One of my recurring questions about the relative advantages of the private sector vs the public sector is whether executives have longer time horizons than politicians. On the one hand, it would seem like they clearly don't: politicians are supposed to aspire to statesmanship, and executives have to worry about quarterly earnings. In practice, however, pols are often responsive to election cycles, whereas if a CEO is really cavalier about the long-term they'll be ruing it for years to come.

So here's a trio of articles related to that question. Joe Klein, at Time, argues that Obama's critique of Romney's record at Bain is resonant because it points to the fact that presidents and CEOs have different priorities:

It seems to me that Obama’s immediate point is wrong: Romney wasn’t primarily about job destruction and corporate plundering. His larger point–that Romney was not so much about job-creation as he was about profit-creation–is correct, though. But the largest point of all is this: private equity capitalism was all about short-term profits–maximizing shareholder value–rather than long-term growth.

James Surowiecki, in The New Yorker, takes a look at why a number of tech companies (most recently Facebook) have opted for a dual-class share structure, wherein some shareholders have greater voting weight than others:

There’s reason to be concerned at the spread of the dual-class structure. One study that examined a large sample of dual-class firms from 1994 to 2001 found that they notably underperformed the market. And few people would say that the problem with corporate America is that C.E.O.s have too little authority; the recent travails of Rupert Murdoch are a testament to the problem of a monarchical executive. Yet when the right person is in charge the dual-class structure can help companies avoid one of the problems besetting modern business—the short-termism of big institutional investors.

And Ray Fisman, at Slate, looks at a new study about CEOs with military experience. Those who have served tend to have greater integrity (as measured by fewer instances of fraud), but slightly lower financial performance. Fisman argues:

Indoctrinating future business leaders to always follow the rules may ensure that laws don’t get broken but also prevent them from looking beyond the way things have always been done. And if creativity requires a bit of a roguish streak, it could mean that the occasional scam might be necessary collateral damage in an innovation-driven economy. After all, innovation and creativity can sometimes be hard to distinguish from the financial illusions created by persuasive conmen.

Your comment will be posted after it is approved.

Leave a Reply.