[extropy-chat] You're Fired
rhanson at gmu.edu
Mon Oct 16 11:47:11 UTC 2006
At 06:49 AM 10/16/2006, BillK wrote:
> > http://hanson.gmu.edu/YoureFired.htm
> > You're Fired, Forbes, October 30, 2006.
> > In the above OpEd I introduce a wide audience to my proposal to put
> > market in charge of whether to fire the CEO.
>I don't really see why random market movements should be used as the
>basis for directorial employment.
>There are two main criticisms.
>1) Stock markets are random. ...
>The market swings through booms and slumps and some sectors have mini
>booms and slumps. If markets were efficient then successful investors
>contrary to the herd (like Buffet) could not exist. (1).
Claiming that stock markets do not contain all possible information, and so are
not perfectly "efficient," is very different from claiming that they
random and contain no info whatsoever. My proposal only needs markets to
contain a bit more info than the other processes one might use to fire CEOs.
>2) Company directors are mostly PR or insignificant. ...
>Some directors will be lucky to be in the right place at the right
>time and some won't. There are only a very few directors whose
>decisions have much effect on company performance. Usually in new,
>fast-moving sectors where rapid change is paramount.
If the CEO makes no difference, and markets recognized that fact, then my
proposal will not advise firing the CEO. The markets would only have an impact
when they estimated that they would make a difference.
>The vast majority of company directors are of the type "I've worked 10
>years to get my snout into the trough and I'm going to make the most
>of it." (Because everyone else does it as well). Then they
>concentrate on PR, keeping their lucrative employment, increasing
>their stock options, accumulating huge pension funds, and ensuring
>huge payoffs for terminating their employment.
Similar methods could be used to advise on CEO compensation. If markets
agree with you that CEOs are paid too much, they would advise cutting back.
>Company staff voting is a much better system for controlling the
>excesses of the board. If the company staff are also the shareholders,
>you get the best of all possible worlds. ;)
As you know, that situation is very rare.
Robin Hanson rhanson at gmu.edu http://hanson.gmu.edu
Associate Professor of Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323
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