Nell Minow, editor of The Corporate Library, has been a gadfly and corporate critic for many years. Her No. 1 issue these days is compensation for chief executive officers. And she’s right that mismanagement of CEO compensation played a role in what went wrong at the top of some of the nation’s largest financial firms. Check out this interview I did with her for Strategy + Business.
What’s remarkable to me about the current economic mess (in my view, it is likely to be a grinding five-year economic restructuring, not a mild recession) is that no one seems to be asking the question: what went wrong from a structural point of view? Somehow, our system seems to have failed, just as it did in the Enron era or the savings and loan era.
The answers are complex, but Nell Minow is putting her finger on one of them–the people leading these financial institutions have incentives to make as much money as they can in the short term, no matter what the risks are to their institutions. The assumption seems to be that the big banks are too big to fail–no way the Federal Reserve and the federal government can allow them to crash. So why tie CEO compensation to being prudent? Far better to go for the fast money.
What is your analysis? Is Nell Minow right? And what’s your analysis of the economic situation?
