Corporate Immaturity

The 1990s were a good time for economics and business in America. 

During Clinton's administration, median incomes rose $6,000, more jobs - 22.5 million - were created than under any other administration, unemployment and inflation were at the lowest in 30 years, and the number of people living in poverty dropped by 15 million. 

About the same time, Jack Welch was CEO of General Electric. He, too, presided over record performance. During his 20 years, GE's revenues rose from $27 billion to $130 billion, and its market value rose from $14 billion to $410 billion. 

Two popular leaders who presided over great business / economic performances. 

In Jack Welch's best year, he made $125 million. 

In Clinton's best year, he made the same amount as he did in his worst year: $200,000. 

Jack's salary could have paid Bill's for 625 years. 

Such disparity was not an anomaly of the 90s. Last week, oil company CEOs appeared before the Senate. All three of the American CEOs made more than the entire US Senate. (Well, nearly all. Chevron's CEO made only $16.3 million, about a million less than the 100 senators 's combined salary of $17.4 million. Conoco and Exxon's CEOs made $17.9 and $29 million.)

This seems like a serious clue that the corporation is still immature, about where the nation-state was at the dawn of the Enlightenment.

There is a great story about Louis XIV early in his reign failing to realize just how much wealth the state commanded. He had a Finance Minister who was taking a portion of the taxes for personal gain and had commissioned the construction of a chateau that, at its peak, employed 18,000 men and covered the area of three villages. King Louis XIV thought that the man was “stealing beyond his station,” and, invited to a dinner at this minister’s chateau that served 6,000 guests dinner on plates of silver or gold, would have arrested the man that very evening “but his mother convinced him that it would spoil an enchanting evening.”[1]

After he’d removed the Finance Minister from his position, Louis took the man’s wealth and added it to his own. Suffice to say, Louis lived well. And in this we see the final problem with absolute monarchies: they make the state a tool for the few.

Unemployment is persistently high. Median wages have been largely stagnant for decades. Yet CEO pay continues to steadily - and spectacularly - rise. Is anyone out there talking about reform? 

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[1] Will & Ariel Durant, The Age of Louis XIV: a History of European Civilization in the Period of Pacal, Moliere, Cromwell, Milton, Peter the Great, Newton and Spinoza: 1648 – 1715 [New York, NY, Simon & Schuster, 1963]  19

Clinton Seeks "Smart Power" Middle East Strategy

AP – 8 mins ago
WASHINGTON – Hillary Rodham Clinton
said Tuesday that she intends to revitalize the mission of diplomacy in American
foreign policy, calling for a "smart power" strategy in the Middle East and
implicitly criticizing the Bush administration for having downgraded the role of
arms control.

Clinton seeks smart power? This, apparently, in contrast to Condoleezza Rice's dumb power in the Middle East? Or is that dumb luck?

In any case, I can only guess that Cheney is cursing in some undisclosed location. "Smart power! Why didn't we think of that?" Turns and looks accusingly at George, "But no. You had to continually resort to the dumb power."

Smart power. Wow. Sounds pretty much infallible. Kind of like compassionate conservative. I guess the days of Middle East conflicts are over. I can hardly wait.

Transforming Education Through Action

"Knowledge and action are the central relations between mind and world. In action, world is adapted to mind. In knowledge, mind is adapted to world."
- Timothy Williamson

The history of education has basically been one of adapting the mind to the world - imparting knowledge about what is. This works. It is powerful and explains a great deal of why our world is vastly different from that of medieval peasants.

The model of learning and work now is to first learn about the world and then to go work in it. You graduate from high school or college and then get a job. In school, we learn what is. In work, we attempt to change it to what could be. Learning and action are sequential.

But of course this is not how it works. Most of what we know comes from what we have done. This effectively means that great potential for learning in the early years is wasted because of a lack of action.

What if the line between learning and work were not so clear? What if even in school, students were expected to take action, to adapt the world to mind?

This suggests the possibility of students beginning to take action on their world early on. First graders might raise a garden. 12th graders might build homeless shelters. Sophomores in college might re-design or build bike paths to encourage healthier commuting.

By blurring the boundary between action and knowledge - by making the adaptation of mind and world iterative rather than sequential - would both be enhanced. Perhaps one of the most frustrating things about the modern world is how powerless so many people feel to change things, to change their world as they experience it. How different could it be if from the very beginning, students felt able to take action, to make change?

Force vs. Power

The less power a person feels he has, the more likely he is to use force. This seems to me a constant within communities and across time.

Kids in ghettoes who feel like they have no options, no power to actually create a life that looks desirable are more likely to engage in violence, to use force. Primitive cultures that have little power to overcome the elements are more likely to engage in war. In some earlier cultures, men had a 60% chance of dying in warfare. Communities with less developed economies are more violent places.

We see this to a far lesser extent with frustrated managers. Lacking the power to achieve particular objectives, they resort to threats.

There is, of course, more to violence than just this variable. Cultural momentum, genetic tendency, greed, and anger all contribute to violence. But the variable that seems to me most defining is this matter of power. As people become more able to effect the changes they want, to live the life they value, they are less inclined to use force.

Power vs. Freedom

“Much of our business culture is infatuated with power – amassing it, holding on to it, using it to vanquish competitors and dominate markets. In contrast ... freedom ... packs a bigger wallop than power. Power is about what you can control; freedom is about what you can unleash.”

- William C. Taylor, from the Foreword to The SAIC Solution.

Nardelli at Home Depot (HD): One Third of a Billion in Pay for Losing $1 Billion a Year

Home Depot's (HD) CEO Nardelli left the company today. One of the big reasons? Stockholders thought his pay (about $124 million in six years) was too high given the performance of HD stock, which dropped about 5.6% under his tenure. Given Home Depot's market capitalization, he lost about $1 billion a year. His severance pay, triggered by his high pay, is $210 million. So, he gets total pay of about one third of a billion dollars for destroying about $5 billion in stock value. Amazing. I have no doub that Nardelli has above average ability in terms of negotiation and his mastery of the alpha male dynamics. What I (and most everyone probably) doubts is his ability to actually create wealth.

The CEO is the last of the monarchs. Whatever your beef with George W. Bush (and readers of this blog know I have plenty), he puts up with plenty of criticism from his own citizenry and press. By contrast, CEOs get almost no criticism from within their own companies. To speak out against a CEO in the same way that, say, Paul Krugman speaks out against George Bush would ensure a loss of citizenship, I mean employment.

The corporation has risen to great power. I would argue that it is today's dominant institution. But the power structure within the corporation is dated, echoing the power structure of medieval popes or Renaissance kings.

One of the biggest problems with the modern corporation is that it is now owned by the likes of me and you. Peter Drucker seemed to have been the lone voice pointing out that a silent revolution had taken place in recent decades: suddenly the biggest owners of stocks were common employees who held equity through mutual and retirement funds. Yet even though we own these stocks, we don't have a mechanism for influencing policy. CEOs still have disproportionate power over corporate policy.

If a CEO actually influences stock price enough to justify pay of a third of a billion in five years, he is simply exercising too much power, playing the autocrat far too much. A Renaissance king was easily the richest man in the kingdom. Today's presidents are rarely in the list of the top one hundred wealthiest. We'll know that the corporation has adopted a more sensible power structure when the top paid employees within a corporation are only rarely, rather than inevitably, the CEO. It's time for corporate revolution.