How Philanthrocapitalism coddles CEOs

By Felix Salmon
June 24, 2011
Matthew Bishop and Michael Green.

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A quick reply to Matthew Bishop and Michael Green, which with luck will bring this exchange to an end: I’m not saying that they make the case for the status quo. But when Davos Young Global Leaders, like Bishop, intone importantly about how “there is an urgent need to tackle fundamental flaws in the economic system” and how CEOs need to concentrate on long-term enlightened self-interest rather than “short-termist behavior”, the very corporate chieftains they’re trying to reach are going to nod in serious agreement and claim in all sincerity to be part of the solution rather than part of the problem.

Never in the history of Davos has a CEO got up on stage and said “I’m trying to make as much money as I can before the board finds me out and fires me”. Which is precisely why CEOs don’t think that Bishop and Green are talking to them. And on top of that, the Philanthrocapitalists are happy reducing the pressure on any individual CEO even further with rhetoric like this:

A capitalism that is more responsible is not going to come from a few enlightened CEOs choosing to do good – it will only come from an overhaul of the way business is run.

That’s not a call to action, it’s a call to sermonize. And it will achieve nothing beyond getting Bishop and Green a few more speaking fees from companies which like to pat themselves on the back for being socially conscious. Which is why I say that Philanthrocapitalism is ultimately friendly to the status quo.

Bishop and Green don’t explicitly say that the status quo is a good thing: in fact, they explicitly say that it is profoundly broken. But they say that in an extremely CEO-friendly way, designed to allow leaders who think of themselves as long-term visionaries to also consider themselves to be downright philanthropic simply by dint of their enlightened strategic thought. It’s always other CEOs who are the problem. Or it’s not even CEOs at all: it’s the whole system.

The message of Philanthrocapitalism, then, is one which allows leaders to wriggle all too easily out of having to do anything. Which is why it’s not going to make the slightest bit of difference to the way the world is run, no matter how many important people read it.

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Comments
4 comments so far

I’m just not sure that CEO’s can do much of anything here. If an individual CEO does the right thing, they’ll just be outcompeted by a CEO that does the wrong thing, as long as the system remains broken. So to me, the answer lies with government, which has the capacity to change the incentives so that the right thing is the thing that makes people successful.

Posted by JasonDick | Report as abusive

Please someone, just look at the details of CEO compensation agreements, those compensation packages set the directions CEO’s will take their companies. As long as compensation is based on the performance of each company and the measures of performance are financial, sales, profit, stock price etc etc or some mixture of these numbers, and the time frame is short term, mostly single year performance, all the discussion of “long term”, “enlightened self interest”, is so much crap.

Posted by jonradin | Report as abusive

Felix. I just don’t understand your point here.

Compensation is what it is. CEO’s are like sports athletes that are hired by the team managers in order to win games and hopefully the title. And CEO’s make a difference just like Athlete’s make a difference. And they make a drastic difference. They aren’t commodity or skilled labor, they’re at the margins. There are different kinds of ceo’s: visionary, operational, financial, and political, and different types of organizations need these different kinds of CEO’s. And picking a CEO or evolving one is a high risk expensive proposition with vast consequences, even for the smallest firm.

Im doing a deal right now where the CEO of a mid-sized company is going to walk with 10M cash. Does that seem extraordinary? It doesn’t to me. It’s his commission on value created. Do I think he’s that good? Not really. I’m not sure he was a net add for the business at all. But the reality is, that he earned what the board offered him if he could do the job.

If you’re a high performer you are a scarce commodity. You choose between offers. People entice you to take on the work – which is very hard work at that – and many CEO’s fail. And their careers are over because of it. It’s a risk-reward proposition.

Doing ‘good’ is irrelevant to running a business. Running a business is the act of not doing something bad, while trying to return profits to the people who hired you. What individuals do with those profits once they are in individual hands is the act of doing ‘good’.

So, I just don’t get your point. Is it that Davos is a self-congratulatory conference like every other field on this planet attends? Is it that you think CEO compensation is too high? Is it that you think the government should regulate CEO compensation? Or are you throwing a bone to the left-leaning people?

Posted by CurtD59 | Report as abusive

@CurtD59: I can’t tell if you’ve read Felix’s earlier posts on this topic, but if you havn’t they are important to the discussion.

Felix’s point is that Bishop & Green have, in Davos-speak, argued that the best philanthropic or societally-good efforts are to pursue capitalistic profits, and that CEOs who pursue “corporate social responsibility” should stop, and accept the glorious fact that they should merely pursue capitalistic profits which are, a priori, better for society than mere philanthropic efforts.

Thus taking a great weight off the shoulders of CEOs to think anything other than short-to-medium-term accounting profits.

Felix is rebutting the flawed argument that IBM as a capitalistic enterprise has been more philanthropic than then Carnegie Endowment over the past 100 years, by dint of IBM’s profits and technological impact on the world (but ignoring the thousands of failed non-philanthropic capitalist efforts and cherry-picking IBM). That argument is then used to say that capitalistic pursuits are necessarily better from a philanthropic perspective than mere philanthropy.

That is what Felix is discussing. Not really CEO pay.

Posted by SteveHamlin | Report as abusive
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