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19 June 2005

Jail The Rich

This NY Times news analysis reflecting on the recent convictions of several CEO's is quite illuminating but is a little disturbing. The gist of the article is that super-compensated CEO's can't get away with pleading ignorance when fraudulent activities are exposed:
"One of the perils of being paid an enormous amount of money is that people will ultimately conclude that you're worth it," said Robert A. Mintz, a former federal prosecutor who is now a partner at McCarter & English in Newark. "The assumption jurors will reach is that somebody who receives large compensation is playing a critical role at the company, and a defense that you were more cheerleader than ringleader is going to be very difficult for a jury to buy."

This doesn't seem quite fair - either the guy knew about it beyond a reasonable doubt or he didn't - for the jury to conclude that because he was paid so much he must have known seems to stretch the concept of reasonable doubt rather thin.
But why are these guys being paid so much money? In today's business world, CEO's are usually master salesmen, not omni-competent managers. That's how they get the job to begin with - selling their own super-talent. They then are able to strong-arm or schmooz (depending on their style) the board into paying them obscene compensation.
What this article suggests is that CEO's must insulate themselves from prosecution by taking steps to make sure that faulty accounting practices do not occur. In practice, CEO's are not going to change their style. They're simply going to put into place a system that terrorizes the firm's employees. Mistakes will lead to serious consequences - perhaps even criminal charges - for employees. The best way for a CEO to prove his innocence is to show prosecutors the heads of subordinates he's beheaded.
The temptatioin of making such ungodly sums of money is too great to avoid for the type of hyper-ambitious person who becomes a CEO. They will continue their unethical behavior, but will now take steps to ensure that an underling will take the fall. The incentive needs to be removed. Wouldn't it seem reasonable to cap compensation at $10 million? Does anyone really need to earn more than that? Perhaps such modest compensation will thin out the ranks of CEOs who are merely glorified salesmen and result in more competent managers running corporations. Perhaps Howard Dean, rather than running around like an ass calling people names, could latch onto this as a real issue? Nah, that wouldn't play well among the Democrat campaign contributors.

8 Comments:

Anonymous Anonymous said...

You are sounding like a democrat. GW wants everyone to make as much as they can. Yes these guys are crooks because they do know what goes, but have seen the Godfather and are hoping the consigliere takes the fall. The Riga's, tyco, enron were thieves pretending it wasn't them giving the orders.

This is not the US Army where only privates and sergeants get prosecuted.

Dano

June 20, 2005 6:39 PM  
Blogger ziel said...

I'm all for people making as much money as they can, too, but let them do it at their own risk. To these guys a public corporation is one big candystore and they have the key to get in and take what they want.
I fear what's getting set up now is the Godfather scenario - the feds are basically writing a handbook called "The New CEO: How to Make Sure You Don't Take the Fall"

June 20, 2005 10:11 PM  
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