Wednesday 3 October 2007

It just isn't fair

In aviation, it is considered that the best way of aligning a pilot’s interests with those of his passengers is to have him sitting right at the front of the plane without a parachute, ensuring that he will be the first to perish if he flies carelessly into a mountain.

I don’t think even the pilots’ union has ever suggested that it would be better to equip him with an ejector seat that would shower him with banknotes as he floated serenely to earth, admiring the vivid colours as his craft exploded.

Yet those are precisely the rules that apply in business, where a failed chief executive can usually anticipate a well-cushioned retirement as his shareholders’ savings and employees’ job prospects crash in flames.

I know several rich and apparently respected individuals whose only claim to fame is that they have brought a public company to its knees. Sometimes, amazingly, they have been given the chance to prove their ineptitude more than once.

Of course, their independent non-executive directors ticked all the right corporate governance boxes as they authorised the compensation package they needed to attract and retain the very best person for the job.

But then they would, wouldn’t they? Given that they almost certainly hold an equivalent executive position elsewhere. Unless they are one of those people whose own career ascent stalled some way short of the summit, prompting them to “go plural” instead.

Theoretically, boards take collective responsibility for failure. Though when it looked like the non-executive directors of Equitable Life might be sued into bankruptcy a few years ago, their squeals of protest were probably picked up by alien spacecraft on the outer fringes of the galaxy.

It amazes me to find myself well to the left of that old socialist Gordon Brown on the issue of executive pay.

In my book, entrepreneurs who have original ideas and risk their own money deserve every penny they get. Those who genuinely transform the performance of an established plc (rather than manipulating financial smoke and mirrors) should also be properly rewarded for the wealth and opportunities they create. But why shouldn’t the price of abject failure be personal ruin and shame?

You don’t need to be a schoolboy to know that anything else just isn’t fair.

Keith Hann is a PR consultant who doesn’t court easy popularity.

Originally published in The Journal, Newcastle upon Tyne.

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