sometimes boards of directors learn


Geoffrey Colvin of Fortune magazine is outraged. He feels that corporations have shot themselves in the feet so badly with excessive executive compensation packages that now they can no longer compete for the best talent money can buy. Case in point: Dave Calhoun, “America’s hottest executive and a man who should be the highly paid CEO of a U.S. public company,” has opted to work for a private Dutch firm rather than find a job in the publicly-traded market. Colvin laments that this decision is based on the unwillingness of public corporations to pay the high price that it would take to secure a big name like Calhoun. Their hesitancy eminates from a “climate of deep shareholder distrust” of directors’ discretion in executive hiring. The effect of this distrust, Colvin believes, is an inefficient allocation of executive resources.

I say, good for you corporate America. The problem with the executive labor market isn’t with the shareholders – it’s with the boards of directors who, for years, have overcompensated executives and given them deals that inefficiently use firm capital. Public corporations are now correcting this irrational exuberance by passing on talented (but still overcompensated) executives like Calhoun. The research just doesn’t suggest that established companies benefit that much from executive leadership to warrant the kinds of packages they’ve received in the past. Much of the time, an effective leader could just easily arrive from within the internal executive pool.

Calhoun is probably right where he should be. Younger, private companies that hope to go public in the near future could probably benefit from the kind of publicity and star-quality that people like Calhoun bring. While publicly-traded firms may waste their resources in pursuing executive stars, private companies may find this kind of hire to be their ticket to the big-time.

Written by brayden king

September 6, 2006 at 3:37 pm

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