Don't throw out alignment while fighting greed and ignorance in corporate governance
Respondents to this month's column have spoken: The cause of investor mistrust of management is not the concept of alignment; it is, among other things, ways in which the concept is misused or subverted.
There are few antidotes, including alignment, to greedy leaders and ignorant board members short of restoring common sense |
James Heskett |
As John Apen points out, "Alignment works only if CEOs and boards have the same time perspective as the other two groups (investors and employees)... top managers' and Wall Street goals were all short term. " C. J. Cullinane adds, "Alignment and buy-in were abused by those who should have insured and enforced fairness and honest reporting."
Many questions were raised about the level and form of compensation afforded U.S. business leaders today. Allen Roberts comments, "In sustainable, successful organizations, levels of pay come well down the list (of employee desires) ... Why should it be any different for the high-flyers? If they are truly good, is it really necessary to pay them more than they can ever hope to spend?" As Stever Robbins says, "Alignment is still a great idea. We've not seen alignment with recent stock option grants... We'll see little change in behavior until we guarantee that those who destroy value and betray the public trust don't profit from it handsomely..."
These matters have become embarrassing for Americans living overseas. Tammy Doty reports that "As an American living in Asia, I most definitely have egg on my face, especially considering that during the last five years the U.S. has lectured Asia on ending collusion and cronyism."
There is a general tone in responses to this month's column that there are few antidotes, including alignment, to greedy leaders and ignorant board members short of restoring common sense to compensation schemes and holding officers and directors responsible for their actions. All of which implies greater transparency in information, education for non-officer directors, and stiffer penalties for willful abusers.
This leaves us with several questions: (1) How much of the remedy can be legislated? (2) What's the likelihood that vigorous new enforcement of new regulations will make it increasingly difficult to find qualified and independent directors? (3) If the latter occurs, will investors' interests really be better served? What do you think?