Edward Carr, The Economist
January 19, 2007

Organizational Governance and Democracy

The article states, "After all, the shift from imperial chief executive to options-rich manager is founded on the idea that companies are run not by philosopher-kings pursuing the common good but by people made of flesh and blood and with a keen sense of self-interest." That is precisely the problem, as there is a simple yet profound lack of virtuous ethical executives a top companies, who act as self-interested monetary rational actors. Stock options are an extremely poor incentive system insofar as they merely induce the executive to strive for maximized share price for capital appreciation for self and for other shareholders. But, should this be the true endeavor and measure of value creation? Why the intense focus on shareholder value creation, as they merely contribute funds to the company, relative to employees who actually create the value above the capital contributed, the operational manager who concerts the workers into unison, the corporate manager whom establishes strategy, the suppliers who provide inputs for transformation, and customers who provide monetary sustenance to the organization by purchasing goods and services? We so often and so easily forget the multiple stakeholders within an organization and how these stakeholder groups tie together not only within the organization, but also amongst organizations and societal structures. It is right wing authoritarianism and subsequent corporate greed that continues the trend of granting stock options to executives and that also argues that labour should not be granted these to have a basis of control in the company. Albeit a step further of having labour on the Board of Directors may elicit a conflict of interest, labour should at least be able to interact with the Board similar to how management does. This will promote organizational democracy given the multiplicity of stakeholder constituents and also organizational governance, rather than the severely restricted nomenclature of and behaviour towards corporate governance.

Posted by David Newman | Jan 20, 2007 1:50 PM ET