot begin to be measured, except perhaps in the tears of loved ones.
We hear a lot of talk in this 21st century Gilded era of record stock markets and wealth at the top about what great leaders CEOs are. We are told they are worth all the many millions they command and then some. It is not uncommon to see them paid a fortune even when they fail or to see them bail out with a golden parachute and leave shareholders in the lurch. Above all, is the idea that no CEO must be left behind.
Frankly, there are days when I believe a single company of men and women in the field of battle know more about leadership and sacrifice than all of the Fortune 500 CEOs combined. And to me, they are worth a hell of a lot more.
