After poor business decision-making in the financial sector was a primary cause of the Great Recession, and after years of board and management mistakes leading to the bankruptcies of industrial icons GM and Chrysler, the business community today faces a crisis of confidence in its own ranks and in broader society. Regard for corporations is at a historic lows
Many are asking: how can corporations govern themselves more effectively---and truly be held accountable?
I found this Times story of special moment because the Committee for Economic Development just a few days ago published a Policy Brief in which I tried to suggest a way forward. It was entitled: "Restoring Trust in Corporate Governance: The Six Essential Tasks of Boards of Directors and Business Leaders."
Necessary public policy debates are taking place all across the globe on new regulations to ensure the safety and soundness of the financial sector and to improve the governance of all publicly-held corporations (with focus on an enhanced shareholder role and mandated disclosure about compensation and risk processes).
But, regardless of regulatory outcomes, the destiny of public corporations will still turn on the complex decisions made by business leaders and boards of directors.
In my view, to meet the legitimate criticisms of business decision-making, corporations must first redefine their mission---and the role of the board and CEO.
To summarize a much longer discussion, they must clearly and explicitly redefine the purpose of the corporation as creation of long term economic value through sustained economic performance, sound risk management and high integrity.
In particular, business leaders must forge a sound balance between necessary risk-taking (creativity and innovation) and required risk-management (financial and operational discipline). They must fuse this high performance with high integrity. High integrity means a commitment to law, ethics and values in order to attain affirmative benefits in the company, the marketplace and global society but also to reduce legal, ethical, reputational, public policy and country risk.
The past emphasis on short-term maximization of shareholder value must be significantly reduced.
The Policy Brief then argues for five other essential tasks built on the imperatives of sustained performance, sound risk management and high integrity: revamped leadership training; a refocused CEO selection process; a restatement of operational goals across performance, risk and integrity dimensions; a revision of compensation that holds back or pays out a significant portion of pay as objectives are met, exceeded or missed; and a re-alignment of board oversight to focus on critical operational and compensation goals.
In my view, only if these six, closely connected tasks are carried out with focused intensity is it possible for trust to be restored. But there are many obstacles to prevent this from happening such as the short-termism of many institutional investors; a "money happy" labor market for business talent which will frustrate compensation regimes paying out over time and for performance, and problems in meaningful board oversight of management.
There is, thus, certainly reason for substantial doubts whether the "practical ideal" I suggest can be realized. For example, with the separation of ownership (shareholders) and control (managers), the theory was that the boards would represent the shareholders and control the management. Unfortunately, too often the practice has been that management controls the board (and, today, there is no one "shareholder" as various types of "shareholders" have myriad conflicting objectives and strategies).
Nonetheless, although other accountability mechanisms such as regulation may, limit private discretion in order to accomplish public goals, private decision-making by boards and business leaders still must drive corporations. This is where ultimate accountability will always lie, however uncertain and problematic.
And, for those skeptical about corporate governance, there is the answer of self-interest. With business facing a crisis in confidence about governance and accountability, it is, I believe, in the demonstrable interest of corporate leaders (and capitalism itself) truly to address legitimate criticisms, to provide a clear, credible and powerful private sector response and, as one alternative, to consider using the "actionable framework" of the six essential tasks.
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For those interested in reading more, go to the website of the Harvard Law School Forum on Corporate Governance and Financial Regulation to find both a longer summary of the argument and the Policy Brief itself.
Ben Heineman Jr. is is a senior fellow at the Belfer Center for Science and International Affairs, in Harvard's Kennedy School of Government, and at the Harvard Law School's Program on Corporate Governance. He is the author of High Performance With High Integrity.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
Defining common cultural literacy for an increasingly diverse nation.
Is the culture war over?
That seems an absurd question. This is an age when Confederate monuments still stand; when white-privilege denialism is surging on social media; when legislators and educators in Arizona and Texas propose banning ethnic studies in public schools and assign textbooks euphemizing the slave trade; when fear of Hispanic and Asian immigrants remains strong enough to prevent immigration reform in Congress; when the simple assertion that #BlackLivesMatter cannot be accepted by all but is instead contested petulantly by many non-blacks as divisive, even discriminatory.
And that’s looking only at race. Add gender, guns, gays, and God to the mix and the culture war seems to be raging along quite nicely.
People labeled “smart” at a young age don’t deal well with being wrong. Life grows stagnant.
At whatever agesmart people develop the idea that they are smart, they also tend to develop vulnerability around relinquishing that label. So the difference between telling a kid “You did a great job” and “You are smart” isn’t subtle. That is, at least, according to one growing movement in education and parenting that advocates for retirement of “the S word.”
The idea is that when we praise kids for being smart, those kids think: Oh good, I'm smart. And then later, when those kids mess up, which they will, they think: Oh no, I'm not smart after all. People will think I’m not smart after all. And that’s the worst. That’s a risk to avoid, they learn.“Smart” kids stand to become especially averse to making mistakes, which are critical to learning and succeeding.
For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?
1. Youngstown, U.S.A.
The end of work is still just a futuristic concept for most of the United States, but it is something like a moment in history for Youngstown, Ohio, one its residents can cite with precision: September 19, 1977.
For much of the 20th century, Youngstown’s steel mills delivered such great prosperity that the city was a model of the American dream, boasting a median income and a homeownership rate that were among the nation’s highest. But as manufacturing shifted abroad after World War II, Youngstown steel suffered, and on that gray September afternoon in 1977, Youngstown Sheet and Tube announced the shuttering of its Campbell Works mill. Within five years, the city lost 50,000 jobs and $1.3 billion in manufacturing wages. The effect was so severe that a term was coined to describe the fallout: regional depression.
Be kind, show understanding, do good—but, some scientists say, don’t try to feel others’ pain.
In 2006, then-senator Barack Obama gave a commencement speech offering what seemed like very sensible advice. “There’s a lot of talk in this country about the federal deficit,” he told Northwestern’s graduating class. “But I think we should talk more about our empathy deficit—the ability to put ourselves in someone else’s shoes; to see the world through those who are different from us—the child who’s hungry, the laid-off steelworker, the immigrant woman cleaning your dorm room.”
In the years since then, the country has followed Obama’s counsel, at least when it comes to talking about empathy. It’s become a buzzword, extolled by Arianna Huffington, taught to doctors and cops, and used as a test for politicians. "We are on the cusp of an epic shift,” according to Jeremy Rifkin’s 2010 book The Empathetic Civilization. “The Age of Reason is being eclipsed by the Age of Empathy."
The retired general and former CIA director holds forth on the Middle East.
ASPEN, Colo.—Retired U.S. Army General David Petraeus pioneered America’s approach to counterinsurgency, led the surge in Iraq, served as director of the CIA for a year, and was sentenced to two years probation for leaking classified information to his mistress. On Wednesday at the Aspen Ideas Festival, he was interviewed by my colleague, Jeffrey Goldberg, about subjects including efforts to stop Iran’s nuclear program; the civil war in Syria; ISIS and the threat it poses to the United States; and the Iraq War.
Here are several noteworthy moments from their conversation, slightly condensed:
The Risks of Attacking Iran
Jeffrey Goldberg: So you believe that, under certain circumstances, President Obama would still use military force against Iran?
David Petraeus: I think he would, actually. I know we’ve had red lines that didn’t turn out to be red lines. ... I think this is a different issue, and I clearly recognize how the administration has sought to show that this is very, very different from other sort of off-the-cuff remarks.
Goldberg: How did the Obama administration stop Israel from attacking Iran? And do you think that if this deal does go south, that Israel would be back in the picture?
Petraeus: I don’t, actually. I think Israel is very cognizant of its limitations. ... The Israelis do not have anything that can crack this deeply buried enrichment site ... and if you cannot do that, you’re not going to set the program back very much. So is it truly worth it, then?
So that’s a huge limitation. It’s also publicly known that we have a 30,000-pound projectile that no one else has, that no one else can even carry. The Massive Ordinance Penetrator was under design for almost six years. ... If necessary, we can take out all these facilities and set them back a few years, depending on your assumptions.
But that’s another roll of the iron dice, as Bismarck used to say, and you never know when those dice are rolled what the outcome is going to be. You don’t know what risks could materialize for those who are in harm’s way.
You don’t know what the response could be by Iran.
There’s always the chance that there will be salvos at Israel, but what if they decide to go at the Gulf states, where we have facilities in every single one.
This is not something to be taken lightly, clearly.
“I’m not a vegetarian because I love animals. I’m a vegetarian because I hate plants.”
If the U.S. and Iran conclude a nuclear deal next week, the Islamic Republic stands to gain billions of dollars in eventual sanctions relief. But money isn’t the most important reason the Iranian leadership may be set to shake hands with its historic enemy after 18 months of negotiations.
“One of the most important reasons Iran is signing this deal, in my opinion ... is not actually sanctions,” said Vali Nasr, the dean of Johns Hopkins University’s School of Advanced International Studies. “It’s ISIS. There is actually support for this deal within the Revolutionary Guards in Iran, because their day job is right now fighting ISIS, and they need the United States, particularly in Iraq, on the right side of that fight.”
A European heat wave, lightning over California, a building made of 8,500 beer bottles, shrimp fishing on horseback in Belgium, the first-ever White House Campout, mine detection rats in Cambodia, and much more.
A European heat wave, lightning over California, a building made of 8,500 beer bottles, cosplay in Paris, shrimp fishing on horseback in Belgium, the first-ever White House Campout, mine detection rats in Cambodia, a train wreck in Pakistan, an airshow over St. Petersburg, Russia, and much more.
Former Senator Jim Webb is the fifth Democrat to enter the race—and by far the most conservative one.
In a different era’s Democratic Party, Jim Webb might be a serious contender for the presidential nomination. He’s a war hero and former Navy secretary, but he has been an outspoken opponent of recent military interventions. He’s a former senator from Virginia, a purple state. He has a strong populist streak, could appeal to working-class white voters, and might even have crossover appeal from his days as a member of the Reagan administration.
In today’s leftward drifting Democratic Party, however, it’s hard to see Webb—who declared his candidacy Thursday—getting very far. As surprising as Bernie Sanders’s rise in the polls has been, he looks more like the Democratic base than Webb does. The Virginian is progressive on a few major issues, including the military and campaign spending, but he’s far to the center or even right on others: He's against affirmative action, supports gun rights, and is a defender of coal. During the George W. Bush administration, Democrats loved to have him as a foil to the White House. It’s hard to imagine the national electorate will cotton to him in the same way. Webb’s statement essentially saying he had no problem with the Confederate battle flag flying in places like the grounds of the South Carolina capitol may have been the final straw. (At 69, he’s also older than Hillary Clinton, whose age has been a topic of debate, though still younger than Bernie Sanders or Joe Biden.)