Tuesday, 4 December 2007

A Christian Perspective on Corporate Governance and Executive Pay

A super quick plug for an interesting and well-argued piece on Patrick Gerard's blog. There's a good section questioning the assumption of the use of pay to align directors' interests with those of shareholders:

The first problem is that it presents an extremely pessimistic view of human nature. The human being (even those human beings at the very top end of our society) are unable to look beyond their own interests. This is much more pessimistic than mainstream business thinking which, when considering motivation, often refers to Maslow’s triangle of needs and the “self-actualizing” needs of top people.

A second problem is that it interprets good corporate governance as a balance point between the different vested interest groups which creates incentives for managers to deliver good outcomes for those vested interest groups. This implicitly accepts that corporate governance is a power struggle in which executives, investors and investors’ representatives seek to optimise their own position. In reality the Combined Code does appear to be more the outcome of a power struggle between institutional investors and directors than a principle driven exercise to optimise outcomes for the underlying investors. In this power struggle trust and co-operation are replaced by red-tape, regulations and controls.

But the biggest problem here is that individuals and institutions are expected to use their talents and powers solely to further their own agendas. This generally means maximising their own power and their own proportion of the wealth created by business activity. This creates a tension in which power and money are pulled towards those people who already have the most power and money, and away from those who are least able to defend themselves.

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