I read in the Wall Street Journal how congress has passed legislation to provide shareholders a say on pay. And everyone is celebrating this victory as if it will curb in the large levels of pay received by executives of Wall Street.
Then on the front page of Financial Time I read an article about how large Wall Street Banks are “gaming the system.” It seems that "Wall Street banks are reaping outsized profits by trading with the Federal Reserve." The Fed is "buying massive amounts of securities to help stabilize the markets," and, to promote transparency, "it often announces its intention to buy particular securities in advance."
The article goes on to say that according to a former Fed official, "this strategy enables banks to sell these securities to the Fed at an inflated price," and "Wall Street has geared up to take advantage"… "the situation had reached the point that 'everyone games them.'"
OK that in itself seems absurd but then you have to hear Barney Frank’s response to the situation. Here is what the paper reports, "Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilizing the financial system."
Just so I am not missing anything we have the congress complaining about the “excessive pay” being awarded to financial executives and writing legislation that is going to make access to public markets in this country less and less attractive. And then the same leadership is accepting that profiteering is the price we have to pay.
We have already seen that Sarbanes-Oxley Act of 2001 created a high price for companies in the public sector and did nothing to prevent executives from behaving in ways that are considered by most to not be in the best interest of society. And now we are passing more legislation that will further constrain the decision making and innovation (which by the way requires risk taking) of our public companies.
But as a society we still hold the core underlying values that gaming the system is part of doing business. Or said another way, behaving in ways that maximizes profits at all costs is what we expect from business.
A friend of mine said you cannot suck and blow from the same straw at the same time. I will add to that that - you cannot legislate morality.
We are trying to create, through legislation and litigation, behaviors that are not supported, even encouraged within the context of our society. Return on Investment, Maximize Shareholder Value, Profit at any cost are the themes, the stories we live by. It is what defines the container and hence molds the shape of our society and behaviors of our leadership. It is what enables Barney Frank to demand legislation against executive compensation and at the same time state “profiteering is the price we have to pay.” (Oh and by increasing profits these executives will earn greater bonuses).
Until we recognize that we live in and are part of a living organic system and our choices are defined by our Context, we will never solve the ills of our society.
Norman Wolfe | President/CEO | Quantum Leaders, Inc