Friday, October 5, 2018

Shareholder Revolt - Fire the CEO?

“… that government of the people, by the people, for the people shall not perish from the earth.” 

For me, the words of Lincoln at Gettysburg have always meant that, effectively, the politicians in our government that represent us work for us. 

I have likened it in this way: the U.S. government is like a corporation. At the top is the CEO (President) and his executive team (Department Secretaries) and all the managers (Senators and Representatives). Unlike a corporation, we hire (vote in) the CEO, and he/she hires the executive team. And we hire the managers. Unlike a corporation, the managers (legislative branch) act as the Board of Directors, providing advice and consent to the CEO’s actions.

Again, I want to stress that this is a concept of government that works for me, and some elements may not match up perfectly with what is taught in a Civics class.

As to my neighbors and me, we are like shareholders in the corporation/country. We rightly believe that the CEO and managers work for us. Our positive satisfaction is what they strive for and for which they are compensated. As shareholders/constituents, our continued endorsement of the job these people do is to vote them in during election time. Or the opposite, every four or six years.

In a corporation, when a CEO is making poor strategic decisions that pose an immediate or long-term threat to its success, it falls to the Board of Directors to exercise its duty and, if necessary, rein in or even fire the CEO. 

It can be sudden, and the shareholders may not participate much in the decision, but they know that the action is in their best interest. They feel that way because they have been assured that the Board is independent of the CEO. They know that the members have not been chosen by the CEO and do not act in a partisan manner toward him/her. 

So what are we to make of the current state of our government? We have a CEO that has little interest in its workings or structure. He has little concern for how much expertise his key people have in order to do their jobs. His main objective seems to be to denigrate and reverse the actions of the previous CEO. His executive team members have staffed (or understaffed) their departments with demonstrably unqualified or disinterested people. 

In an interview after the launch of his newly published book The Fifth Risk, Michael Lewis says: “I’m trying to think if there’s anybody who’s just full-throatedly enthusiastic about the enterprise he’s been charged to run. Rex Tillerson wasn’t. Defense. [Jim] Mattis. And maybe, strangely, [Steven] Mnuchin. We never hear about him. I keep getting asked what’s the source of the next financial crisis, and I don’t have an answer because I don’t know anything, but there’s one thing that’s been eating at me since this man was elected. It’s the thing that, if it happened, you’d rewind the tape like in The Usual Suspects and say, (gasps) “Why didn’t I see that coming?”

So far, there are a number of concerns that a shareholder could have when it comes to the performance of the current CEO. The cursory transition effort, as described by the Michael Lewis book, is certainly one. Lewis focuses his alarm on the aging workforce of the Department of Energy, “which is no longer attracting young people as it once did” and the risk of “responding  to long-term risks with short-term solutions.” 

Should a shareholder/voter look to the corporation’s board to address these concerns? In my take on our government/corporation, one can see that the board/legislators are aligned with the CEO/president in an alarmingly partisan way. They are supposed to work for us and listen to our concerns. Is the welfare, and possibly the survival, of the country more important than the party to which our President and legislators belong?

D. Norman

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