The Fallacy of Corporate Leadership

The other day I had a discussion with a friend about what I perceive as the excessive level of pay and bonuses received by the CEOs of large corporations and financial institutions. I even mentioned the study that showed no relationship whatsoever between the profitability and success of the corporation and the salary levels of the CEO, as well as one of its conclusions that comparatively lower-paid CEOs often headed up better-performing businesses.

He was anything but convinced. His argument was essentially that, if companies were willing to pay that amount, the executives were worth that much, and that there was nothing wrong with the fact that, in some companies, the CEOs made thousands as much as the salary of the average employee. I’m not against CEOs getting much higher pay than everyone else, but it seems to me that what’s overlooked is that large businesses aren’t successful just because of one executive at the top. The fact that they survive and even prosper while turning over CEOs on the average of every five years suggests to me that CEOs are high-level interchangeable parts, and that means that they’re merely more highly skilled workers, meriting great multiples of the average worker’s compensation, but not to the degree of thousands of times the average salary, and in a few cases up to ten thousand times the salary of the average employee. In fact, until about thirty years ago, they were paid only a hundred times or so the salary of the average employee.

Seemingly lost in the current self-reinforcing beliefs of higher executives are some of the old and truthful adages, such as a chain being only as strong as its weakest link, or the fact that no person is indispensable. Instead, the grandees of industry pose and parade, taking full and often sole credit for the work of thousands of individuals, while giving little but lip-service to those below them and while extolling the benefit of cost-cutting and cost-effectiveness. Yet isn’t it strange how there’s no measurable cost-cutting and cost-effectiveness in the executive suites and boardrooms?

Part of that is because, in a multi-billion dollar corporation, wasteful overpayment to a single individual, i.e., a CEO, is almost noise and doesn’t directly affect the bottom line that much. Indirectly, I’d submit, the effect is much greater, particularly among middle and upper management, because those grandiose salaries inspire brutal and often highly unethical internal power struggles in pursuit of what is often literally a golden fleece. Both the power struggles and the outsized upper level compensation also tend to demoralize lower management and create higher stress levels there. Study after study has shown that stress levels actually are lower in upper management and higher in those who work for them and that the highest stress levels are created at lower levels of management when the expectations of upper management conflict with the lack of adequate resources for achieving those expectations and when the compensation differential between those tasked with a job and those supervising them is highest.

These findings also tend to get buried and never find their way to the executive boardrooms, most likely because corporate emperors are as adverse as other emperors to learning that their imperial garments are illusory and their beliefs self-serving. At least as I’ve observed, the great majority of CEOs are in fact at best marginally more talented than their subordinates, yet the great fallacy of corporate leadership remains — the CEO-perpetuated idea that extra-special individuals preside as CEOs, when in fact a great body of evidence, both statistical and anecdotal, strongly suggests otherwise.

Critics

The other day I was reading a book review of A.O. Scott’s Better Living through Criticism, which was interesting in itself, since a magazine book critic was critiquing a movie critic’s book, when I realized something basic about almost all reviews, either by professionals, semi-pros, or even readers. Such reviews report what the general story line is and what the obvious strengths and weaknesses of a book are, at least from the reviewer’s perspective, and while that is valuable to many readers, that is as far as most reviews go.

What most reviews don’t mention is what is not obvious in a book or movie. And from what I can tell from the review of Better Living through Criticism and from what little I’ve quickly read of the book, Scott apparently thinks that critics should go beyond the obvious. I honestly don’t know if he does in his own reviews, because I seldom read movie reviews, but whether he does or not, it’s a valid point, and one I’d recommend to all reviewers.

I’ve had lots of books reviewed over the years by professionals or semi-pros, and most of those reviews, at least the ones I’ve read, fall in the category of finding what I write either acceptable or moderately good, which is certainly better than many possible alternatives. A few reviews have castigated a given book, and a few more have offered fulsome praise. Several times, I’ve had both a castigating review and one of high praise about the same book.

Seldom, however, do reviewers actually mention what is truly different, or even unique, about a book. Now, from an author’s point of view, uniqueness is very much a double-edged blade, as the reviews (and comparative sales) of my more unique books – such as Archform:Beauty, Empress of Eternity, Haze, The One-Eyed Man, Solar Express, or the “Ghost” trilogy – seem to indicate. Yet the majority of reviews of those books never mention the unique aspects of the books, let alone note why they’re different. Instead, most concentrate on the strengths and especially the perceived weaknesses of the conventional aspects of the books. That’s understandable, and in itself, should be expected, but the failure to dwell upon what else lies within the pages and the story shortchanges the reader of the review.

Now… having said that, I could be far better off that the reviewers didn’t mention the different or unique aspects of any of those books, because a great many readers are looking for comfortable escapism and predictable entertainment.

Perhaps, just perhaps, I’m better off that readers don’t know in advance, because some readers will find that difference entrancing (as various emails and letters have told me) when they might not have even picked the book up had they read a review that highlighted the differences.

Which reinforces the thought that more insightful reviews are indeed a double-edged blade.

The Greatest Good

All too many years ago, in my very first day in my very first college political science class, I got into trouble with the professor, after he had stated that the goal of political science was to determine policies which identified “the greatest good for the greatest number.” I objected to his stating that as the goal of all political scientists, claiming in return that it was the goal of liberal political scientists, not all political scientists. Needless to say, I got off to a rocky start, and my standing with that professor never recovered.

While that episode remains relatively fresh in my memory, in time I realized that while I was right to question, I hadn’t picked the right basis for my objection. The principal problem with his assertion was even simpler. What is “good” in the political universe, and how do we determine it?

Another consideration is how does one choose among the competing “goods” and prioritize what comes first? A third problem is that of perspective – good for whom?

These are far from esoteric or ivory-tower questions. They get to the basis of the polarization and conflict within our political system and to our continuing problems in foreign policy. And that’s even before one gets to the question of how one might implement such “goods.”

One person might suggest that the greatest good is a healthy and well-educated population, all of whom, with the exception of law-breakers, have the rights outlined in the Constitution. Someone else might suggest that the greatest good is a society where hard work, intelligence, and perseverance are rewarded, rather than in having a society where those who are unable or unwilling to work are still guaranteed health care and material sustenance. A third person might declare that a “society under God” is the greatest good, which contains the assumption of belief in and adherence to the strictures of a particular deity. Someone else might find the greatest good to lie in the least government possible, or no government at all.

All of which requires that someone choose exactly which vision of the greatest good is pursued. In deciding “the greatest good” in the U.S. political system, the simplistic answer is that those who vote determine that. Except they don’t. They vote for officials who will make those determinations, either through executive or legislative actions.

And we now have a political system where the majority of elected officials slavishly pursue the extremes of the “greatest good” advocated by the majority of their constituents, regardless of the language crafted by the Founding Fathers, and the infeasibility of forcing those extremes on those who do not share those beliefs. Which was why they made political change so difficult in order that the two most likely outcomes would be either compromise or gridlock, believing that reasonable individuals would work out compromises.

Unhappily, fewer and fewer Americans appear to meet the Founders’ definition of reasonable, and they punish politicians who attempt to work out compromises, which results in fewer and fewer politicians being reasonable, in turn making political gridlock on contentious points inexorably inevitable. That results in already unreasonable individuals becoming more so, and blaming the problems all on those who do not share their views.

One Person’s Waste [Part II]

There’s always been a hue and cry from regulated industries that the regulations under which they “labor” are burdensome and “wasteful,” but often that “waste” is only from the point of view of the industry involved. While an electric utility may claim that a regulation that restricts its emissions is expensive and “wasteful,” that regulation is designed to improve the health and environment, which reduces healthcare and environmental remediation costs for large numbers of people, far larger than the number of utility employees and shareholders.

Unhappily, however, there are also the regulations that create costs and burdens without commensurate societal benefits, such as the 2015 regulation by the Department of Energy mandated that dishwashers must use no more than 3.1 gallons of water per load. The problem? So far manufacturers can’t figure out how to get the dishes clean with so little water, but they still have to produce machines that use no more than the sacred 3.1 gallons.

Then there’s another kind of waste – the government rules or regulations that proclaim benefits, but effectively add problems or costs for consumers and/or small businesses, while benefiting only a comparative handful of companies or individuals.

One of the most expensive and with one of the most wide-spread effects is the current regulatory regime at the FDA that allows pharmaceutical firms to make minor changes to drugs whose patent protection is expiring and thus gain more years to gouge the public and also imposes great barriers to those companies who could produce and sell generic drugs less expensively. For example, when chlorofluorocarbons were required to be removed as propellants for asthma inhalers and a new propellant was added, the manufacturers gained more years of selling inhalers at higher prices to the point that a rescue inhaler – one that can literally save an asthma sufferer from dying – doubled in price. Then, when that protection lapsed, interestingly enough, since the U.S. has no maximum price regulations, just this year, the price of the most-widely used asthma medication, albuterol sulfate, jumped from $11 to $434 per inhaler, a 4,000 percent price increase, because getting FDA approval, even for a generic, is so burdensome that most firms won’t try, at least in the U.S., while that very same inhaler, as well as a range of generics, costs less than $30 in Great Britain or Canada.

Buried in the 3,000 plus pages of the Affordable Care Act is a provision that requires, as of December 2016, that all brewers must include a detailed calorie count on every type of beer they produce. Failure to comply with the new regulations means craft brewers will not be able to sell their beer in any restaurant chain with over 20 locations. Because this is a major market for selling beer, it hamstrings smaller craft brewers if they do not comply. The Cato Institute estimates the calorie labeling requirements will cost a business as much as $77,000 to implement. For larger beer companies, this is a drop in the bucket, but for small, local craft brewers it represents a substantial cost that they must pay. As a result, it creates a significant disadvantage compared to larger beer companies who can better absorb the regulatory cost… as if serious beer connoisseurs don’t know the specifications anyway.

Among the regulations that cost U.S. consumers a great deal, for the benefit of a few, are those dealing with sugar, the price of which in the U.S. price is effectively set by a combination of federal requirements that limit domestic production of cane and beet sugar, restrict foreign imports, place a floor under growers’ prices and require the government to buy crop surpluses.

Sugar beet and sugarcane farms account for about one-fifth of 1 percent of U.S. farms. Out of 2.2 million farms in the United States, there are only 3,913 sugar beet farms and 666 sugarcane farms, but these growers account for 33% of crop industries’ total campaign donations, and 40 percent of crop industries’ total lobbying expenditures. Since 2000, Americans have paid an average of 79 percent more for raw sugar and 87 percent more for refined sugar compared to the average world price, a total of more than a billion extra dollars annually for sugar in order to subsidize less than five thousand U.S. sugar growers.

Then there are the successful waste reduction programs that Congress junks, such as the Recovery Audit Contractor Act, first implemented in 2005, which collected more than $3.5 billion in 2013 alone by collecting overpayments to healthcare providers. Interestingly enough, the program was suspended by Congress in 2013 at the insistence of hospitals, with the result that since October 2013, about $1 billion per quarter in erroneous overpayments is not being recovered and collected.

And while no one likes the IRS, Congress has made it impossible for the agency to collect unpaid taxes and to audit high income individuals by continuing to cut the agency’s budget, so that audits are at an all-time low, and tax avoidance continues to rise, while at the same time politicians are attacking the IRS for such shortcomings as its inaccurate death records that show millions of Americans as dead who are still alive and 6.5 million people listed as age 112 and older.

So, when people talk about waste, it’s certainly not all about federal government excesses. Sometimes it is, but many times it’s something else.

One Person’s Waste [Part I]

During my years in government, then as a consultant dealing with government regulations and environmental and energy issues, and even afterward, I’ve heard thousands of people say that we could just solve the budget problem by getting rid of the “waste” in government.

And when I hear that tired old phrase, I want to strangle whoever has last uttered it, because “waste” – at least in the way it’s commonly used – is a tiny fraction of federal or state spending. Now… before you start screaming, let me at least try to explain.

First, I’m defining waste as unnecessary spending for no purpose and that accomplishes nothing. Second, I do believe that government spends a great deal of money on programs and projects which have little to do with the basic objectives of government as outlined by the Founding Fathers… and I suspect most intelligent individuals believe something along the same lines.

The problem is that one person’s waste is all too often another person’s gain or livelihood. For example:

The Georgia Christmas Tree Association got $50,000 from the Department of Agriculture for ads designed to spur the buying of natural Christmas trees. To the Christmas tree growers of Georgia, this was not waste, but advertising designed to help them sell trees and make money.

The Department of Agriculture spent $93,000 to “test the French fry potential of certain potatoes.” Do you think the potato growers objected to this?

$15,000 from the Environmental Protection Agency to create a device that monitors how long hotel guests spend in the shower. Is this so wasteful, given the water crises in the west and southwest?

And then there’s Donald Trump’s use of a $40 million tax credit to renovate the Old Post Office in Washington, D.C. into a luxury hotel. I’m certain that the city would support another tax-paying and revenue generating hotel.

The Department of Agriculture’s Market Access Program provided $400,000 to the liquor lobby, which used part of those funds to transport foreign journalists to different breweries and distilleries in the southeastern United States. The liquor industry doubtless feels that this will boost liquor exports.

At the same time, there is definite out-and-out waste. According to the Government Accountability Office, in 2014 the federal government spent $125 billion in duplicative and improper payments. GAO made 440 recommendations to Congress for fixing these problems. To date, it appears that Congress has addressed none of them.

One waste-watching outfit came up with $30 billion in supposedly wasteful projects for FY 2013, including studies of the threatened gnatcatcher bird species. The only problem with the gnatcatcher “waste” was that such a study is mandated by federal law when an endangered or threatened species may be adversely affected by building or expanding a federal facility.

More to the point, however, is the fact that these self-proclaimed waste-finders only came up with $30 billion worth of waste out of federal outlays totaling $3.5 trillion – so their waste amounted to less than one percent of federal spending. Even if Congress addressed the GAO’s much more sweeping findings, such actions would only reduce federal outlays by less than 4%.

Now… I’m not condoning waste in any amount, but when the federal deficit has been ranging from $440 billion to $670 billion in recent years, it doesn’t take much brain power to figure out that merely getting rid of even all the obvious waste isn’t going to do much for constraining federal spending, assuming Congress would agree, which, as an institution, it doesn’t despite the scores of politicians who claim they’re against waste.

And all those who support a strong national defense should be appalled at some aspects of defense spending. Right now, DOD has stated that as many as 20% of the 523 U.S. military installations are unneeded. This doesn’t even count the more than 700 U.S. bases and facilities outside the United States, yet the present Congress has enacted specific language in the appropriations bill for the current fiscal year that absolutely forbids base closures.

What about my “favorite” airplane, the oh-so-lovely-and-over-budget F-35? A recent report cited DOD officials stating that “essentially every aircraft bought to date requires modifications prior to use in combat.” A plane that isn’t yet ready for combat for which the government has already committed $400 billion? An aircraft that was outmaneuvered by a much older F-16?

DOD also wants to build a new long-range strike bomber with full stealth capabilities, 100 of them at a projected cost of $565 million each.

As a former Navy pilot, I don’t object to better planes; I do have problems with very expensive aircraft that don’t seem to be better than their predecessors, and especially attack aircraft that can’t defend themselves. I also have problems with politicians who decry waste, but won’t allow DOD to reduce it because that “waste” is in their districts. Those are far more expensive examples of waste than $50,000 studies on laughter or Christmas tree promotions. It reminds me of shell game misdirection – look at these ridiculous examples of waste, and, and for heaven’s sake, don’t look at that man over there behind the curtain… or at the pork in my district. And yet, politicians, especially Republican representatives and senators, continue to attack “waste” while doing absolutely nothing meaningful about it… and they get re-elected.