The Cult of CEOs and the Culture of Management

In The Washington Post today, Robert Samuelson comments on the Delinquency of CEOs and how, if they don't reform themselves, others will do it for them. He's right, although I see no hope for reforming the CEO system, since it is endemic to the Principal-Agent model of modern capitalism and sole proprietorship. As employee-ownership and union ownership gain in popularity, their board will rethink not only the cult of the CEO but the culture of management as a whole.

A hierarchical principal-agent model is appropriate when the goal of management is to force the conformity of hired workers. It breaks down, however, when the workers are all principals. Interestingly enough, ESOPs break down when their cultures are bifurcated - when there is an in crown of long term workers and a pool of short timers who have not yet earned their ownership rights. As union-owned firms are created out of the necessity to cut costs and benefits and the employee-owned model expands, they need a new culture based on egalitarian principles. Of course, egalitarianism has its own problems with conformity and mediocrity, so it cannot be adopted whole hog. Cultural theorists have found that no single culture is viable - that mixed cultures are the most healthy. For example, the United States is an example of a mix of LIbertarianism/Individualism and Egalitarian with vestigal hierarchism in religion and business. As long as none of these dominate, the society functions well. If employee-owned and union-owned firms adopt a mixed culture of innovative individualism and egalitarianism, they will win on both employee satisfaction and profitability, thus attracting both the best workers and the smartest shareholders (since it takes time to convert one's ownership portfolio to a completely employee-owned model).

What are some of the elements of this new model? The first is a free market for wages, where manager bid for their positions in open auction. This is a stark contrast to the current model where each employee negotiates with the owner or his agent. Instead of competing for CEOs by offering higher pay, CEOs would be forced to offer lower bids - often competing with in-house talent. In fact, such a model will likely end the practice of going outside the firm for celebrity talent. Of course, in an open auction, there are likely ties, which leads to our second element, democracy.

Ties in an auction for a position would be settled by that very egalitarian tool - elections. The election structure would be determined by the ownership structure. A shareholder board would control an amount of votes equal to the percentage of shares owned by non-employees. The remainder of the votes would be given to employees on a one worker-one vote basis. I would expect a very different result in some firms than what we have now. Managers would be selected the same way, though with a smaller voting pool (the division, the plant or the work group - if large enough).

The third important element is incentive pay. In hiearchical firms, the incentives are about conformity. In the new model, the incentive is to innovate - and to do so outside the normal structures. The impact of the innovation would be judged by how it effects the bottom line, with results judged by an independent auditor and the final results confirmed democratically by a mixed assembly of workers and shareholders.

A fourth element is a more equal base pay, with separate pay for family size. To get to that level of pay, the responsibilty for procuring an education would be taken on by the firm so that one's education level is owned not only to ones own efforts but those of one's brother and sister workers. In this model, workers would be hired while in college or vocational training and be paid living expenses as well.

A fifth element is the use of benefit structures to encourage longevity. Stock grants would be designed to provide an adequate income at the end of a carrier of some twenty-five to thirty years, inclusive of training. At some point, workers would buy a home with low or no interest financing provided by firm with payoff tied to the projected retirement date. The level of interest would be tied to the level of employee-ownership in the firm at large. If there are outside shareholders, some interest is necessary to compensate them. However, if the firm is 100% employee-owned no interest is necessary since it would merely increase profits and be given right back to the employees. This benefit is only ethical with employee-owned firms, since owing a long term debt to a traditional firm can be seen as a form of peonage.

There are public policy implications of this new model. It will impact the tax system, the retirement system, the education system and the workforce development system. As multi-national firms adopt this model it will impact development, currency exchange and military spending (which will decrease as this model spreads). As the competition for good workers increases, traditionally disregarded workers in minority communities will be sought out and trained since innovation and success depends on finding talent. Firms will look for the best providers to do that, which means an expanded parochial votech education system. Finally, aerospace workers will move from designing and building weapons to supporting space exploration, which is both much more fun and much more necessary as advanced space technology will be useful in a future where fossil fuels are running out, especially in the production of food (it currently takes five calories of fossil fuel to generate one calorie of food, we can do better than that).

I talk more about all of this in my book, Musings from the Christian Left and on the Iowa Center for Fiscal Equity web page. Here are some links:
http://www.geocities.com/iowaequity/Governance.html
http://www.geocities.com/iowaequity/PayEquity.html
http://www.geocities.com/iowaequity/socialsecurityandownership.html
http://www.geocities.com/iowaequity/taxreformproposal.html
http://www.geocities.com/iowaequity/multinationals.html
http://www.geocities.com/iowaequity/socialistenterprise.html
http://www.geocities.com/bindner_space/careers.html
http://www.geocities.com/xianleft_michael/education.html
http://www.geocities.com/bindner_space/privateSTS.html