“The hoods down the street are doing it, too.”

Posted by Marc Hodak on June 22, 2011 under Governance, Scandal | Be the First to Comment

I’m not sure if that is what this union officer meant by this:

“We fight for our pensions and paychecks the same way C.E.O.’s fight for theirs,” said Scott Diederich, a lifeguard and president of the Laguna Beach Municipal Employees’ Association.

That is, the head of a lifeguard union whose head lifeguard just retired at age 57 with a pension of $113,000 per year.

Anyway, there are a couple of interpretations of Mr. Diederich’s statement.  The most innocent interpretation is:  “Everyone has a right to negotiate hard for what they want.”  True enough, and the reason I believe that “greed” is a peculiarly weak accusation against people who end up with more by dint of their preparation and hard work.

However, there is another interpretation.  Most unions characterize the negotiation between CEOs and boards as a form of self-dealing.  They believe that directors are generally cronies of the CEO, belonging to the same country club, sitting on each others boards, or, worse, that CEOs have the power to boot dissident directors who might not “play ball.”  Leaving aside the gulf between that out-of-date stereotype and my experience in dealing with modern boards, the implications of Mr. Diederich’s statement is that he is condoning a form of, “Everybody does it.”  Not as noble a sentiment.

It’s a subtle difference.  On the one hand, someone is taking advantage of their leverage in a fair game–we’re not all born or made equal with regards to what is needed to win at a particular game.  (Luck plays a role, too–my parents were obviously way wrong in denigrating my ambition to become a Cali lifeguard.)  On the other hand, someone is taking advantage of their ability to alter the rules of the game to favor themselves.  People have trouble with that.

When we complain about CEOs extracting money from pliant boards, the proper focus is on the system of governance that allows such a thing to happen.  That focus has led to immense changes in corporate governance over the last 20 years.  Now, attention is turning to the influence of public sector unions over the bosses they help elect, teeing up that system for changes.  I expect unions to fight those changes every bit as much as the good ole’ boys resisted changes to our board culture.  But when you give up the moral high ground with an “everyone else does it” explanation for a scandalous outcome, your power to prevent change measurably drops.