Dear Joe Nocera: Thank You!

I've been arguing against "shareholder value" as the prime measure of corporate performance and CEO bonuses for quite a while (most recent blogpost on the subject, here). But sometimes my soapbox has felt pretty lonely.

Saturday, Joe Nocera, columnist for The New York Times, picked up his much bigger microphone and made the call: "Down With Shareholder Value" (here).

As Nocera writes, the results of the corporate focus on shareholder value are plain to see, and they're "not pretty":

Too many chief executives succumb to the pressure to boost short-term earnings at the expense of long-term value creation.... In the lead-up to the financial crisis -- to take just one example -- financial institutions took on far too much risk in search of easy profits that would lead to a higher stock price.

But the times appear to be a-changin'. Nocera notes that Cornell Law professor Lynn Stout and other academics are questioning the legal basis for the emphasis on shareholder value. Other academics are looking at the issue more closely, too. Nocera quotes from a recent Harvard Business Review article, "What Good are Shareholders?", by Harvard Business School professor Jay W. Lorsch and HBR Group editorial director Justin Fox (article, here; note that a subscription is required for full access).

Lorsch and Fox report, "There's a growing body of evidence... that the companies that are most successful at maximizing shareholder value over time are those that aim towards goals other than maximizing shareholder value."

That's not to say that shareholders are irrelevant. Lorsch and Fox argue for "a favored role" for long-term shareholders. In addition, there should be

roles for other actors in the corporate drama -- boards, customers, employees, lenders, regulators, nonprofit groups -- that enable those actors to take on some of the burden of providing money, information, and especially discipline. This is stakeholder capitalism -- not as some sort of do-good imperative but as recognition that today's shareholders aren't quite up to making shareholder capitalism work.

This is a movement I could get behind.

Can We Build a Corporate Jail?

Not a privatized prison (we have plenty of those already, and I have lots of ethical issues with them, but that's a post for another time). No, I mean: If corporations are persons, why can't we send the bad ones among them to jail?

OK, so I know that my suggestion is physically impossible (although it's fun to try to visualize). But it is gratifying to know that I'm not alone in pondering relative sentences between felonious companies and felonious individuals. It's like the old joke: "Steal a thousand dollars and you go to jail; steal a million, and you own the bank."

In Monday's New York Times, Michael Powell pondered the shame of the guilty in Manhattan Criminal Court and contrasted it to the lack of shame among repeat offenders of the banking world (full story, here). He calls the bankers "a less scrupulous class of lawbreaker."

The following day, the Times' Michael S. Schmidt and Edward Wyatt explored the gulf between the record sums being collected by the Justice Department from businesses charged with defrauding the government in contrast to the minute number of charges being filed against executives of those same companies (full story, here).

The reporters quote Senator Jack Reed (D - R.I.), chairman of a subcommittee overseeing securities regulation: "A lot of people on the street, they're wondering how a company can commit serious violations of securities laws and yet no individuals seem to be involved and no individual responsibility was assessed."

Count me as one of those people.

Acting associate attorney general Tony West assure us that "there is a lot of behavior that makes us angry but which is not necessarily illegal. If the evidence is there, we won't hesitate to bring those cases."

The evidence appears to be the key problem. Senior executives have plausible deniability when it comes to day-to-day operations. Most of them have also learned not to commit fraud via email.

The risk is that executives become more willing to skirt the law: Smith and Wyatt quote the president of Better Markets, which advocates for regulatory reform, "If you are an executive, you know that the chances of getting caught are infinitely small, and the chances of getting caught and prosecuted are even smaller."

I don't have a great solution.

But I do have a lot of anger.

And, ethically speaking: If it happened on your watch, Mr. CEO, isn't it your responsibility? And since you're so happy to take the credit for record profits or dramatic increases in the share price, shouldn't you be as ready to take the blame?