CEOs Should Be Held Accountable
Ann Skeet
This article was originally published in the Mercury News on March 20, 2015.
Judge Lucy Koh approved a $415 million settlement in the Silicon Valley employee poaching case involving Apple, Google, Intel and Adobe. Compared with the companies' first $324.5 million settlement offer, Judge Koh considers this sum a sufficient penalty for the revelation that the four companies allegedly agreed not to hire away each other's employees.
The combined annual CEO salaries at these companies are nearly $58 million dollars, including Larry Page's symbolic annual $1. Perhaps a more just outcome would be to ask those CEOs to pay the settlement fines out of their own pockets.
They might then understand what it feels like to have an outside force adjust their compensation.
Current corporate law allows for actors to hide behind the corporate seal when making decisions that affect large numbers of employees. Combined annual revenues for Apple, Google, Intel and Adobe in 2014 were $309 billion, and the companies employed 266,400 people. About 65,000 people will receive $5,000 each in this class-action suit settlement.
Many data points about executive compensation have been tossed out over the years. A point made often is that CEOs make too much. Rarely does anyone suggest they don't make enough. If chief executives were held responsible for their actions, I might agree that they aren't paid enough. Might.
If they had to pay such fines out of their own pockets, accepting greater personal risk in leading their companies, the logic holds. I hear a lot about the responsibilities that now lay on a CEO's head justifying sky-high compensation. I have not seen many of them actually take that responsibility. Companies pay both the fines and benefit from the financial breaks that come from the decisions made by their executives. CEOs seem well-protected from downside risk.
It's as if Milton Friedman's idea that all corporations should care about is shareholder return has removed the responsibility from people running these companies to do the right thing as long as they can point to some benefit to the corporate bottom line, even if only in the short term.
Boards hiring CEOs say they need to pay top dollar to attract top talent. This case would suggest top talent has not been attracted. Top talent does not screw its fellow employee. Top talent does not send threatening e-mails. Top talent does not knowingly break the laws designed to protect employees even if doing so enhances corporate profits, even if the top talent is broadly acknowledged to be a business genius. Privileged, protected people who have come to feel above repercussions act that way. Not leaders.
Willingly or not, the CEO is an organization's chief ethics officers. How she acts, what she expenses -- these telegraph the organization's values. Eric Schmidt is today the chairman of Google's board. Can he still fulfill that role and its responsibilities once he has been part of e-mail exchanges like this one?
"I would be very pleased if your recruiting department would stop doing this," (Steve) Jobs wrote to Schmidt on March 7, 2007. Schmidt then sent the request on, saying, "I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can."
Why should Google shareholders believe Schmidt still has their interests, or that of the corporation, at the top of his list? It seems to me, his interests trumped theirs.
Ann Skeet is the director of leadership ethics at the Markkula Center for Applied Ethics.