Monday, February 9, 2009

2/9/09 Rakesh Khurana

Rakesh Khurana, of the Harvard Business School, co-wrote this article about executive pay. The article is decent, and they argue that the problems with business don't just include exorbitant pay:

This system -- and the predictably reckless choices made by some of its most powerful players -- has brought our economy to the brink of collapse. To scold business may feel good and may even help move legislation along. But we need much more than a good scolding and limits on sky-high paydays. We need to rethink how American business ought to be run, including changes to fiduciary duties, legal liability, takeover rules and business education, among many other areas.

As I have been trying to introduce the theme that companies legally cheating on taxes is part of the problem, I asked him about it:

Prescott, AZ

Hi, I enjoyed you are article. In it, you refer to the "American public corporation". Do you think that companies that incorporate large portions of their companies at what is basically a PO Box in the Cayman Islands or some other tax haven should be able to consider themselves American?The events of these past couple weeks, with the emphasis on which Obama appointees did and didn't pay taxes on income made me start thinking about the billions that corporations, including some that are sucking up the TARP money at the moment, and one formerly run by the ex-Vice President, have skimmed by gaming our tax laws.

Am I only one who is outraged by this? And given current events, do you see a window of opportunity for fixing this legal theft?

Question not answered.

In the chat, there was the following exchange:

Atlanta: The newest thing I hear is that Barney Frank wants to regulate pay in all industries (presumably, all levels). I'm not sure that could happen - but that would certainly make me and my husband leave the country. That is no joke (we've even been discussing that lately). Aren't the consequences to what the Dems are talking about that people won't be wanting to work at the companies getting the bailout money? And the 'best and brightest' will go to the ones not taking the money? The flip side to that is this. Both my husband and I have worked at corporations - and most of them are incredibly risk averse. So they only promote people who think exactly like those doing the promoting. There are plenty of people who are good who never get promoted because they think differently. Will this possibly get the good but not promoted people up in the higher ranks?

Rakesh Khurana: I don't agree with the idea of regulating pay in all industries (and I say this as a voter in Congressman Frank's district).

I do, however, believe, that we are choosing the 'wrong' type of leader. Over the past two decades, the US shifted toward hiring 'celebrity' CEOs. Many of them from outside the company. This 'savior' model has proven disastrous. First, outside CEOs often lack the deep industry knowledge to be successful. There is a great deal of research highlighting this fact. Outsiders create a short-term boost to a firm's performance (most often by cutting and slashing), but long-term benefits do not emerge. Second, outside 'celebrity' CEOs demand outsized pay packages. Pay is no longer set against internal benchmarks (e.g. how much the COO makes), but rather against external benchmarks. These external benchmarks are often 'negotiated' and moreover boards set the pay at the 75th percentile, resulting in an accelerating pay package. Third, outside CEOs usually demand a buy-out of their current stock options as well as an air-tight golden parachute. The result is that you get paid, whether you succeed or not.

I didn't bother to look it up, but I am fairly confident that Rep. Frank never called for capping all pay in all industries. If I was Khurana, rather than saying that "I don't agree with the idea of regulating pay in all industries (and I say this as a voter in Congressman Frank's district)," I would say: "Atlanta, as a constituent of Frank, I am confident in concluding you are full of shit and need to turn the channel when Glenn Beck comes on the TV, or else you make yourself look stupid."
Just so we are on the same page, didn't we decide during the last 8 years that people who threatened to leave the U.S. because of Iraq or torture or whatnot hated America?
I submitted this response:

Re: Barney Frank/regulating pay
I don't believe for a second that Frank called to regulate all pay in all industries. Perhaps the person making this accusation should cite a source?

As an aside, Republicans are currently claiming that the public works programs of FDR made the Great Depression worse, but the massive public works program known as World War 2 solved the Depression. The public works of World War 2 DID include regulation of all pay in all sectors. Be careful what you argue for...and did you know that Republican Richard Nixon also capped all pay for three or so years in the early 1970's. Last I heard Nixon was a patron saint of Republicans.

This comment got no response.

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