Saturday, April 17, 2010

How Does Society Protect Itself From Sociopaths In The Marketplace? (Hint: Don't Look For Help From Miss McConnell)


Before retiring a few years ago, I was a corporate CEO-- president of Reprise Records, a division of AOLTimeWarner. I'll get back to that in a moment but I should explain that I came to that exalted position because I had spent almost seven years living overseas and because I had started and run a small indie record label when I returned to America. Before that... well, the first time I traveled from my native Brooklyn to my current home in Los Angeles, I hitchhiked. I had $68 in my pocket. I spent my first night at the YMCA in Youngstown, Ohio. Years later I could order a TimeWarner airplane for a trip to the East Coast. It's very convenient and very comfortable. But I never did it-- not once. Many of my colleagues did-- and I certainly flew on company planes when other people invited me. Believe me, it beats hitchhiking. But I could never get my head around how expensive it was for the company. I always thought how unfair it was to the shareholders and how much better used the money would be going into a marketing campaign to break a new artist.

This morning I went back to a chapter in Thom Hatmann's newest book, Threshold, because he had written something about the kinds of people who become CEOs. I was interested in rereading it because of something I've been working on in terms of Carly Fiorina, Meg Whitman, Mitt Romney and John Boehner, all Republican CEOs supremely unfit for government service. Believe me, I spent more than my fair share of time pondering his chapter's headline, "Why Do CEOs Make All That Money?," first when I was a struggling entrepreneur (and death sentence advocate for high-level corporate criminals) and later as a CEO myself. Before getting into the nature, or, more appropriately, the pathology of CEOness, Hartmann followed the money.
Americans have long understood how socially, politically, and economically destabilizing are huge disparities in wealth. For this reason, the U.S. military and the U.S. civil service have built into them systems that ensure that the highest-paid federal official (including the president) will never earn more than twenty times the salary of the lowest-paid janitor or army private. Most colleges have similar programs in place, with ratios ranging from ten-to-one to twenty-to-one between the president of the university and the guy who mows the lawn. From the 1940s through the 1980s, this was also a general rule of thumb in most of corporate America; when CEOs took more than their "fair share" they were restrained by their boards so that their money could instead be used by the company for growth and to open new areas of opportunity. The robber baron J.P. Morgan himself suggested that nobody in a company should earn more than twenty times the lowest-paid employee (although he exempted stock ownership from that equation).

But during the "greed is good" era of the 1980s, something changed. CEO salaries started to explode at the same time that the behavior of multinational corporations began to change. When Reagan stopped enforcing the Sherman Antitrust Act, a mergers-and-acquisitions mania filled the air, and as big companies merged to become bigger, they shed off "redundant" parts. The result was a series of waves of layoffs, as entire communities were decimated, divorce and suicide rates exploded, and America was introduced to the specter of the armed "disgruntled employee." [I for one, am still waiting for one goddam CEO-- or even an executive vice president-- to get a bullet between the eyes.] Accompanying the consolidation of wealth and power of those corporations was the very clear redefinition of employment from "providing a living wage to people in the community" to "a variable expense on the profit and loss sheet." Companies that manufactured everything from clothing to television sets discovered that there was a world full of people willing to work for fifty cents an hour or less: throughout America, factories closed, and a building boom commenced among the "Asian Tigers" of Taiwan, South Korea, and Thailand. The process has become so complete that of the millions of American flags bought and waved after the World Trade Center disaster, most were manufactured in China. Very, very, very few things are still manufactured in America.

And it wasn't unthinking, unfeeling "corporations" who took advantage of the changes in the ways that the Sherman Antitrust Act and other laws were enforced by the Reagan, Bush, Clinton and Bush administrations. It took a special kind of human person.

In this manuscript Toys, War, and Faith: Democracy In Jeopardy, Maj. William C. Gladish suggests that this special breed of person is actually a rare commodity, and thus highly valued. He notes that corporate executives make so much money because of simple supply and demand. There are, of course, many people out there with the best education from the best schools, raised in upper class families, who know how to play the games of status, corporate intrigue, and power. The labor pool would seem to be quite large. But, Gladish points out, "There's another and more demanding requirement to meet. They must be willing to operate in a runaway economic and financial system that demands the exploitation of humanity and the environment for short-term gain. This is a disturbing contradiction to their children's interests and their own intelligence, education, cultural appreciation, and religious beliefs.

"It's this second requirement," Gladish notes, "that drastically reduces the number of quality candidates [for corporations] to pick from. Most people in this group are not willing to forsake God, family, and humanity to further corporate interest in a predatory financial system. For the small percentage of people left, the system continues to increase salaries and benefit packages to entice the most qualified and ruthless to detach themselves from humanity and become corporate executives and their hired guns."

Sociopathic Paychecks

One of the questions often asked when the subject of CEO pay comes up is, "What could a person such as William McGuire or Rex Tillerson (the CEOs of UnitedHealth and ExxonMobil, respectively) possibly do to justify a $1.7 billion paycheck or a $400 million retirement bonus?"

It's an interesting question. If there is a "free market" of labor for CEOs, then you'd think there would be a lot of competition for the jobs. And a lot of people competing for the positions would drive down the pay. All UnitedHealth's stockholders would have to do to avoid paying more than $1 billion to McGuire is to find somebody to do the same CEO job for half a billion. And all they'd have to do to save even more is find somebody to do the job for a mere $100 million. Or maybe even somebody who'd work the necessary sixty-hour weeks for only $1 million.

So why is executive pay so high?

I've examined this with both my psychotherapist hat on and my amateur economist hat on, and only one rational answer presents itself: CEOs in America make as much money as they do because there really is a shortage of people with their skill set. Such a serious shortage that some companies have to pay as much as $1 million a week or a day to have somebody successfully do the job.

But what part of being a CEO could be so difficult-- so impossible for mere mortals-- that it would mean that there are only a few hundred individuals in the United States capable of performing it?

In my humble opinion, it's the sociopath part.

CEOs of community-based businesses are typically responsive to their communities and decent people. But the CEOs of the world largest corporations daily make decisions that destroy the lives of many other human beings. Only about 1 to 3 percent of us are sociopaths-- people who don't have normal human feelings and can easily go to sleep at night after having done horrific things. And of that 1 to 3 percent of sociopaths, there's probably only a fraction of a percent with a college education. And of that tiny fraction there's any even tinier fraction that understands how business works, particularly within any specific industry.

This there is a shortage of people who can run modern monopolistic, destructive corporations that stockholders have to pay millions to get them to work. And being sociopaths, they gladly take the money without any thought to its social consequences.

Today's modern transnational corporate CEOs-- who live in a private-jet-and-limousine world entirely apart from the rest of us-- and remnants from the times of kings, queens, and lords. They reflect the dysfunctional cultural (and Calvinist/Darwinian) belief that wealth is proof of goodness and that goodness then justifies taking more of the wealth.

A little reassurance: the Warner Bros corporate culture in which I worked, after escaping from SONY (for which Hartmann's description suffices), explicitly espoused by chairmen from Mo Ostin to Russ Thyet, was self-consciously not destructive and was very unique and uniquely successful as a model for American corporate life. It is not even minimally embraced outside of community-based corporations. Now, back to corporate financial reform legislation which, if really being fought out with good knights and bad knights, would make the battle over healthcare reform look like a choir recitation. Alas, it will only be fought out between the less bad guys and the much more bad guys.
Taking direct aim at his Republican critics, President Barack Obama promised Saturday there would be no additional bailouts offered to the financial industry.

"Never again will taxpayers be on the hook because a financial company is deemed 'too big to fail,'" he said in his weekly address.

Senate Minority Leader Mitch McConnell (R-Ky.) took to the Senate floor this week and said the Democrats' pending financial regulatory reform bill in the Senate "not only allows for taxpayer-funded bailouts of Wall Street banks, it institutionalizes them."

Obama said McConnell made a "cynical and deceptive assertion."

"He knows that it would do just the opposite," Obama said. "Every day we don’t act, the same system that led to bailouts remains in place-- with the exact same loopholes and the exact same liabilities. And if we don’t change what led to the crisis, we’ll doom ourselves to repeat it. That’s the truth."

"Opposing reform will leave taxpayers on the hook if a crisis like this ever happens again," he added.

Obama said a "failure of responsibility" from Wall Street and Washington cost the country "8 million jobs lost, trillions in savings erased [and] countless dreams diminished or denied."

Obama said the Democrats' financial reform will close the "loopholes" that led to the economic crisis.

"It’s these loopholes that allowed executives to take risks that not only endangered their companies, but also our entire economy," he said. "And we’re going to put in place new rules so that big banks and financial institutions will pay for the bad decisions they make-- not taxpayers."

He closed by saying, "We will hold Wall Street accountable."

If only! And that's only the Democrats. The Republicans are just plain hopeless. The GOP is now 100% unified-- or so claims McConnell-- in not even allowing Wall Street reform to be debated. Sociopaths-- enabled by... the voters.

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At 2:23 PM, Blogger lahru said...

Thank you, excellent read and I would dare say that don't be surprised in the near future shareholders of many large corp's will demand a reduction in CEO compensation and view the savings it will provide as belonging to them.

I also believe the Barack was uneasy about being succesful on HCR and now it passage isa huge wind at his back on other must do things.

At 2:21 AM, Blogger Philip Munger said...

One of your best essays ever, Howie. I was wondering whether or not to buy Thom's book. Now I will.

Charles Freeman has posted an article at Foreign Policy on similar aspects of this "culture crisis," in regard to finding ways to staff state department jobs, that is just as stunning in its full frontal statements of the obvious.

At 5:51 AM, Blogger Tom Degan said...

If a tree falls in the forest….

….does it make a sound if Mitch McConnell is not there to deny that a sound was made?

Tom Degan

At 7:27 AM, Anonymous McMicah said...

A thought-provoking read, thanks. I nodded in agreement all the way through, until I reached the final four words; "enabled by the voters." George Bush sat in the Whitehouse for 8 years after two stolen elections---his brother's state Florida in 2000 and the Bush family's state of origin Ohio in 2004. Voters (both Republican and Democrat) might reasonably be charged with "acquiescence," but not "enabling." The enablers were those who engineered the "coup(s)": the district gerrimanderers, the voter registry fiddlers, the vote count managers, the recount-obstructing lawyers, and the rubber-stamping judges. Sociopaths (to varying degrees), of course.

At 8:23 AM, Anonymous Anonymous said...

My pot smoking hippy days are over. Way off topic. But Neil Young is on Reprise. That's makes you even cooler.

At 7:30 PM, Blogger opit said...

What McMicah said. It wasn't enough that the game was rigged by the requirement of ridiculous largesse to purchase presenters with a made up candidate. The voting machines themselves are undetectably enabled to perversion.
I can scarcely recommend this chap enough.


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