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Nasty Business

Hollinger's Radler was small fry in sea of CEO sharks.

By Murray Dobbin 7 Oct 2005 | TheTyee.ca

Murray Dobbin is an author, commentator and journalist. He is the author of five books and is a former columnist with Financial Post and Winnipeg Free Press. He is a board member of Canadians for Tax Fairness and on the advisory council of the Rideau Institute. He lives in Powell River, BC.

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"Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all." - John Maynard Keynes

Any number of recent developments in the corporate world could have prompted my memory of this quote by one of the most famous capitalist economists in history. But in fact it was David Radler pleading guilty to fraud which actually did the trick. It would be difficult to find - even in fiction - a capitalist more deliberately and gleefully nasty. As a result, it is equally hard to imagine how anyone, even his long time partner and capitalist windbag extraordinaire, Conrad Black, could be more deserving of jail time.

But even these two millionaire miscreants are bit players - cartoon figures, almost - compared to the parade of really big-time CEO liars, cheats, crooks and sub-criminal psychopaths in the US who ruined the lives of hundreds of thousands of employees, retirees and small shareholders. And far from being a few bad apples, these societal misfits are so rotten they simply make the bad apples look a little better by comparison. It's the corporate culture itself that's rotten.

What is notable is that despite the exposes and jail sentences, nothing has really changed in corporate culture. It is clear that it will never change until citizens, through their governments, force it to. The modern corporation is what we have made it, over decades, through our laws and regulations. And it is naive to expect that it will voluntarily transform itself. As Henry Lloyd, a US anti-corporate organizer of the last century put it "We are asking them to not be what we have made them to be. We have put power into their hands and ask them not to use it as power."

Savage capitalism

In this era of savage capitalism, the rare ethical corporation is too often a sitting duck for its ruthless cousins. One such cousin was the Amerimex Maquiladora Fund in the US which bought up good companies - with high wages, good pension funds, and capital for funding growth - and moved their operations to Mexico. This saved the companies on average $17,000 per employee and temporarily drove the share prices up. Then, after three to eight years, they sold the company for a huge profit (after draining the pension and capital funds).

The roots of this perverse corporate culture - which, if you care, is actually bad for capitalism - go back to the mid-seventies when government intervention in the economy got a bad name. The temporary failure of Keynesian economic tools gave prominent US capitalists the opportunity to move against the post war political consensus which included social programs, tough regulation, fair corporate taxes and the promotion of full employment. To attack this consensus they established a score of right-wing think tanks which then targeted the media. And they were assisted by key figures in academia.

One, of course, was Milton Friedman, of the Chicago School of Economics, the most prominent promoter of neo-liberal economics. But the immorality of the new order was only implied by Friedman. It was two of his fellow professors across the campus who made it explicit. Frank Easterbrook and Daniel Fischel wrote that, when it came to making profits, not even the law should be a barrier. In short, the two men (Easterbrook has also been a federal appeals court judge for two decades) argued that CEOs actually had a fiduciary duty to break the law, if it was profitable to do so. This included anti-trust laws, corruption, polluting the environment, price-fixing, breaking labour laws, and bribery. Any fines - if you got caught - were simply the cost of doing business.

Is it any wonder that so many modern CEOs can barely grasp the notion of ethical behaviour, let alone make it the operating principle of their businesses? Typical of this betrayal of ethics is CEO compensation in Canada. CEO's sense of entitlement has gone to such absurd heights that even those executives who have nearly destroyed their companies through sheer incompetence walk away with eye-popping severance packages.

Paid for his crimes

The most recent and outrageous Canadian example is John Hunkin, until his recent resignation the CEO of CIBC . That bank just agreed to pay a $2.5 billion (U.S.) class-action settlement with Enron investors. The enormous payment related to deals made on Hunkin's watch, which allowed Enron to disguise the true state of its finances. His punishment? Hunkin walked away with $67 million.

Of course it is not just Hunkin and other CEOs - it is the boards of directors who sign these criminally negligent contracts. And this kind of legal raiding of corporate coffers by often laughably inept CEOs has been going on for at least fifteen years. In my 1998 book The Myth of the Good Corporation, I referred to a Globe and Mail study of the 100 top paid Canadian CEOs in 1996. Of the 22 who delivered decreased profits in that year, only four received pay cuts. The rest got increases, several in the range of 150 percent. Sixteen received bonuses.

This is simple corruption, for surely this is a perversion not only of shareholder rights but of the merit principle preached by these same executives to their employees. But in the corporate world, as in the natural world, rot does not excise itself. It just continues until someone acts. The solution is ridiculously simple. We made the laws that allowed the rot. We need to change them. A small but symbolic start would be a law on CEO compensation.

Murray Dobbin's 'State of the Nation' column appears twice monthly on The Tyee.  [Tyee]

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