"I know no safe depository of the ultimate powers of the society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them, but to inform their discretion by education. This is the true corrective of abuses of constitutional power." - Thomas Jefferson 1820

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Monday, December 6, 2010

What Mizzou Business Students Should Have Learned from Kenneth Feinberg on Determining Executive Pay

We wrote about Kenneth Feinberg's recent speech at the School of Business at the University of Missouri...it was announcing his appearance and his presentation, "Government Determination of Private Executive Pay: Opportunities and Challenges". We wondered if the speech focused solely on executive pay from bailed out companies, or if this idea would spread to all companies in certain industries, even if they had not received government assistance.

The Columbia Daily Tribune covered the speech and Mr. Feinberg focused mainly on the companies receiving assistance from the Troubled Relief Assistance Program:

To rein in excessive pay, Feinberg capped salaries at $500,000 a year and banned retention bonuses; tied an executive's compensation to company performance; paid executives in stock that couldn't be redeemed for a few years; and prevented executives from being reimbursed until the corporation has repaid the taxpayers 25 percent of what it owes.

"Overall, it was a worthwhile exercise," he said, but he cautioned, "It's not something that should be expanded."

It seems Mr. Feinberg, then, would not be anxious to set executive pay for those companies not needing taxpayer bailout funding. I read a Forbes piece about Mr. Feinberg's actions after the BP spill and was impressed most with the one comment from a reader:

The only thing that management owes to their stockholders is enough information to let them make a rational decision on investment potential. That includes: a. Honesty / Integrity / no "Cooking the Books".
b. A clear Vision and Strategy statement as to their intended course.
c. Transparency and openness, providing all relevant information at appropriate times.

Under this model, stockholders can pick their investments based on the level of risk or conservatism the company is expected to show. Companies with good plans and with a continuing sustainability over time will be sought out by long-term investors and a fair price paid. Consider this the Warren Buffet model of investing. If executives would consider first their legacy to employees, societies and communities, rather than themselves and a limited circle of similarly compensated friends, we would return the respected Executive Statesman to business, rather than the Hired Aristocracy that we have developed.

I highlighted the last sentence because I believe that is the most important point in the reader's comment. Read this article from American Thinker, "American Religion and Religious Morality" and tie it in with the Forbes' article. The government has been instituting more and more rules on businesses and education. This has allowed the government to mandate moral behavior, which government is not constitutionally allowed to do:

Liberals and conservatives both believe that as Americans, we should be moral people. The major difference is where their morality intersects with their politics. Most conservatives believe that our morality should come from religion, separate from government. Most progressives incorporate moral guidance as a function of government.

The humanistic tendencies of the political left assume that morality can be governed by state laws and dismiss religion as an origin and arbiter of moral law. Therefore, government must become a humanist's ultimate authority to address and regulate human nature.

Therein lies the problem with Mr. Feinberg's actions on behalf of the Obama administration and I wish he had pointed this out to the future business leaders at the University of Missouri (from American Thinker):

Governments cannot create and enforce morality -- only law. The more corrupt a government becomes (as our human nature predicts), the more laws are created for power rather than justice -- which is the reason why governments cannot be the arbiters of morality. In addition, when Americans stop taking responsibility for self-regulated morality, then the heavy hand of government must attempt to control human nature and suffocate our free will. If we lose the ability to know not only what is right and wrong, but why it is right or wrong, then we stop being moral. We become simply law-abiding, compliant.

This article explains the difficulty in knowing how to address executives' "excessive pay". If taxpayer money is used to bail out these businesses, the taxpayers should have a say in how the companies are restructured and the company accounts and practices should be scrutinized. But the problem really is deeper and can't be solved by government rules and laws. It IS a matter of morality that needs to be practiced by business leaders AND politicians. It is NOT a matter of new laws and regulations and mandates. THAT is a lesson for college students to understand and integrate into their future professions.

Do you think business students will find any required courses about morality in college today? I wasn't there, but I didn't see it reported in Mr. Feinberg's speech at Mizzou. We might have fewer problems requiring massive taxpayer bailouts if our leaders had adhered to a moral law rather than the law of unmitigated greed.

Do you remember the title of Mr. Feinberg's speech: "Government Determination of Private Executive Pay: Opportunities and Challenges"? The opportunity he had to challenge the business students to operating/managing businesses from moral beliefs vs legalistic solutions seems to have passed. That's a shame.

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