Few executives pay the price of failure

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Unless they are self-employed, the majority of people spend their working lives in organizations that are often run by distant bosses. In recent years in North America and Europe, the pay gap between the ordinary salaried worker and leading executives has widen substantially as top managers are awarded remuneration packages, including bonuses and share options that border on the outrageous.

The justification for such massive financial awards is that corporate leaders with their large offices up in mahogany row at the top of head office buildings carry immense responsibilities on their shoulders. In the world of joint-stock companies their job is to drive ever-greater profits in return for these generous rewards by shareholders. This laudable model is, however, becoming increasingly unwrapped as chief executives and their teams are actually being given stupendous packages even when they fail, because their pay is guaranteed contractually. Given that the average tenure for top corporate leaders is little more than three years, it is obvious that corporate chiefs are going to grab as much from a business as they can while they are there.

But rarely are they ever held to account for their failures. Despite the insane behavior of the financial sector that led to the post-2008 banking collapses and knock-on worldwide recession, hardly anyone has been made to pay. Those who were jailed have been middlemen traders who rigged international market rates and fiddled transactions. If the executives at the top of these institutions were being given fabulous rewards because of the huge responsibilities they were supposed to carry for the whole business, then they should have also been in the dock for allowing such egregious wrongdoing on their watch. But that has simply not happened.

Interestingly, it is the automotive industry that has seen corporate chiefs called to account. The case of Carlos Ghosn, the Lebanese-French-Brazilian former boss of the Nissan-Renault alliance, looks more political than criminal. It seems to have much to do with Japanese resistance to Ghosn’s plans to bring about an actual merger of the two automotive giants. And very surprisingly, this once much-praised titan of the auto industry has received little support from the French establishment. Could this be because Ghosn, for all his considerable achievements, is suddenly seen as a multi-race foreigner who does not really belong in France?

The case against fallen VW chief Martin Winterkorn and four of his top aides is simpler. They must have known that a covert software patch made it look as if VW and Audi diesel engines were less polluting than they really were. This breached environmental regulations as well as trust with VW’s customers. If their defense is that they did not know what was going on, then they must explain why they did not and why they then condoned an attempted corporate cover-up.

These high-flying executives cannot have it both ways. If they are paid stellar salaries to be in charge, then they must shoulder the blame and take the consequences when they fail in their duty to run their businesses properly. It would be good to imagine that the VW criminal prosecutions will act as a warning to all corporate leaders. However, it is more than likely that some executives will continue to cheat and lie in the hope that they will never be called to account.


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