Matt Miller - The Archives
Wanted: CEOs Against CEO Greed
The Financial Times, April 21, 2009
Wall Street's reputation is rightly in ruins, but if non-financial business leaders don't take unconventional action, business will suffer more broadly.

Given the mess into which Wall Street's poor stewardship has sunk the US, the phrase "financial industry statesman" will be seen by the American public as a laughable oxymoron for some time. But there is a real risk that the justified hit to Wall Street's reputation will taint the standing of business more generally unless non-financial leaders wake up and take unconventional action. The perils of timidity at this moment are high. If business as a whole (and not just finance) is discredited by today's meltdown, the drive to renew American capitalism could give rise to steps that burden the US economy for years.

To avoid this fate, far-sighted business leaders need to weigh in now on three subjects on which they have been notably absent: executive pay; the need for an updated "social contract" that fits 21st-century realities; and a strategy to make service jobs that cannot be offshored a path to the middle class. These are no longer political questions that can be left to Washington trade associations or viewed as a distraction from the "real work" of running one's business, because failure to address them will fuel a backlash that affects every company's licence to operate. Let us take them in turn.

Executive pay. The firestorm over bonuses at AIG, the insurer rescued by the US government last year, made clear that we are in the midst of an overdue "cultural correction"—that is, justified rage at the disconnect between any reasonable notion of "merit" or "performance" and financial reward. It is in the enlightened self-interest of business to acknowledge that it is both wrong and politically unsustainable to have chief executives routinely accumulating entrepreneurial-style wealth without taking entrepreneurial-style risk—or worse, while presiding over shoddy results or the actual demise of their companies.

That many financial industry leaders walked away with more than $100m as their institutions cratered should not just shock average Americans. It should outrage patriotic chief executives who know that a reckoning looms if ordinary people come to believe that US capitalism is a rigged system run by insiders for their own benefit.

Yet any honest observer knows that executive pay in America is, in fact, set largely by rigged systems today. What is needed is a new group of "CEOs against CEO greed" to model better behaviour and speak out against these scams. I know business leaders who are privately disgusted by the level of greed in many corner offices but who see no upside in speaking out; after all, they say, it is not their fight. Well, I have news for this silent majority: if you care about the future of American business, the brewing revolt makes it your fight now.

Sensible fixes abound. Boards could limit the gap between chief executive pay and that of senior managers to some reasonable multiple; require performance bonuses to reflect superior results relative to one's peers, so windfalls are not bestowed by surging markets; and claw back awards that prove to have been based on illusory profits. Once business sets its mind to ending the pay racket, there will be no shortage of sound ways to do it.

A new social contract. When it comes to their Washington agenda, most companies focus on parochial regulatory issues or industry-specific taxes. They lobby hard on these narrow measures because the return on political investment is high. But this issue-by-issue mentality is not remotely equal to today's challenges. A visionary business agenda would make sure average workers feel more secure in an era of accelerating change; this is the only way to avoid a backlash against trade and economic dynamism altogether.

To tackle these concerns, American business must rethink its odd, outsized role in the provision of health coverage, which may have made sense 50 years ago but which today leaves millions of families falling though the cracks—including the 14,000 people a day who have lost health coverage during this recession. No hired gun can work a subcommittee to "fix" this for business; instead, corporate leaders need to champion market-friendly solutions that nonetheless shift the social welfare burden over time from private payrolls to government.

Middle-class jobs that cannot be offshored. The present campaign to make unionisation easier and Vice-President Joe Biden's taskforce on the middle class are two responses to an emerging (and depressing) reality: growing numbers of jobs in the US face effective wage caps because they can be done for less, and often better, overseas. Yet in-person service jobs—such as teaching, home health services or hospice care, for example—cannot be offshored. How can the US turn this kind of work into jobs that can sustain a family? Failure to acknowledge the centrality of this question will only deepen the perception that there is a corrosive gap between the interests of US-based corporations and those of Americans.

Chief executives face a choice. They can help bolster workers' security, or they can hire more security guards and hunker down. There is little doubt that the risks of business as usual are far greater than the risks of such new approaches. The trouble is that every individual chief executive has an incentive to lie low. A group of 10 far-sighted business leaders who sense the threat (and the opportunity) could get this ball rolling. With business nearing the brink, who will answer the call?