False Sense of Entitlement
As the poet Robert Burns wrote, it would be a gift from some power to be able to see ourselves as others see us. But this gift is valuable only if we actually care about what others think of us. The banking executives taking huge bonuses, like many of the top executives I've worked with, care mostly about how other executives see them. In their high flying bubbles, these executives ignore the feelings of their employees and the public.
In the early 1980s, I brought AT&T managers together with leaders of the Communication Workers to build collaboration. We reflected on a case history of General Motors where executives had recently asked workers to sacrifice previously agreed on raises while they increased their own bonuses. The result was to provoke anger and distrust that eroded cooperation at GM.
In contrast, Bill Hewlett and Dave Packard's policy during a downturn was to have all executives, managers and employees take a cut in salary and take off one working day a week. This was one reason HP gained loyal and enthusiastic support, not only from its employees but also its alumni who went on to build Silicon Valley.
Our banking system cannot function without a trusting public. Bank executives act as if they are oblivious to what the public thinks of them, and as a result they have lost public trust. Like so many of the executives I've observed over the years, today's bank executives focus primarily on what they think of each other and ignore what the public thinks of them.
A combination of insularity and short term thinking feeds their false sense of entitlement. In their corporate islands, these executives compete with and value each other on their bonuses and perks. Their thinking is short term because their huge bonuses have been tied to yearly profits, giving them incentives to leverage their capital for unreasonably risky loans. But since the others were doing it, the risks were seen as acceptable by most of them. Their false sense of entitlement is expressed in the specious argument that even with the collapse of their stock and huge losses, they won't keep their star performers without bonuses.
One wonders whether some of these companies wouldn't be better off with fewer "star performers" such as those who created and sold the disastrous financial products that repackaged bad risk as good risk. If bankers end the practice of dealing themselves company assets which they claim to be bonuses, and instead rebuild the old fashioned banking culture of prudent risk evaluation, they will begin to rebuild public confidence and respect. This is another way of saying that they have to start to care about what people outside their self-serving clique think of them.
It is tempting just to get indignant and moralistic about these losers who reward themselves so handsomely while the banks teeter on the edge of ruin. But it's more important to make some changes in their compensation practices. If bonuses won't go away, it would surely be better for our government to require that those executives who take the taxpayer's money align their bonuses, or give-backs, with the results of their profitable and unprofitable decisions.
Together with more effective regulation, we would all benefit from better internal oversight by independent board members to replace the insiders who approved these outrageous bonuses. This is not just a matter of fairness for taxpayers. These changes might help the financial sector regain some measure of the respect and trust it has lost. Unless bankers wake up, focus on how they are seen by the public and change their practices, our banking sector will stall our nation's economic recovery.
Note: This post was co-authored with Max Maccoby.
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