Hi Keith et al, At 03:41 AM 7/13/2002 Saturday , Keith Hudson wrote:
>Hi Dennis, > >I must say that it's a pleasant experience to receive a well-considered >reply to one of my early morning ponderings. So, at a risk of putting off >some FWers who complain about itsby-bitsy arguments, I'd like to pick my >way through yours and comment on several points that you've made. [snip] >> >>If the lowest paid worker gets $8 US per hour or about $16,000 per year, >>the top paid worker gets about $2.4 M. What does a person need to do >>to be 'worth' that kind of money? And worth to whom? The stockholders, >>his bankers, his employees, his customers, his kids, who? > >I agree that the salary differentials are outrageous, but it's highly >likely that the current ratios (you mention numbers like 140-500) are >probably a short-term phenomenon based upon a stock market >bubble-upon-a-bubble of the last 10 years. The more recent of those bubbles >(dotcom/telecomm) has collapsed, but there's still some way to go before >the first one (that is, most companies' share prices which rose steeply >from the early 90s) does so and CEO salaries drop down to more acceptable >levels (whatever they may be considered to be). > I disagree that the system is self correcting as long as corporate boards are self perpetuating as they are now and as long as there is a great overlap among CEOs and boards. A CEO who wants a higher income can vote a higher salary for the CEOs on whose boards he sits and they, in turn, will approve his salary. It is quite incestuous. >In a way, the huge salaries and stock options of CEO's have been a >compliment to the growing power of shareholders and pension funds who have >been increasingly seeking the best possible returns on their holdings. This >means that shareholders' meetings in recent years have fallen over >themselves in rapture whenever their CEOs report a particularly good run of >good results (not always due to them, but more usually because of wider >conditions, often luck and, more recently, fraudulent accounting). But it's >very clear from my reading of the press that the above bodies (currently >being joined by insurance companies, now in deep trouble, which also depend >on share values ) are also becoming increasingly clamorous for reform. >Without being complacent, I think we can reasonably expect that, as these >different power centres readjust themselves in the coming years, CEO >earnings (and certainly the crazy accounting of their share options) and >also their fraudulent practices will decline substantially. (In a future >period of madness -- say in 15 years' time -- CEOs will find new ways of >boosting their earnings.) > I follow your arguement but if the rules don't change, I don't see the needed degree of readjustment coming. >But really, who can say what CEO earnings should ultimately be? Their >situation is rather like the earnings of sports and entertainment people >whose audiences are huge and demand the very best performances. Those who >are at the very top at any moment -- perhaps only 1% better than scores, >perhaps hundreds, more performers just below them -- also have outrageous >earnings. People don't complain so much about sports and film stars because >the mechanism (their popularity and obvious economic "pulling" power) is >more obvious. > >(DP) >>There are many folks who would like to be a CEO, so the competition for >>the job should be fierce. Now not everyone is smart enough to be a >>CEO but there must be alot more that are able than hold that title. >>When the CEO fails to come thru for the company, over some appropriate >>time period like one to two years, he really ought to be replaced by >>someone else to see if he/she could do better. But the Boards of most >>large companies id controlled by friends of the CEO who are reluctant >>to fire him. Pity! > >I often wonder how smart many CEOs are. I came across some IQ figures of >English politicians a few year ago which put the average of them at about >120. The psychologists concerned in the trial surmised that this made sense >because politicians have to liaise (that is, be able to find common >language) between the general public (IQ100) and the top civil servants >(IQ140 -- as probably that of most FWers). Personally, from what I read by >way of interviews I'd judge that only a smallish proportion of CEOs are in >the IQ140 range -- entrepreneurs like Land and Bransom, for example -- but >most are only good at organisational politics and networking, and are >pedestrian in the brains department. > Unfortunately, smart people usually find themselves satisfied without having to have great control over other people's lives. For some reason, this seems to be a great motivator for those who manage to find their way to the top. There are exceptions of course. Hewlett and Packard come to mind. >(DP) >>Capitalism is all well and good, as Keith says. > >No, I've never said that capitalism is all well and good. I've said that >capitalism is a misnomer for something more akin to "efficiencyism" (or >"innovationism"), particularly with regard to enfolding increasing amounts >of solar-derived energy within the products and services that man makes. >The whole process (capitalism/efficiencyism) is "well and good" in the >sense that man has a genetic urge to discover, and that we would be less >than human if this process stopped. It may be that this will be the cause >of man's downfall (as might be the intense male genetic urge for power) in >due course. But there's nothing we can do about it except -- and this is a >big "except" -- be very aware of our genetic urges and try to design >institutions which specifically draw attention to this and plan safeguards. >(I'm a great admirer of the American Constitution because it specifically >points to the dangers of men's urge for power when in government.) > Why haven't you Brits added checks and balances to your government rules and regs? >(DP) > But I think we need >>to rethink the way that corporations are governed. One way would to >>prevent ANY employee of the company from sitting on the Board unless >>they hold a proportionate share of the stock. If the CEO owns 20% of >>the stock and there are 5 board members, then OK, he gets one seat. > >Yes, I agree. The difficulty with formulae such as above, as with >regulation, is that it is usually of temporary benefit only. This is why I >would support such reforms, but still say that they are insufficient until >we have complete transparency of the written data and communications of any >business that has direct dealings with the public. The public ought to have >a right to know all details of any product or service that they buy. In the >words of professional economists there should be complete symmetry. After >all, the business supplying the product has complete knowledge of the >public's part of the transaction -- their cash. > You bring up a critical issue for corporate governance. Companies like to claim 'trade secrets' prevent them from making their transactions public. Where did this power to withhold information come from? If every company had to play by the same rules, why would transparency give some companies a competitive advantage over others? The present situation here in California concerns a public agency recently created to manage the purchase of electrical power. After Enron, Duke and other power companies charged outrageous rates when our power needs peeked, this agency proceeded to purchase power on behalf of private utilities who had lost so much money that their suppliers would no longer give them credit. These agency purchases were in the $100s of millions and, it was said, must be kept secret 'for competitive reasons.' I don't understand how they are getting away with it. Somehow, the press goes along with the concept and so does our Governor. >If all current business information were on public record then it would be >available to any individual or any specialist agent of the individual. In >the case of most products (say a domestic vacuum cleaner) a buyer wouldn't >normally want any more information than he has now (the opinion of friends >and neighbours) but in the case of, say, purchasing a pension, the buyer >might well need to know what the strategy of the pension-provider was, how >many kickbacks it was paying, how much share-churning was going on, and so >forth. There should be no more secrecy in the case of any sophisticated >service than, say, of the business down the road that bakes your bread and >(presumably) would be quite happy to show you around their premises and >show you everything that goes on in the process. > I totally agree! >(DP) >>On the globalization topic, the problem is that corporations no longer >>are the creatures of any one country. In general, corporations are >>creatures of national governments. All the rules of corporate >>governance were established by some national government. But now, >>the majority of the business of the larger corporation is not with >>any single country. Their employees are spread around the world as are >>their customers. >> >>So who is to say whether a company is American, British, German, French, >>Russian or Chinese? Or Bermudian? Companies are moving their HQs >>around to gain maximum economic benefit without regard to those who >>live nearby. > >Yes, the governance of businesses should quite rightly be subject to >governments on behalf of the people. In recent decades, as tax schedules >have become increasingly complicated and (in my view) too onerous, then >corporations have got up to all sorts of legal tricks (such as off-shore >operations) in order to reduce their taxation. But, without being too >complacent about it, OECD and other inter-governmental bodies are gradually >forcing tax havens to commonalise their operations. > What would you consider to be a non-onerous tax on profits? How do you propose to keep a company from selling its products 'off the market' in such a way as to make it appear that it is losing money when in fact it is merely moving goods around the world to areas with favorable tax codes. As long as the corporations control the funding of political campaigns I don't see rules being created that prevent 'gaming' the system. >(DP) >>Either we should make trans-national companies subservient to the UN >>and pay corporate income taxes to that body or we should require that >>they announce their national affiliation and obey all the laws of that >>country and pay full taxes as established by that country. I am tired >>of companies getting subsidies from our government when the benefits >>go primarily to the citizens of other nations. >> >>My guess is that the Enron/WorldCom/Anderson fiascos would have occurred >>whether they were transnationals or not. Still, the larger companies >>have so much money to spend on lobbying or controlling national >>legislators, and the incentive to do so, that they will be able to buy >>'protection' of their income streams. It will take some massive changes >>in election laws around the world to change this influence peddling. >> >>Of course, the matter is made worse by treaties that attempt to >>homogenize world trade. Individual countries can no longer control >>trade in their own economies nor is trade regulated by any democratic >>body. So those who make those trade rules have free reign to line >>their pockets. Somethings gotta change. > >The problem with control by a UN body (as with all governments that have >over-arching power) is "Quis custodiet ipsos custodes?" -- Who will guard >the guardians? Exactly. Why do we still have a veto in the Security Council? Why is Bush insisting that Americans not be liable to the International Court? >What we need (and what is gradually happening, I suggest) is >a more balanced set of institutions, each able to have a degree of control >or power over others. If you like, this is form of democracy with knobs on. >I've already mentioned the rise of the pension funds also the efforts of >OECD (which is largely independent of governments) as just two examples of >powerful forces arising against fraudulent corporations. All these efforts >are mediated and amplified by increased transparency in the public media >(and these are also becoming increasingly investigatory in their own right). > In the US, we are seeing just the opposite. We are seeing increased secrecy in the name of our 'war on terrorism.' This includes hiding the funding of the war from the public and making large purchases from the defense industry off the books. The US has the biggest 'black hole' funding in the Western World and it is growing. >I think we are also going to need a variety of different sorts of >governments. In addition to nation-state type of governments (which are, >however, retreating from attempts at economic control within their own >boundaries) I think we are already seeing signs of the beginnings of new >governments of different sizes and functions for specific purposes (e.g. >armaments control, trade, pollution, potable water, fish stocks, rain >forests, common accountancy standards, military crime, etc). > Hopefully, in 2004, the US will come to its senses and will get rid of the corporate friendly Bush administration. I only hope that it will not be replaced by something equal or worse, and I consider the Clinton administration to have been only marginally better. Maybe you have a better vision in Europe than I have here, but I don't see any serious movement in the directions you indicate. The US seems intent on not joining any agreements that do not put Americans in charge of anything that would impact corporate profits. Dennis Paull Half Moon Bay, California >Keith > > >---------------------------------------------------------------------------- >------------ > >Keith Hudson, General Editor, Handlo Music, http://www.handlo.com >6 Upper Camden Place, Bath BA1 5HX, England >Tel: +44 1225 312622; Fax: +44 1225 447727; mailto:[EMAIL PROTECTED] >________________________________________________________________________
