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Friday, September 03, 2004

The Reckless CEO

In addition to being an expert on the Middle East, University of Michigan historian Juan Cole is also a talented election strategist and blogger. Here's part of his excellent post about the 2004 incumbent candidate for President:
If you think about George W. Bush as CEO of America, Inc., it becomes clearer why his poll numbers have been so low (low to mid forties) in the run up to the election. No president with those kinds of poll numbers in the spring before the election has ever won.

Bush's basic characteristic is not steadfastness, as the convention attempted to argue, but rashness. He is a gambler who goes for the big bang. He loses his temper easily, and makes hasty and uninformed decisions about important matters. No corporation would keep on a CEO that took risks the way Bush has, if the gambles so often resulted in huge losses.

Let us imagine you had a corporation with annual gross revenues of about $2 trillion. And let's say that in 2000, it had profits of $150 billion. So you bring in a new CEO, and within four years, the profit falls to zero and then the company goes into the red to the tune of over $400 billion per year. You're on the Board of Directors and the CEO's term is up for renewal. Do you vote to keep him in? That's what Bush did to the US government. He took it from surpluses to deep in the red. We are all paying interest on the unprecedented $400 billion per year in deficits (a deficit is just a loan), and our grandchildren will be paying the interest in all likelihood.
This is an excellent metaphor and could be put to great use by the factions opposed to CEO Bush.

Unfortunately, I think there is a major flaw in Professor Cole's analysis.

What if the members of the Board of Directors personally profited from the $400 billion debt? That is, company profits were shifted in an unprecedented way from the company coffers directly to the pockets of the major shareholders represented on the Board?

So far, the media hasn't much noticed, the SEC isn't on the company's back, and the coast may well be clear for another round of debt-related profiteering.

In that circumstance, the Board might well vote to renew the CEO's contract.

Which is why this company really needs shareholder initiative. Of course, many of the shareholders also received small checks over the past 4 years too -- and many of them have no intention of cashing in their investment. Company stock may be down, but the dividend checks keep coming.

So what, these shareholders might think, if they are passing along a worthless investment to their grandchildren? The $400 dividend check from the company helped buy a new sofa last year, and a similar one next year might even pay for a new home theater system.

Cole goes on to extend the analogy to Iraq, and I think it works, but the alternative candidate for CEO surely needs to emphasize more clearly that his agenda is more than just "not-Bush." The "ABB" approach may garner strong support from the rank-and-file base, but could well fall short for the shareholders who don't pay much attention to company politics and don't really follow the news about Mesopotamia all that much either.

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