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.
It leaves people bed-bound and drives some to suicide, but there's little research money devoted to the disease. Now, change is coming, thanks to the patients themselves.
This past July, Brian Vastag, a former science reporter, placed an op-ed with his former employer, the Washington Post. It was an open letter to the National Institutes of Health director Francis Collins, a man Vastag had formerly used as a source on his beat.
“I’ve been felled by the most forlorn of orphan illnesses,” Vastag wrote. “At 43, my productive life may well be over.”
There was no cure for his disease, known by some as chronic fatigue syndrome, Vastag wrote, and little NIH funding available to search for one. Would Collins step up and change that?
“As the leader of our nation’s medical research enterprise, you have a decision to make,” he wrote. “Do you want the NIH to be part of these solutions, or will the nation’s medical research agency continue to be part of the problem?”
The presumptive successor to John Boehner abruptly ended his bid after determining he could not get the support he needed from conservatives.
Behind Kevin McCarthy’s stunning decision Thursday to end his bid for speaker lay a simple calculation: Even if he could scrape together the 218 votes he needed to win the formal House election later this month, he would begin his term a crippled leader unable to unite a party that he said was “deeply divided.”
The majority leader and presumed successor to John Boehner had been widely expected to win the House GOP’s secret-ballot nomination on Thursday. All he needed was a simple majority of the 247-member caucus, and he easily had the votes over long-shot challengers Jason Chaffetz of Utah or Daniel Webster of Florida, who won the endorsement of the renegade House Freedom Caucus. But even if he’d won on Thursday, McCarthy knew he was still short of the threshold he needed on the floor, knowing that Democrats would vote as a bloc against him.
A new report details a black market in nuclear materials.
On Wednesday, the Associated Press published a horrifying report about criminal networks in the former Soviet Union trying to sell “radioactive material to Middle Eastern extremists.” At the center of these cases, of which the AP learned of four in the past five years, was a “thriving black market in nuclear materials” in a “tiny and impoverished Eastern European country”: Moldova.
It’s a new iteration of an old problem with a familiar geography. The breakup of the Soviet Union left a superpower’s worth of nuclear weapons scattered across several countries without a superpower’s capacity to keep track of them. When Harvard’s Graham Allison flagged this problem in 1996, he wrote that the collapse of Russia’s “command-and-control society” left nothing secure. To wit:
Somewhere in Europe, a man who goes by the name “Mikro” spends his days and nights targeting Islamic State supporters on Twitter.
In August 2014, a Twitter account affiliated with Anonymous, the hacker-crusader collective, declared “full-scale cyber war” against ISIS: “Welcome to Operation Ice #ISIS, where #Anonymous will do it’s [sic] part in combating #ISIS’s influence in social media and shut them down.”
In July, I traveled to a gloomy European capital city to meet one of the “cyber warriors” behind this operation. Online, he goes by the pseudonym Mikro. He is vigilant, bordering on paranoid, about hiding his actual identity, on account of all the death threats he has received. But a few months after I initiated a relationship with him on Twitter, Mikro allowed me to visit him in the apartment he shares with his girlfriend and two Rottweilers. He works alone from his chaotic living room, using an old, battered computer—not the state-of-the-art setup I had envisaged. On an average day, he told me, he spends up to 16 hours fixed to his sofa. He starts around noon, just after he wakes up, and works late into the night and early morning.
American politicians are now eager to disown a failed criminal-justice system that’s left the U.S. with the largest incarcerated population in the world. But they've failed to reckon with history. Fifty years after Daniel Patrick Moynihan’s report “The Negro Family” tragically helped create this system, it's time to reclaim his original intent.
By his own lights, Daniel Patrick Moynihan, ambassador, senator, sociologist, and itinerant American intellectual, was the product of a broken home and a pathological family. He was born in 1927 in Tulsa, Oklahoma, but raised mostly in New York City. When Moynihan was 10 years old, his father, John, left the family, plunging it into poverty. Moynihan’s mother, Margaret, remarried, had another child, divorced, moved to Indiana to stay with relatives, then returned to New York, where she worked as a nurse. Moynihan’s childhood—a tangle of poverty, remarriage, relocation, and single motherhood—contrasted starkly with the idyllic American family life he would later extol.
What will happen to digital collections of books, movies, and music when the tech giants fall?
When you purchase a movie from Amazon Instant Video, you’re not buying it, exactly. It’s more like renting indefinitely.
This distinction matters if your notion of “buying” is that you pay for something once and then you get to keep that thing for as long as you want. Increasingly, in the world of digital goods, a purchasing transaction isn’t that simple.
There are two key differences between buying media in a physical format versus a digital one. First, there’s the technical aspect: Maintaining long-term access to a file requires a hard copy of it—that means, for example, downloading a film, not just streaming from a third party’s server. The second distinction is a bit more complicated, and it has to do with how the law has shaped digital rights in the past 15 years. It helps to think about the experience of a person giving up CDs and using iTunes for music purchases instead.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
Meat producers showed dominance over scientists this week, preventing discussion of sustainability.
“My question is related to moderate alcohol intake,” representative Stacey Plaskett said Wednesday morning in a Congressional hearing that was almost momentous. With this question she was, as a congressperson should be, the voice of many.
Plaskett peered over her reading glasses at the de facto arbitrator of such matters, secretary of health and human services Sylvia Burwell. “I noted that the 2015 recommendations confirmed the conclusions from 2010,” Plaskett continued. “Do you think that’s going to remain the same, or will that change? Will the definition of moderation change as well?”
“We’re not going to comment on specifics,” Burwell deflected. “We” referred to secretary of agriculture Tom Vilsack, who sat immediately to her right. Before them was a semicircle of congresspeople in elevated chairs who constitute the House committee on agriculture. The ensuing conversation was a polite but charged, deeply consequential battle for influence over what people eat.
A radical experiment at Zappos may herald the emergence of a new, more democratic kind of organization.
Deeply strange reports have been emerging from the Las Vegas headquarters of Zappos, until recently the world’s happiest shoe store. This spring, by order of the CEO, Tony Hsieh, the company abolished managers, eliminated job titles, denounced its own organizational hierarchy, and vested all authority in a 10,000-word constitution that spells out a radical new system of self-governance. Holacracy, it’s called, and it makes all previous moves toward “employee empowerment” look like the mild concessions of an 18th-century monarch. Freed from direct supervision, employees are expected to join various impermanent democratic assemblies called “circles” (headed, but not run, by a “lead link”), in which they will essentially propose their own job descriptions, ratify the “roles” of others, and decide what projects the group should undertake.
Forget the Common Core, Finland’s youngsters are in charge of determining what happens in the classroom.
“The changes to kindergarten make me sick,” a veteran teacher in Arkansas recently admitted to me. “Think about what you did in first grade—that’s what my 5-year-old babies are expected to do.”
The difference between first grade and kindergarten may not seem like much, but what I remember about my first-grade experience in the mid-90s doesn’t match the kindergarten she described in her email: three and a half hours of daily literacy instruction, an hour and a half of daily math instruction, 20 minutes of daily “physical activity time” (officially banned from being called “recess”) and two 56-question standardized tests in literacy and math—on the fourth week of school.
That American friend—who teaches 20 students without an aide—has fought to integrate 30 minutes of “station time” into the literacy block, which includes “blocks, science, magnetic letters, play dough with letter stamps to practice words, books, and storytelling.” But the most controversial area of her classroom isn’t the blocks nor the stamps: Rather, it’s the “house station with dolls and toy food”—items her district tried to remove last year. The implication was clear: There’s no time for play in kindergarten anymore.