Posted by Marc Hodak on October 28, 2016 under Governance, Scandal, Self-promotion | 
This week, I was a talking head on CCTV‘s The Heat with Anand Naidoo. I was brought in to comment on how poorly implemented corporate incentives could lead to the kind of scandals we have seen of late, e.g., Wells Fargo, Mylan, and VW. Being an expert on incentives and corporate scandal, it seemed like a good place for me to contribute. I believe that was also the impression of Richard Bistrong, who is an expert on corporate corruption and compliance.
Unfortunately, the interviewer instead peppered us panelists with questions about the corrupt relationship between business and politics. I was not entirely comfortable about that direction, not because I don’t have well-supported opinions on that topic, but because it just wasn’t what I was prepared to talk about. So, I kept trying to bring it back to corporate incentives, with modest success. (They cut my comment that, hey, I was a governance expert, not a political commentator.) I was ultimately able to make a few key points:
- Perverse incentives were at the root of a number of the scandals
- Those incentives are widespread in corporate America
- It’s getting harder for public companies to monitor internal bad behavior by virtue of their increasing size
My one acknowledgment of the politics was to counter one of the comments by the far-left lobbyist they brought on as a third panelist. He suggested (several times) that Obama’s DOJ and SEC failed to do their job of wholesale jailing of bankers and executives because government prosecutors were involved in some sort of concerted effort to not prosecute criminals, what I called a reverse conspiracy theory.
Being relatively new to TV, I learned that my habit of looking up for a moment as I think about what to say may look a little shifty on camera. Need to keep my focus on the lens.
Posted by Marc Hodak on October 23, 2016 under Invisible trade-offs, Scandal, Stupid laws |
In the History of Scandal class that I taught in the mid-2000s, one of the lessons was that scandals have a life of their own, separate from the reality that they are nominally attached to, with the reality invariably being much less salacious than the stories that grew up around it. I have since seen the opposite phenomenon, as well–stories that could easily be made into huge scandals, but simply make the news one day to die the next.
In that context, I find myself asking, why isn’t New York’s attempt to outlaw Airbnb a scandal? The ban, and the now accompanying fines of thousands of dollars, is designed to restrict apartment owners from renting out their apartments to visitors. This has several obvious effects:
- Restricting the number of rooms available to visitors from out of town
- Making hotel rooms more expensive, so that the visitors that do come have less to spend on non-hotel items
- Preventing generally less affluent apartment owners from adding to their income (rich people don’t need to rent out their apartments to make ends meet)
But it should not be surprising that the bill was not called the “NYC Visitor Cap Bill,” or “Only Rich Visitors Allowed Bill,” or the “Ordinary Apartment Owners Don’t Really Need Extra Income Bill,” or the most honest title, “Government Supports Hotel Owners and Unions Bill.”
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Posted by Marc Hodak on October 15, 2016 under Economics, Executive compensation, Governance |
Bengt Holmstrom, a co-winner of the 2016 Nobel Economics Prize, rails against the complexity of executive pay. He’s right about that. He blames compensation consultants, but that is attacking a symptom, not a cause. The underlying cause is the proliferating regulation—formal and informal—of compensation governance. This regulation creates constraints on how Boards can design executive compensation programs. Boards rationally react to those constraints by building plans of ever-greater complexity.
The source of compensation regulations is popular disdain for high CEO pay. The intent of the regulations is to tamp down that pay, but that’s like putting nails in a board to stop a marble from rolling down. You don’t stop the marble; you just make its path more complicated.
Nevertheless, Prof. Holmstrom is a worthy scholar, one whose research has done much to inform my discipline, even if unfortunately few practitioners have actually heard of him, or heeded his conclusions.
