Suppose that Intel's lowest-paid trainee earns $15,000 per year. The 50 to 1 CEO salary rule would mandate that the salary of Intel's co-founder and CEO, Andy Grove, could be no more than $750,000. (...) Consequently, the practical meaning of this "responsible corporation" law to Intel would be this gun-to-the-head proposition: "Either cut the pay of your Chief Executive Officer by a factor of four from $2,756,700 to $750,000, or pay the federal government an extra $395 million in taxes."
I wonder if raising trainee's pay as a solution to this "problem" was deliberately omitted, or it did not even occur to T.J. Rodgers.
Mr Rodgers makes some very good points in his letter. Definitely where it comes to board membership and the ethics of inisiting on 'balanced' board make up.
However I'm not sure about the inherent logic in Paragraph N:
'The May 13, 1996 issue of Fortune magazine analyzed the ethical mutual funds" which invest with a social-issues agenda, and currently control $639 billion in investments. Those funds produced an 18.2% return in the last 12 months, while the S&P 500 returned 27.2%. The investors in those funds thus lost 9% of $639 billion, or $57.5 billion in one year, because they invested on a social-issues basis. Furthermore, their loss was not simply someone else's gain; the money literally vanished from our economy, making every American poorer.'
Is this is implying that if you make an investment choice for personal reasons (maybe invest in a family business) and the company returns 10% rather than 20% that you could have received from a different investment that you have lost 10%. And that you have made the world poorer with that choice. The logic seems a bit hokey to me.
> Is this is implying that if you make an investment choice for personal reasons (maybe invest in a family business) and the company returns 10% rather than 20% that you could have received from a different investment that you have lost 10%. And that you have made the world poorer with that choice. The logic seems a bit hokey to me.
The idea that in that circumstance you've suffered a loss is the concept of the opportunity cost, one of the most basic ideas economics has to offer.
The idea that by doing so, you've made the world poorer is on less firm ground, but it's not exactly arcane reasoning. It's the same logic that backs the claim that high-GDP countries are richer than low-GDP ones -- they have more money. The general idea here is that if you start with $812 billion, and you turn it into $755 billion, you've lost money ("become poorer").
Although, as with anything worth discussing, its not quite as simple as that.
If you invested in a family business that returned 10% instead of 20%, then you haven't really made the world poorer, you just haven't made it as much richer as you could have.
The other side of the coin, though, is that an investment has to be measured in far more than just dollars.
Investing in that family business might very well make you happy. And the happiness might be worth those 10% gains that you are forgoing.
This also struck me as odd but for slightly different reasons.
Namely, I don't think the statement takes into account possitive externalities that may arise from 'ethical' investing. Perhaps this lost money is just reallocated with a much longer payback?
Consider investing in renewable energy, perhaps they are not as efficient as fossil fuel power generation methods, but renewables have other positive externalities (lower pollution (arguably)) that may pay back this 'lost money' in the future by way of increased life expectancy, or just creating a greener, healthier, more pleasant world.
The same could be true of other ethical initiatives, including hiring from minority groups. Perhaps the fortunes of poor neighborhoods could be increased if a company set about hiring its staff from such a neighborhood as one of it's business policies. A generation down the line that neighborhood could be producing the next entrepreneurs.
Point being, money doesn't account for everything...yet.
While "politically correct" is to me a shibboleth that marks the user as a vitrolic and dishonest conservative pundit, the letter itself is perfectly reasonable and polite. However, there is one very interesting part:
A search based on these criteria usually yields a male who is 50-plus years old, has a Masters degree in an engineering science, and has moved up the managerial ladder to the top spot in one or more corporations. Unfortunately, there are currently few minorities and almost no women who chose to be engineering graduate students 30 years ago. (That picture will be dramatically different in 10 years, due to the greater diversification of graduate students in the '80s.)
Well, it is now 17 years later, and the end result doesn't look "dramatically different" to me. So maybe the criteria (at this level and/or others) aren't all that objective and rational after all.
I've edited my statement a bit to clarify: I don't exactly know how the population of eligible candidates has changed, but the CEO made the clear prediction that it would change dramatically and clearly implied that this would be reflected in the end result (the board members).
But if we look at the end result, in this company an others, it is equally clear that the prediction was wrong; boards haven't become dramatically more diverse.
So either the criteria for eligibility have changed, or they're different from what the CEO claimed, or there are barriers in the process of moving from grad student to potential board member that he did not take into account (or glossed over).
I disagree. There is 'black dude' on the board based on his rather amazing qualifications and nothing more. This give me much more hope than if he were there for other reasons.
I should have said "not as much progress as I would have liked." Also, you have no more idea the reasons for the make up of the current board than I, or anyone else, does. I'm happy you are hopeful.
> What absurd logic would contend that Americans should be harmed by "good ethics?"
Why is that absurd? Is it unreasonable to think that, say, Americans might be expected to pay more for clothes in order to reduce the numbers of people burned to death in Bangladeshi textile factory fires?
Why are almost all CEO:s and company leaders tall? Is it just a coincidence and when they selected the "most qualified" candidates almost all of them happened to be tall? Is it because taller people just are that much smarter than everyone else?
Well, taller people are somewhat smarter than everyone else. If your model of CEOs is that they're selected top-down from the smartest members of the population, you'd probably expect them to be taller than average, because someone exceptionally smart probably had a lot of different things go right to achieve their high total, including the particular thing that's related to tallness.
I tend to assume that most leaders are tall because tallness contributes heavily to charisma, rather than because it's somewhat related to intelligence.
I see. Silly me for suspecting it has something to do with discrimination. That explains why there are so few women on leadership positions -- they are on average 10-20 cm shorter than men so they are both much dumber and much less charismatic than guys. It doesn't explain why the tall and hyper-charismatic smart Dutch men aren't dominating the world. But I guess it's only a matter of time. Perhaps we should export some of our geniuses to the short and Asian countries, they obviously suffer from a severe lack of tallintellect there.
I wonder if raising trainee's pay as a solution to this "problem" was deliberately omitted, or it did not even occur to T.J. Rodgers.