(Friday’s Populist Capitalist Blog Post)
A new study of 1,300 corporate bosses, board directors, and analysts found that CEOs frequently “responded to negative appraisals from Wall Street by managing appearances rather than making changes that actually improve corporate governance.”
In response to charges that boards of directors lack independence, CEOs typically installed directors “who, although they may have no business ties to the company, are socially close to the top brass.”
In other words, the reason that CEOs and top management get such eye-popping, shareholder—pick-pocketing compensation is that the board of directors is stacked with friends of the CEO and top management. The game is rigged in the CEO’s favor. Analysts acknowledged the potential conflict but “most said they did not have time to look at such issues.”
These “market distorting shenanigans” are not isolated issues. A prior study showed that companies typically enjoy lasting stock price benefits from announcing analyst-pleasing plans such as share buybacks and long term incentive plans even when they fail to follow through. Presumably there is no penalty for blowing smoke because no one checks. Another study found that the “further a firm’s profit falls below consensus forecasts, the more favors its managers bestow on analysts.” (The Economist, “How Firms Fool Equity Analysts,” February 6, 2010.)
One of the duties of accepting the public’s money is to remember it is not your money, but theirs. One of the obligations of power is not to use it to rig the game in your favor.
Closing Quotes:
“No snowflake in an avalanche ever feels responsible.” — Voltaire
“A man has made at least a start on discovering the meaning of human life when he plants shade trees under which he knows full well he will never sit.” — D. Elton Trueblood (1900-1994), American author, educator, philosopher, and theologian
“We have the Bill of Rights. What we need is a Bill of Responsibilities.” — Bill Maher
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