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.
Biology textbooks tell us that lichens are alliances between two organisms—a fungus and an alga. They are wrong.
In 1995, if you had told Toby Spribille that he’d eventually overthrow a scientific idea that’s been the stuff of textbooks for 150 years, he would have laughed at you. Back then, his life seemed constrained to a very different path. He was raised in a Montana trailer park, and home-schooled by what he now describes as a “fundamentalist cult.” At a young age, he fell in love with science, but had no way of feeding that love. He longed to break away from his roots and get a proper education.
At 19, he got a job at a local forestry service. Within a few years, he had earned enough to leave home. His meager savings and non-existent grades meant that no American university would take him, so Spribille looked to Europe.
Chris Morris’s brutal satire aired its last and most controversial episode in 2001, but its skewering of the news media feels more relevant than ever.
A sex offender is thrown in the stocks, presented with a small child, and asked if he wants to molest him. A mob of protestors is thrown a “dummy full of guts” that is stomped to pieces within seconds. A radio host insists that pedophiles have “more genes in common with crabs” than the rest of humanity, insisting, “There’s no real evidence for [that], but it is scientific fact.”
It’s hard to pinpoint the most cringe-inducing moment on “Paedogeddon,” a special episode of the British TV satire Brass Eye. But 15 years after the episode aired, it remains a totemic, terrifying satirical vision. Few comedies since have dared to cross the boundaries of taste with such impunity.
“Paedogeddon” aired in the U.K. in the summer of 2001, a year after the murder of a young girl had sparked national hysteria over the country’s sex-offender registry. Britain’s most-read newspaper led a campaign to publish the names and locations of all 110,000 convicted sex offenders, prompting a riot in which an angry mob ransacked the home of an ex-con. Brass Eye, a parody of a 60 Minutes-like newsmagazine show, had been dormant after airing one season in the UK in 1997. But it returned four years later for this surprise broadcast, one that saw its furious (fictional) anchors barking from a dark studio about the plague of seemingly super-powered child molesters stalking the nation, holding a funhouse mirror up to the climate of paranoia and fear that had built up around the country. It was a bold, wildly insensitive piece of comedy, but one that captured the growing madness of the 24-hour news media and foreshadowed some uglier aspects of its future.
The Fox host’s insistence that black laborers building the White House were “well-fed and had decent lodgings” fits in a long history of insisting the “peculiar institution” wasn’t so bad.
In her widely lauded speech at the Democratic National Convention on Monday, Michelle Obama reflected on the remarkable fact of her African American family living in the executive mansion. “I wake up every morning in a house that was built by slaves. And I watch my daughters, two beautiful, intelligent, black young women, playing with their dogs on the White House lawn,” she said.
On Tuesday, Fox News host Bill O’Reilly discussed the moment in his Tip of the Day. In a moment first noticed by the liberal press-tracking group Media Matters, O’Reilly said this:
As we mentioned, Talking Points Memo, Michelle Obama referenced slaves building the White House in referring to the evolution of America in a positive way. It was a positive comment. The history behind her remark is fascinating. George Washington selected the site in 1791, and as president laid the cornerstone in 1792. Washington was then running the country out of Philadelphia.
Slaves did participate in the construction of the White House. Records show about 400 payments made to slave masters between 1795 and 1801. In addition, free blacks, whites, and immigrants also worked on the massive building. There were no illegal immigrants at that time. If you could make it here, you could stay here.
In 1800, President John Adams took up residence in what was then called the Executive Mansion. It was only later on they named it the White House. But Adams was in there with Abigail, and they were still hammering nails, the construction was still going on.
Slaves that worked there were well-fed and had decent lodgings provided by the government, which stopped hiring slave labor in 1802. However, the feds did not forbid subcontractors from using slave labor. So, Michelle Obama is essentially correct in citing slaves as builders of the White House, but there were others working as well. Got it all? There will be a quiz.
Psychologists have long debated how flexible someone’s “true” self is.
Almost everyone has something they want to change about their personality. In 2014, a study that traced people’s goals for personality change found that the vast majority of its subjects wanted to be more extraverted, agreeable, emotionally stable, and open to new experiences. A whopping 97 percent said they wished they were more conscientious.
These desires appeared to be rooted in dissatisfaction. People wanted to become more extraverted if they weren’t happy with their sex lives, hobbies, or friendships. They wanted to become more conscientious if they were displeased with their finances or schoolwork. The findings reflect the social psychologist Roy Baumeister’s notion of “crystallization of discontent”: Once people begin to recognize larger patterns of shortcomings in their lives, he contends, they may reshuffle their core values and priorities to justify improving things.
At the Democratic convention, the president framed America as a shining city on a hill—under constant construction.
Barack Obama is a tinkerer and a poet in whose hands the concept of “American exceptionalism” is being reshaped for the 21st century and weaponized against Trumpism.
First used with respect to the United States by Alexis de Tocqueville, the concept of American exceptionalism is that this country differs qualitatively from other developed nations because of its national credo, ethnic diversity, and revolution-sprung history. It is often expressed as superiority: The United States is the biggest, most powerful, smartest, richest, and most-deserving country on Earth.
Obama drew from this tradition in his Democratic National Convention address Wednesday night. “America has changed over the years,” he said, remembering his Scotch-Irish ancestors who didn’t like braggarts or bullies or people who took short cuts, and who valued honesty and hard work, kindness and courtesy, humility and responsibility.
Food-safety concerns have, unsurprisingly, hurt a company that plays up its high-quality ingredients.
In August of last year, a contributor to Investopedia, an online clearinghouse for financial news and investment advice, made this pronouncement about Chipotle’s miraculously-performing stock: “If you had invested just $1,000 during Chipotle's initial public offering (IPO), that investment would be worth $33,229 today.”
Little did anyone guess that, less than a year later, the fast-casual favorite’s mountain of momentum would be reduced to a hill of beans in the wake of a series of food-contamination episodes last fall and winter. This slide continued as the company announced a 24 percent same-store sales drop in the second quarter of 2016. As the AP noted last week, “a year ago, the company earned $140.2 million”—nearly $4.50 a share—while this year, second-quarter profit was $25.6 million (just 87 cents per share), missing Wall Street’s expectations.
The Green Party candidate wants disillusioned Bernie Sanders supporters to join her—not Hillary Clinton.
PHILADELPHIA—Jill Stein takes public transportation to the Democratic National Convention. On the day after Hillary Clinton made history as the first woman to win a major party presidential nomination, the Green Party presidential candidate is on the subway en route to the Wells Fargo Center. Adoring fans spot her on the way over and demand selfies. A heavily tattooed woman complains to Stein: “It’s been a Hillary party the whole time. It’s like brainwash, like waterboarding. It’s awful.”
Stein is in high demand. The populist progressive tells me that after Bernie Sanders endorsed Clinton two weeks ago, effectively ending his insurgent campaign for president, a lot more people started paying attention to her campaign. “The floodgates opened,” Stein says. “I almost feel like a social-worker, being out there talking to the Bernie supporters. They are broken-hearted. They feel really abused, and misled, largely by the Democratic Party.”
Seeking prosperity through lax business and tax regulations leaves countries worse off.
In the early 1990s, economists coined the term "the resource curse" to describe a paradox they observed in countries where valuable natural resources were discovered: Rather than thriving, such countries often crumbled, economically and politically. The newfound wealth, instead of raising living standards for all, generated violence, as well as accelerating the growth of inequality and corruption. Terry Karl, a Stanford political science professor, dubbed this the "paradox of plenty." The same story has played out again and again all over the world, from Venezuela (where Karl did her research on the destruction wrought by oil wealth) to Sierra Leone (home of blood diamonds) and Afghanistan (which, despite $3 trillion in mineral wealth, remains among the poorest and most corrupt countries in the world).
His call on a foreign government to hack Hillary Clinton’s email account is a complete subversion of GOP ideals.
The first excuse for Donald Trump’s amazing press conference on Wednesday, in which he called on the Russians to hack and publish the 30,000 emails wiped from Hillary Clinton’s home server, was: He was only joking.
That excuse almost immediately dissolved. When Trump was asked by CNN’s Jim Acosta whether he would call on Vladimir Putin to stay out of U.S. elections, the presidential nominee answered that he would not tell Putin what to do. After the conference ended, Trump tweeted out a slightly tidied up request to the Russians to find Clinton’s emails—but to hand them over to the FBI rather than publish them.
The second excuse, produced on Twitter minutes later by Newt Gingrich, is that Trump’s remark, while possibly unfortunate, mattered less than Clinton’s careless handling of classified material on her server. That defense seems likely to have more staying power than the first—about which, more in a minute.