THE DANGER OF A FALSE SYLLOGISM

THE DANGER OF A FALSE SYLLOGISM

James R. Fisher, Jr., Ph.D.
© November 28, 2008

“Horses have four legs, cows have four legs, therefore horses are cows.”

It isn’t often that I disagree with syndicated columnist Thomas Sowell, many of his books on education have been gems, but he stepped over the line today with his column “Don’t Kill The Corporate Goat.”

Sowell presents the Russian fable of two peasants: one Ivan and the other Boris. The only difference between the two is that Boris has a goat and Ivan doesn’t. One day, Ivan came upon a strange looking lamp, and when he rubbed it a genie popped out. The genie told him he could have one wish of anything in the world he wanted, and he said, “I want Boris’ goat to die.”

Sowell leaped from that premise to the media, politicians, and yes, several writers such as myself who have been deeply offended with executive compensation.

Personally, I benefited from such compensation when I was young with Nalco Chemical Company and when I was mature with Honeywell Europe Ltd. In either instance, I was not worth as much as I received, and those far below me were deserving of much more than they received. I quote the late much esteemed management guru Peter Drucker in CORPORATE SIN (2000) on his take on the gap between CEO pay and workers in the 1990s:

“In the current version of business ethics in the United States, one side has all the obligations and the other side has all the entitlements. This is compatible neither with the ethics of independence nor with a universal code of ethics. It corrodes the bond of trust that ties superior to subordinate.”

Sowell’s syllogism is false for many reasons, but chiefly because of its failure to take into account the ethics of compensation and its relationship to the bond of trust between thinkers and doers.

Moreover, executive compensation is anachronistic as is the role of the CEO atavistic as primary corporate thinker and decision maker. Doers today are every bit as important as thinkers as they are as doers. They are essential to the health and well being of the corporation. The problem too often is that the troops, mainly professionals, are silent sentinels.

Let me continue on Sowell’s syllogism. He claims, rightly, that if the czars of oil companies received zero compensation, it would not change the price of gas at the pump, if the compensation of CEOs of automotive companies was reduced to zero, it would not change the price of an automobile off the assembly line a dime.

Then he leaps to this: “Too many people are like Ivan, who wanted Boris goat to die.” In other words, we take pleasure in accusing corporate executives of having the goat (large compensation and entitlements) and being the source of our discomfiture and displeasure. Wrong! It is far more comprehensive than that.

To substantiate his case, and to put meat on the skeleton of his false syllogism, he writes:

“The average pay of a CEO of a corporation big enough to be included in the Standard & Poor’s Index is less than one-third of what Alex Rodriguez makes (the New York Yankee Third Basemen makes more than $30 million per year with bonuses), about one-tenth of what Tiger Woods makes (the championship golfer makes, with endorsements, more than $100 million a year), and less than one-thirtieth of what Oprah Winfrey makes (the television entertainer, writer, publisher, and philanthropist makes about $300 million a year).. But when has anyone ever accused athletes or entertainers of ‘greed’?”

Notice no mention is made of the revenue these super athletes earn for investment capitalists and shareholders in the enterprises they support.

Incidentally, an African American Major League Baseball (MLB) player by the name of Kurt Flood started the surge in salaries for professional athletes in 1969.

Flood challenged the legality of the reserve clause that could trade him from the St. Louis Cardinals to the Philadelphia Phillies, a move that upset him. The case went all the way to the Supreme Court, which ultimately ruled against Flood, 5 – 3, and essentially ended his baseball career.

It, however, panicked MLB owners to arbitration, noting the closeness of the decision. It led eventually to salary arbitration for professional athletes in all sports.

One athlete surrounded by many lambs said, “Hell, no, I won’t go!” And he changed MBL history. Today, we see owners attempting to “buy championships” by flooding the market with cash. The lowly Tampa Bay Rays, a team whose total player payroll in 2008 approximated Alex Rodriguez baseball income, won the American League Title and went on to play in the 2008 World Series.

The Tampa Bay Rays demonstrated leadership (on and off the field), strategy, chemistry, and commitment, something missing in most of corporate leadership today.

Regrettably, People are apt to read Sowell, and say, “Heh, the guys got a point. I never thought of that?” Think again. Apples are not oranges, and horses are not cows.

Then consider this: the chances of a person becoming Alex Rodriguez, Tiger Woods, or Oprah Winfrey are about one in 500,000 to a million.

By the same token, chances of becoming the CEO of a large American company are about one in 500 to a thousand.

Being an exceptional athlete is very difficult. It takes more than talent, dedication, and intelligence, which all are necessary, but being at the right place at the right time, and even then, hundreds of thousands are not going to make it.

The late great Wimbledon Champion, Arthur Ashe, once wrote a column advising young African Americans to concentrate on their studies instead of trying to become the next “Arthur Ashe.” He cited chances of reaching athletic supremacy to the pinnacle of sport in the NBA, NFL or MLB were close to one in a million, but that becoming a doctor or lawyer with concentrated effort were less than one in a hundred. And, of course, he was right.

Individual achievement is compensated so well because such success at the highest levels is rare. There are at least, and I am being conservative, five million Americans at this moment writing or having written and published a book. How many do you think are making even a conservative living as a writer? I am talking about people making $75,000 or more. It is less than 10,000 full-time writers in a population of 330 million Americans.

Sowell’s subject of corpocracy I have been tracking for forty years, first as a working stiff, second as a manager, third as an executive, fourth as an academic, fifth as a consultant to corporations, and finally today, as a writer and observer of corpocracy.

To become a CEO is relatively easy compared to individual achievement as outlined here.

The first requirement is to fill the right boxes. Lee Iacocca gave a classic menu of his rise to power, fame and executive compensation in his autobiography (Iacocca 1984). It was, as they say, right on the money:

(1) Go to the right university,
(2) Get the right degrees,
(3) Become an apprentice in the right industries,
(4) Find the right mentors, and coaches,
(5) Marry the right women, and live in the right neighborhoods,
(6) Go to the right churches, and choose the right friends,
(7) Dress the part,
(8) Belong to the right clubs,
(9) Drive the right automobile.

Concurrently, while you are dedicated to doing these things, like the Congressman, you have to campaign for the next job finding little time to do the job for which you are paid.

A CEO-in-the-making must be a talented pyramid climber. That means taking credit when credit is due and avoiding blame when things go awry. Moreover, it means changing careers or companies, and sometimes even professions, when it seem the ship or the career is sinking.

At work, the CEO-in-the-making must make a concerted effort to have access to the offices of the powerful. Others will see him coming and going into such offices and assume he has influence, and is a winner. They will start rallying around him. What they don’t see is that he has the talent to present their ideas as his. The powers that be are suitably impressed, which was always his intentions, and he is off to the races.

He researches the favorite charities of the powers that be and supports them with generous contributions he can’t afford, but which he sees as an investment, being clever enough to make them aware of his generosity.

He volunteers for difficult assignments knowing he has the support group with the skills to pull it off. He flatters his troops and invites them to a cook out at his home with everyone forgetting he took total credit for the coup.

He humbly tells his bosses, “I couldn’t have done it without my staff,” when in fact he couldn’t have done it at all. The powers that be smile and congratulate him, giving him a special bonus, forgetting in their rise how they once used the same ruse.

Now, here comes the problem.

When the aspiring executive’s eye is always on the prize and not on the job, when he finds his skills much more honed to critiquing the work of others rather than generating real work, when his only true experience is vicariously through the efforts of others, when it comes time to think, to lead, to see clearly beyond the end of his nose, he finds he has spent all his intellectual capital in cunning, and now must fly by the seat of his pants.

It is why we are in the subprime fiasco, Iraq fiasco, Wall Street meltdown fiasco, automotive meltdown fiasco, oil company fiasco, and on and on.

We have had an absence of leadership which surprisingly, perhaps not so surprisingly, has eroded over the past fifty years as executive compensation has gone through the roof: from 50 times the average earnings of the worker who produces to 1,000 times his efforts, not to mention the golden parachutes received once such leadership leaves the ship often as it is sinking into a sea of red ink. No problem, the compensation package is still there.

We no longer award leadership so why should we be surprised when there is none?

Sowell writes: “Those who want more power have known for centuries that giving the people somebody to hate and fear is the key.”

This remark surprises me because I know the biography of Thomas Sowell, and he has embraced fear and hatred to rise to his heights. Does he think most of us are any less than him? I don’t think so. I think he is a good man, but wrong in this piece, which is a departure from him.

Sowell sees the rise of Robespierre in eighteenth century France as a result of his promotion of hatred of the aristocracy, claiming that he acquired more dictatorial power than the aristocracy ever had, which was true. Sowell politely forgets this revolutionary figure's rise was the effect not the cause of the French Revolution of July 14, 1789.

The soldiers that day were ordered by King Louis XVI to storm the Bastille, and put down the rebellion. Instead, they turned their weapons aside and joined the people in revolt. Why?

Because people were starving while royalty was living grandly. Marie Antoinette is alleged to have said, “Let them eat cake.” Even if she didn’t say it, the monarchy had emptied the treasury with unfortunate investments, senseless wars, extravagant indulgences, and total disregard of its people. NO LEADERSHIP.

In the 20th century, Sowell goes on, both the czars and the capitalists in Russia were made targets of public hatred by the Communists on their road to power.

He fails to mention that Nicholas II was a totally inept monarch with a disastrous war with Japan, with over fifty percent of the population illiterate and in poverty, while he created convenient alliances with his relatives in France and Great Britain as if ruling was a family picnic.

I traveled in Russia last summer and the Russian people, who are now in much better times, still reminisce about the monarchy. People like to look up to someone. Why else would Great Britain, Denmark, and many other European countries still have titular monarchies? Obviously, the people pride rather than fear and hate these monarchs.

I am rereading “USA” by John Dos Passos, which is about the first thirty years of the twentieth century in the United States.

You get a flavor of the unrest in this country when “Robber Barons” hired thugs to kill and maim strikers and union organizers early in the last century. These czars had such names as Carnegie, Mellon, Morgan and Rockefeller.

John Dos Passos’ book gives you a flavor of the protest marches against President Woodrow Wilson’s bringing the United States into WWI after running for a second term on a peace platform.

People were put in prison during WWI for protesting against the war, and weren’t allowed to organize rallies.

You get a flavor of Wall Street greed in this period when John Pierpont Morgan controlled interests in New York, Paris and London, four national banks, three trust companies, three life insurance companies, ten railroads systems, three street railway companies, an express company, the International Mercantile Marine, and maintained cantilever options through interlocking directorates over eighteen other railroads, U.S. Steel, General Electric, AT&T, and five other major industries.

J.P. Morgan had so much power that kings and queens, and presidents would break their lunch schedules to entertain him and his ideas. We don’t have that kind of power now, at least not as transparent, but the quest for it remains. The House of Morgan often avoided meltdowns similar to those now being experienced, but it is still in the mix today.

Who would have thought President George W. Bush, or any president for that matter, would be a non-president in the waning days of his administration?

President-elect Barak Obama has had a series of White House News Conferences with the press, and even has staff in the White House two months before he takes office working on economic policy. Who would have thought?

The CEOs of Fannie Mae and Freddie Mac, of AIG, and GM, of Citigroup and other companies would not be facing bailout if they had led. Instead, we see them with tin cups in their hands wanting to be bailed out for non-leadership.

AIG received $35 billion and promptly celebrated with a $400,000 executive party. GM, Chrysler and Ford come to Washington, DC in separate private jets expecting a $25 billion bailout with absolutely no plan, but NEED. NO LEADERSHIP.

Sowell’s syllogism will not track because American workers and American consumers are not hateful or fearful but tired.

American workers and American consumers are tired of having leadership that cannot be trusted; tired of leadership that does not lead; and tired of being the fall guy when privileged people screw up, people who don’t think of anything but covering their own asses, baby boomer pyramid climbers who thought it was all about “them” and not all about “us.”

It is “all about us” when they screw up. Listen to GM’s Wagner whine: “We produced (gas guzzling) SUV’s and trucks because that is what American consumers wanted.” In other words, it is our fault, not theirs that they are bankrupt. We let them down, they didn’t let us down. They have done no wrong. So, we as consumers pay more for what we buy and we as taxpayers are expected to bail them out when they are going off the rails.

The United States of America has the best-educated workforce in the history of man, and possibly, just possibly, the worst leadership at the top since Roman Empire. It was Rome that promoted the carnage at the coliseum as the barbarians from the north sacked the city. American leadership has not taken advantage of this intellectual capital and we have all suffered for it. There is a line in the second volume (“1919”) of John Dos Passos’ novel, “USA” that seems apropos: “We’re the Romans of the Twentieth Century.” My wonder is if this is still not true of us in the twenty-first.