Jewish World Review August 7, 2002 / 29 Menachem-Av, 5762
What happened to these once vaunted idols of the American dream?
The CEOs who've defrauded their company's stockholders should be prosecuted to the fullest extent of the law. (That law was sufficient to put away wrongdoers for life even before the corporate fraud bill was signed.)
Yet there are plenty of CEOs who aren't breaking the law but who are still making staggering amounts of money wholly undeserved by anything they are doing to benefit their companies.
I'm a free market advocate. I'm also in line with market advocates who have long maintained that the market can't be free if it's free from internal ethical constraints. Nor can government, through law, effectively impose moral restraints where they don't already exist.
There was a time that to be a corporate CEO was to be a leader not just of a corporation but of a community. Typically, and often unlike the entrepreneurs who become wealthy through invention and innovation, CEOs are hired to do a job. Being responsible to and for the shareholders of their company, they were given an important public trust. Historically those who did well for their companies honored that trust and were well-paid - but not ridiculously paid. In the early 1970s, for example, the typical CEO compensation of several hundred thousand dollars was still, when adjusted for inflation, below that of the 1930s.
Fast forward to 2002 when the average CEO compensation package is $15 million. That amount is 500 times the average factory worker salary. In 1980 that ratio was 42 times the average factory salary. And until recently CEO compensation kept growing, often even when the company didn't. In 1998 the Wall Street Journal found no relationship between CEO pay and company performance, and a similar study from the Wharton Business School actually found an inverse relationship between the two. That study suggested that CEOs who could talk their corporate boards into giving them outrageous compensation packages could essentially talk their boards into anything, and that was rarely a good omen for the company.
In any event that multi-million dollar figure doesn't give anywhere near the whole picture. In 2000, America's top ten CEOs averaged over $150 million in annual compensation, with some making many times that. This was usually because stock prices were skyrocketing, but, as we now know, were often inflated. The inflation came about largely thanks to the practice of making stock options a huge portion of the typical CEO's compensation, which took off in the early 1990s.
Some well known CEOs, like Apple computer's Gilbert Amelio, earned the big bucks while decimating their companies. Amelio lost Apple $2 billion and 3,500 employees in 17 months, walked away with more than $6 million in severance pay and other compensation, and publicly complained about it.
Yes there are responsible CEOs being wrongly smeared by their out-of-control brethren. Still one must ask how America's corporate leaders could routinely get such preposterous pay totally unmerited by, and often in spite of, what they were doing with their publicly held companies? Well, Bill Clinton was on to something when he figured out that he could bold-face lie to the American people, be defended by his friends, ultimately getting away with treachery and never experience any shame over it. But in the end he was really just a symptom of a larger problem - a decline of the once cherished notion of public virtue and responsibility.
We used to have a shared ethic in this country, and a sense of shame was a present and protective part of our culture. We held our community, business, and national leaders to high standards and they typically, though by no means always, responded well to that trust. But where that common language of values and the once treasured good of public virtue has disintegrated, the language of "self" has filled the void.
Excesses like outrageous, unmerited CEO pay are not the natural product of capitalism. In fact it's the marketplace that will exert its discipline and begin to work to rein in the excesses just as it has before in this country. No, CEO pay run amok is better understood as the product of a culture which, when considering the notion of public virtue, at best, views it as a quaint, naive relic from the past and, at worst, outright sneers at it.
Too bad. Because if we should learn anything from all this, it's that
character does count after all.
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