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January 24, 2012


Frank in midtown

It seems to me that the unentended consequence of SOX is an advantage to PE ownership. PE ownership is likely to be considerably more involved than the Mutual fund guys. Mutual funds make horrible owners.

Account Deleted

A pay cap is naive because executives will simply bypass it - e.g. by contracting through personal services companies so their pay is treated as a 3rd party expense.

A higher rate of tax would be more effective, though, as you note, this can have unintended consequences. It might be possible to prevent inefficient conglomerates by gearing corporation tax to size or span.

The issue of CEO power, and by extension the entire hierarchy of command and control within a business, is central. We need to consider that new-fangled democracy thing.


I think the dogma around "inefficient conglomerates" needs more careful analysis. Most of the evidence presented is that share prices of conglomerates exist at a discount to the individual parts. But that's not necessarily a meaningful measure, since share prices in this era reflect the ability to hit earnings forecasts, rather than actually reflecting earnings transparently.

GE and IBM seem to have done ok, despite being conglomerates in the RBV sense.

Further of course, raising an altar to efficiency rather than (for example) effectiveness or resilience needs examination, as it's based on Modigliani-Miller which rests on conditions which don't hold in today's market.

Richard Gadsden

Have to agree with Marstoelbow here - we should try that democracy thing.

What impact would mandating STV* elections of the board have?

That would guarantee minority representation on the board, and requiring annual re-election would make directors more responsive to the electorate.

Then, all you need to do is fix the electorate. The obvious approach is to state that only natural persons can vote. Corporate persons are representatives of groups of natural persons, so you could just require corporate persons to delegate their voting rights back to the ultimate beneficial owner.

Only the corporate persons that don't have a beneficial owner would be able to vote their own shares, and that would have to be in accordance with the aims and objectives of the corporate person, rather than mere profit (ie Friends of the Earth would have to vote on the basis of what was the most environmentally-friendly choice).

Once you've got a functioning electorate, you could then start giving them more decisions. Sod remuneration committees: require a vote on pay and directors get £1pa if there isn't a majority of shares (ie, non-votes don't authorise any pay at all).

* STV is a PR system that doesn't need parties or party lists, unlike most PR systems, so it guarantees minority representation

David Hurley

Everyone wants to earn and earn more these sought of things will force them to try next best thing that is to swithover or find other way of income, which is not good for an organisation.

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