Sunday, February 01, 2009

Executive Compensation and Responsibility

In a comment on a posting on corporate feudalism - the idea that corporate "lords" have the right to kill, maim, or poison or to destroy the property of non-corporate "serfs" - this issue of executive compensation came up. Specifically, the comment concerned executive compensation for companies that received billions of dollars in government assistance.

I would like to look at this issue from a desire utilitarian perspective.

President Obama has said that one of his three objectives in this bailout is to establish a regulatory framework to make sure that nothing like this happens again.

Desire utilitarianism suggests another avenue to pursue in addition to regulation. That is condemnation and punishment.

Ninety percent of the executives of companies that have received government bailouts are still on the job. Furthermore, those companies gave their executives a combined $18 billion in bonuses at the end of the year.

A bonus is a reward.

In desire utilitarian terms, rewards are used to promote that which people generally have reason to promote. Condemnation and punishment are used to inhibit that which people generally have reason to inhibit.

People generally have reason to inhibit the type of behavior that these executives engaged in over the past several years, not to promote it. So, that behavior needs to be met with condemnation and punishment, rather than reward or (at best) indifference as the people responsible keep their jobs and live their lives as normal (while millions of others lose their jobs).

So, the quick prima facie recommendation regarding these executives from a desire utilitarian perspective is that they should be told to clean out their offices and leave the company - and new executives should be brought in who will have the duty to bring these businesses back to life.

I have called this system "corporate feudalism". One of its distinguishing characteristics is that it is deemed inappropriate to strip a noble of his title. Regardless of the quality of his leadership, he is still a noble, and thus "entitled" to his throne.

So, we see little movement in the direction of dethroning this particular nobility. Little movement to strip these people of their titles and to remove them from the head of their kingdoms. Instead, in spite of the harms they cause, they keep their thrones and their (political - not moral) right to rule.

By the way, the doctrine of capitalism, for those who understand it, is a philosophy of individual responsibility and would also call for ousting these executives. What we see happening here is not capitalism.

What we see happening is marketed under the name 'capitalism'. It has been marketed under that name to convince people to buy the product. However, the marketing in this case is deceptive.

Unfortunately, this deception produces some collateral damage, when the people who respond to this particular set of injustices takes their anger out on the "fall guy" in this case, instead of the actual culprit.

Ultimately, these executives should be fired and replaced with people who have a track record of taking their moral and business responsibilities seriously.

Why are we giving multi-billion dollar checks to people with a proven track record of losing billions and billions of dollars?

9 comments:

Katesickle said...

By what right should they be removed from their jobs? The government has no right to remove them--they have committed no crime (it should also be noted that the government should not be bailing them out either. We the people don't have that right--the company does not belong to us, so how it is run and who is allowed to work there is none of our legal or moral concern. The only people with the right to fire the CEO are the people on the board (as well as anyone else the CEO answers too, depending on the company charter).

The only punishment we have the moral authority to provide is that of boycotting those companies. We may choose not to do business with them, and the company will either realize its mistake and fire the CEO, or it will go under. For us to attempt to force this decision by any other means would be a gross violation of rights.

Alonzo Fyfe said...

Katesickle

The government can make a change in executive leadership a condition of receiving the funds.

And, it can use public pressure, simply by calling public for the resignation of those responsible.

Katesickle said...

That makes sense, then. Thanks for the clarification.

Sheldon said...

"By the way, the doctrine of capitalism, for those who understand it, is a philosophy of individual responsibility and would also call for ousting these executives. What we see happening here is not capitalism."

Really Alonzo, where is this doctrine of capitalism published?

In my view, capitalism is not a philosophy or doctrine, it is an economic and social system based on the private ownership of productive assets that are used to accumulate capital and maximize profits.

You seem to be the one attempting to change the appearance of something through marketing.

Katesickle said...

"In my view, capitalism is not a philosophy or doctrine, it is an economic and social system based on the private ownership of productive assets that are used to accumulate capital and maximize profits."

You don't see a philosophy there? The idea of 'private ownership' for example--that is directly related to the concept of individual rights (particularly the right to property, because things are owned, and the right to liberty, because owning something necessitates that you be able to use it as you see fit).

This idea also suggests a philosophy of individualism, since things are owned privately and not collectively, and since the state does not own the means of production.

Personal responsibility would follow from individualism, because the individual is the only one who can be responsible. If you own a company, then making sure the company survives can only be your responsibility.

So, yes there is a philosophy (or at least the beginnings of a philosophy) within the definition of capitalism.

Db0 said...

I do not understand where you see this "doctrine of capitalism". Even the term of 'Capitalism' is ambiguous as it was only defined as a production system in the early 20th century. You're trying to conflate the term with laissez-faire which is far from the same thing.

When most people speak of Capitalism, they mean the Capitalist mode of production, not some vague philosophy that one is free to define as it suits him to avoid criticism of its failures.

And yes, currently we do have the Capitalist mode of production, in the whole world. We also do not have any Socialist mode of production anywhere.

Sheldon said...

Katesicle,

But the philosophy is post-hoc rationalization. An attempt to put some kind of ethical face on a system that really know no moral boundaries. In my humble opinion (which can be empirically verified).

Katesickle said...

Yes, it is post hoc reasoning--does that make it invalid? Does a system based on private ownership not require the existance of property rights? How would you have such a system without them?

Sheldon said...

"Yes, it is post hoc reasoning--does that make it invalid? Does a system based on private ownership not require the existance of property rights? How would you have such a system without them?"

Katesickle,

Huh? You lost me here. Where was I disputing anything you said above?