Social Issues

Hero CEOs need to look in the mirror about economic inequality

Posted on by j.giglio

In a strong rebuke to President Trump’s response to the recent violence in Charlottesville, Virginia, a chorus of masters of the universe, titans of industry, and corporate rock stars lined up like soldiers to take head shots at the president, criticizing him by name for his handling of the violence.

Many were so appalled by what the president did and did not say that they resigned from his business advisory councils. The media certainly milked it for all it was worth, some characterizing senior executives as heroes for speaking truth to power.

Nothing stokes cable ratings like a sustained campaign of outrage that feeds into the attention deficit disorder of the American news cycle. But perhaps some of that outrage should be directed at the crusading corporate giants themselves.

Perhaps it is only a matter of time before chief executive officers show the same passion and anger when it comes to speaking out against the economic inequality that has risen so sharply since the mid-1970s. For example, CEOs could voluntarily take less compensation and use their concentrated political and economic power to support a national living wage.

After all, the Gods of Fortune have continued to smile down upon corporate executives with outsized payoffs. The average CEO earns something close to 300 times the pay of the median American worker, whose real wages have been stagnant for decades. This ratio is up from roughly 40 to 1 in 1980. In contrast to this growing gulf between the haves and the have-nots, the ratio of CEO to average worker pay in Japan is 16 to 1. In Denmark, it is 48 to 1 and in the United Kingdom 84 to 1.

CEOs do not have to worry about saving for retirement or their children’s college education as they enjoy expensive perquisites from country club membership to second homes a little smaller than Rhode Island, to the personal use of corporate jets.

Is it any wonder that the public is mad as hell? They make the connection between business executive pay and growing economic inequality.

A few decades ago, executives were paid mostly in cash. Much of the story of executive compensation in recent decades comes down to two words: stock options.

To align incentives between shareholders and management, boards of directors use equity compensation by granting stock options. Today, they comprise two thirds of the typical executive’s pay.

Stock options give the executive the right to buy a company’s stock at a predetermined price sometime in the future. If share prices rise above the negotiated strike price, the executive stands to reap significant gains. If the options become worthless, the CEO breaks even, having paid nothing for them.

The result is a win-win for executives, especially when supplemented through the use of stock buy backs and the labyrinthine of accounting shenanigans such as excluding depreciation and amortization in calculating earnings for performance based compensation.

The stock buyback binge of $4 trillion since 2008, much of it with borrowed money thanks to low interest rates since the Great Recession, has resulted in firms reducing the number of outstanding shares by which profits have to be divided. So the share repurchases lift per-share earnings, improving a key metric for determining CEO compensation.

Solutions to the CEO compensation issue include tightening the cap on tax deductibility of CEO pay and disallowing deductions for excess salary, stock options, and perks. Fat chance, these reforms will happen when the positions of too many politicians closely reflect those of their big money donors.

Cynicism about those in positions of power seems to be confirmed afresh each day by the latest tweets, pandering, and headlines. As a general rule, assume the worst about elected officials and the thinly veiled plutocracy. That way you will not be disappointed.

Originally published: September 12, 2017

Too big to jail

Posted on by j.giglio

The war on drugs is back in fashion. The Justice Department announced a tough new stance that requires prosecutors to pursue the highest charges possible, including those that carry mandatory minimum sentences, for low-level drug users and distributors as the United States continues to supersize the modern prison complex.

But you could combine every gang banger selling crack on a corner in America and they couldn’t generate as much ill-gotten cash as the bankers who engaged in the widespread malfeasance that led to the 2008 financial crisis, which triggered the worst economic crisis since the 1930s.

Despite the gravity – and depravity – of their actions, the number of top Wall Street executives who were prosecuted for fraud related to the financial meltdown is exactly zero, even though they cost millions of Americans their jobs, homes, life savings, and hopes for a decent retirement, and forced the government to hit up those very people to pay for the bailout that saved the country from a financial apocalypse of truly biblical proportions.

Hard to believe, but the truth often is. Meanwhile, the ordinary American is still dealing with the consequences of the financial meltdown; scoring, hustling and struggling to make it in America.

There are many reasons no bankers were jailed, including the complexity of the cases and lack of criminal referrals from regulatory agencies. Prosecutors didn’t want to put executives of “too big to fail” banks in prison, often because they feared that indicting the executives would drive their firms out of business, eliminating jobs and causing serious problems for financial markets and the economy.

In addition, the argument goes that investigating top executives of large firms is difficult because they insulate themselves from day-to- day decision making. In the end, the Department of Justice choked in the clutch. The ordinary American catches the joke that doing the right thing is always harder than simply doing what’s convenient. You would be right to conclude that Lady Justice is blind because she can’t stand to watch what’s happening on the ground.

Those responsible for indicting and prosecuting Wall Street executives seemed to believe that just as there are banks that are too big to fail, there are also people who are “too big to jail”. Instead of targeting individual corporate executives with trial and imprisonment, they almost exclusively settled with corporations for money. Corporate settlements were easier than identifying and prosecuting culpable top executives. Firms could pay the settlements with shareholders’ money; it’s even easier than locking up someone for dealing drugs on a street corner.

It shouldn’t be overlooked that too many in the political elite shill for the top bankers, who come bearing large campaign contributions in both hands. As Illinois Senator Richard Durbin said in 2009, “they own this place”.

More than a century ago, President Theodore Roosevelt noted that concentrated economic power tends to capture political power, which undermines democracy. After 2008, the financial crimes committed with impunity gave rise to a tsunami of anger that washed away normal inhibitions and unleashed the Tea Party and Occupy Wall Street.

Wall Street still exerts inordinate influence over the economy, inequality is near all-time highs and, for the majority of Americans, economic opportunity is close to an all-time low. We send some gangbanger from the hood to prison, but the United States appears to have reached the point where government is afraid to prosecute a Wall Street executive for stealing millions, crashing the economy and wreaking havoc upon millions of people.

A more aggressive response followed the savings and loan crisis of the 1980s and 90s, when hundreds of small banks across the country failed due to reckless real estate loans. Back then the Department of Justice prosecuted over 1,000 people, including top executives at many of the largest failed banks.

These episodes bring to mind Honoré de Balzac’s provocative and memorable line: “Behind every great fortune lies a great crime.”

Originally published: August 5, 2017

A professor who made his mark

Posted on by j.giglio

Distinguished Professor Daniel J. McCarthy left the academic teaching treadmill on June 30 after 52 years of legendary contributions to the D’Amore McKim School of Business at Northeastern University.

Ralph Waldo Emerson wrote that “An institution is the lengthened shadow of one man.” By any measure you would be hard pressed to find anyone who has so selflessly served the university and students as Professor McCarthy. All at the university have been rewarded with his efforts.

His contributions to the institution go far beyond longevity. He was always welcoming and gracious to those who interacted with him without a tint of academic snobbery. The quintessential gentleman. Those who worked with him understand full well that he valued loyalty to the institution in the true sense of the word. It only matters when there are 10 reasons not to be loyal.

Professor McCarthy is an internationally renowned scholar, outstanding teacher, and generous benefactor to the university. He is academically prolific with crazy energy levels. He is fiercely competitive, when he puts his mind to getting something done, nothing will stop him unless a machine is attached to it.

As a scholar, since 2007 Professor McCarthy has authored or co-authored 28 articles in academically refereed journals and ten book chapters as well as presenting his papers in over 50 conferences. And if that were not enough, he was in the top five percent of scholars globally who published in the leading international business journals from 1996 to 2000.

As a teacher, he was always giving students more than they asked for or even wanted. He was always present, listening, counseling, knee-deep in student engagement, touching scores of students in meaningful and memorable ways. He deserves praise for pushing students to ask hard questions, omnivorously driving them to consider diverse perspectives, encouraging them to get to the bottom of things, and nurturing their intellectual growth without wounding their egos. He never avoided demanding excellence while always being fair. Unlike many he was not in love with the sound of his own voice.

Professor McCarthy has an almost unfair writing style with a gift for clarity. Unlike many academics he does not visit cruel and unusual punishment on the language. He makes the language work for the reader. His words travel well.

We should remember not to forget that he has enjoyed success in business as well as in the academy. Unlike many academicians, he has a deep understanding of business. He knows whereof he speaks. He understands that when there is a disparity between theory and facts, the flaws are not with the reality on the ground.

It goes without saying but it goes better with saying that Professor McCarthy and his wife Margaret have generously given personal treasure to the university over the years as well as motivating others to give. For example, Professor McCarthy and venture capitalist Jeff McCarthy (unrelated) jointly invested $1 million to fund the university wide venture mentoring program in 2012.

It is not hyperbole to acknowledge Professor McCarthy played a key role in Richard D’Amore and Alan McKim’s making the largest philanthropic investment in the school’s history of $60 million in 2012. In 2005 these two benefactors endowed the Distinguished Professor of Global Management and Innovation chair held by Professor McCarthy who mentored both when they were students at Northeastern.

While Professor McCarthy will no longer be formally teaching, fortunately for the school he will continue to be intensely involved in the university wide Venture Mentoring Network and IDEA, the student run venture accelerator both of which are housed within the University’s Center for Entrepreneurship Education for which he chairs the board.

To paraphrase that author anonymous while faculty, students, and staff may not remember all the things Professor McCarthy has done and all the things he has said, they will always remember how he made them feel.

originally published: July 8, 2017

Whole Foods feels the pinch of a changing market

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Whole Foods Market, jokingly referred to as “Whole Paycheck” for consumers, who as a late night television wag quipped love organic foods but can’t stand having money, has been fighting declining sales and increased competition as basically every supermarket chain and other retailers enter the organic food market.

When it was founded in 1980, Whole Foods was one of the few natural food supermarkets in the United States. It enjoyed the benefits of a first mover and defined the organic grocery concept. Over the years, it experienced rapid growth, positioned itself as the preeminent organic grocery brand and charged premium prices. In June 2003 it became the nation’s first National Certified Organic Grocer.

But faced with declining sales in recent years, the firm is trying to reinvent itself as a lower-priced supermarket. The company has experienced six straight quarters of declining same-store sales, a key grocery industry performance metric, as consumers become less willing to pay a premium for the Whole Foods brand.

Organic and locally sourced offerings have increased at mainstream grocery store chains as organic food has become popular among American consumers, especially millennials. According to the Organic Trade Association, organic sales increased 209 percent between 2005 and 2015 and totaled about $43 billion in 2016.

As the American organic and sustainable foods market has grown, competitors have repositioned their brands to enter this segment of the grocery store business. In recent years, Whole Foods has seen increased competition from chains like Trader Joes, B-Fresh, Wegmans and Kroger; discount natural food operators like Sprouts and Fresh Thyme; and big box retailers such as Walmart and Costco, which cater to socially and environmentally conscious customers at lower price points.

According to a 2016 research report by Webush Securities, Whole Foods is about 15 percent more expensive than conventional supermarkets such as Kroger, Wegmans and Safeway. The same report found that Whole Foods was about 19 percent more expensive than specialty grocers, including Trader Joe’s and Sprouts Farmers Market.

Meal kit firms such as Blue Apron and HelloFresh add another layer of competition. On top of that, growing online grocers like Amazon Fresh and Fresh Direct appeal to the same affluent customers as Whole Foods. Earlier this year it was rumored that Amazon.com, Inc. considered buying the company. Big box retailers are also diversifying their food offerings, aggressively courting the health food market to capitalize on consumers’ growing interest.

To make matters worse, Whole Foods is facing pressure from activist investor Jana Partners, a $8.5 billion hedge fund. In April, Jana, which owns 8.3 percent of the company, unveiled a list of complaints about the firm’s “chronic underperformance for shareholders,” its management, operations and strategy.

To enhance growth prospects and combat sliding sales by positioning itself as a competitively priced grocer, the firm has announced a plan that includes cutting more than $300 million from operating expenses, closing nine stores and abandoning its goal of reaching 1,200 stores. Earlier this year the firm eliminated its dual executive leaderships structure and demonstrated an increased commitment to shareholders by increasing the quarterly dividend and authorizing a new share repurchase program.

The firm plans on expanding its new “365 by Whole Foods Market” store format aimed at “value conscious” consumers. The danger here is that this expansion will cannibalize demand from the higher-end Whole Foods stores rather than take consumers from competitors.

Closely related, the firm has cut prices to shed its whole paycheck image and plans on offering direct discounts to those enrolled in a new customer rewards program by the end of the year.

These actions convey a sense of urgency and represent steps in the right direction that should boost stock prices. Still, Whole Foods will have difficulty shedding its costly image and getting consumers to understand the new value proposition in an increasingly crowded market while dealing with the “perennial gale of creative destruction.” If they don’t succeed, they may yet be acquired by one of their competitors.

Originally Published: May 27, 2017

Rich getting richer is no accident

Posted on by j.giglio

The upward redistribution of income in the United States over the last four decades has been well documented. Many argue there is little we can do about forces like globalization, accelerating technological change, the transformation to a service economy, taxes and government programs that have put downward pressure on wages for the ordinary American worker, but there are steps government could take to address these changes.

Economic inequality is the result of conscious policy choices. This issue is especially relevant in light of President Trump’s new tax blueprint and the health care overhaul recently passed by the House of Representatives.

From the 1950s to the mid-1980s, the richest 1 percent of Americans earned a touch under a 10 percent share of the national income. By 2012, that number was about 20 percent.

Overall wealth is even more concentrated than income. In 2012, the top 1 percent of the population controlled about 42 percent of the wealth.

The promises many politicians make about material comforts are duplicitous, since only a small minority have access to such comforts and they come at great expense to the majority. Working-class Americans feel left behind, stewing in their resentment of economic hardships and being forced to make daily choices between things like buying gas or putting food on the table.

They have come to believe government is run by and for the rich, who are used to getting their own way and face none of the daily struggles they do. Much of the American working class lives in a provisional world where making it to the next day is a victory.

Average Americans were cut adrift from their former lives, given little help to build new ones and disparaged as a basket of deplorables. All this was largely happening outside the view of the media and the political class.

You don’t have to have the psychological acuity of a self-important academic to understand the ironclad rage of the working class, which is proving to have the shelf life of radioactive waste. Is it any surprise that when powerless to determine their own destinies and achieve the American Dream, they backslide into anger and resentment?

This was not supposed to happen. In the optimistic period after the fall of the Berlin Wall in 1989 and the collapse of the Soviet Union in 1992, free-market capitalism, with its invisible hand miraculously transforming selfishness into common good, was seen as the way to usher in a period of prosperity and peace.

More recently, one event after another has exposed this utopian narrative. The 2008 financial earthquake revealed fault lines running through the economic system that cost millions of Americans their jobs, homes, life savings and hopes for decent retirements. It unraveled communities, especially those where manufacturing jobs have disappeared and the well being of the working class has been marginalized by circumstances beyond their control. It was a cataclysm far worse than any natural disaster.

Troubling results from growing inequality include dampened economic growth, reduced social mobility, and a corrosive impact on democratic institutions. Another important consequence is weak consumer demand to support the economy.

It would be wise to recall how Henry Ford simultaneously created transportation for the masses and drove economic growth. He furnished consumers with reasonably priced cars while raising wages for his own workers to make the car affordable to them.

Rather than raising the federal minimum wage, a modern version of Ford’s approach would be to expand the earned income tax credit to supplement low-wage workers’ incomes, which would mean the government paying Americans whose earnings are below a certain level. The program was started under President Ford in 1975, expanded once by President Reagan and again by President Clinton.

President Trump has proposed expanding the earned income tax credit beyond the 27 million working families who currently benefit from it. Such a move would increase demand and economic growth by providing working class Americans with the living wage they deserve.

Originally Published: May 13, 2017

Technology turns reality on its head

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Over the last decade, Americans have witnessed a breakdown of traditional industry boundaries. New industries are being created and existing ones restructured by the accelerating pace of technological innovation.

This shift is taking place in the context of a larger economic transition from the Industrial Age that began in the second half of the 18th century to the Information Age, fueled by revolutionary technologies such as the digital computer, the internet, and related information technology.

The increasing pace of technological change impacts human capital markets. Today’s children will grow up in a world unlike that of their parents, as technology transforms media, medicine, transportation and every aspect of how people conduct themselves.

The nanotechnology revolution and gene sequencing, which is just beginning, promises significant upheaval for a vast array of industries ranging from tiny medical devices to new age materials for earthquake resistant buildings. Recent service innovations include social media and online search engines that respond to voice commands.

Reality is getting complicated. Dealing with it will require taking some of the wealth created from the new industries and reinvesting it in skills development for displaced workers and rethinking policies about work and education.

Two things are certain: technological progress is relentless and accelerating, and today’s technology becomes outdated almost as soon as it can be brought to market. Consider the multiple models of smartphones introduced each year.

Advances in technology are causing disruptive changes in mature industries by introducing substitutes or altering the industry landscape by opening up whole new frontiers. For instance, revolutionary change in self-driving technology has enabled even companies such as Alphabet, the parent of Google, to enter the motor vehicle market.

Every major car company is researching and building its own version of a driverless vehicle, and industry observers are predicting they will have autonomous vehicles, internet-connected driverless vehicles without a pedal and steering wheel, on the road in five-to-ten years. The vehicle may turn out to be the ultimate mobile device.

Cutting-edge advances in artificial intelligence will have an unequal impact on livelihoods depending on which industries and individuals can create or adapt to these breakthroughs and which are left behind. They could be as consequential for labor as the agricultural and industrial revolutions that preceded it.

Two-and-a-half million people in the United States make their living from driving trucks, taxis, or buses and all are vulnerable to displacement by driverless cars. These jobs are just the tip of the iceberg.

For example, it is likely that children born today will never drive a car and may have a job in a career that does not yet exist. Robots have displaced manufacturing jobs in electronics, metal products, plastics, and chemicals with activities such as welding, painting, packaging and even operating heavy machinery.

These changes are disorienting and more than a little scary for the ordinary American already dealing with a sense of economic insecurity. Meanwhile, recent developments in robotics, artificial intelligence, and machine labor are automating work that is cognitive and non-manual. Robots are increasingly being used for a variety of tasks from precision agriculture to robotic surgery jobs that were largely immune from technological advances.

Automation will not happen overnight. It will take years to play out fully and will vary across industries, firms, jobs, and activities. But the time is now to come to terms with the uncomfortable reality that in the future, just a fraction of the population may have the talent and education to work alongside machines, while everyone else will bear the brunt of the changes.

These discontinuities raise important public policy issues about the social framework that makes sure those who are losing their jobs are able to stay afloat long enough to pivot to new opportunities and force us to rethink issues such as providing a guaranteed universal basic income. The future is arriving sooner than we thought and our country is unprepared.

Originally Published: April 29, 2017

Widening gap between rich and poor a challenge for capitalism

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Capitalism is a well-known paradigm that attempts to answer the question of what constitutes an economically just society through the production and distribution of economic goods. It is a classic example of a paradigm that was developed by studying what was going on in the real world and reducing it to abstract theory.

As practiced in most societies, capitalism is an inevitable outgrowth of the human instinct to trade goods with each other. This instinct seems to be as strongly hard-wired into the DNA of our species as the instinct to reproduce and has defied all attempts to suppress it. Various forms of capitalism have, over time and across countries, improved the lives of billions of people, especially since the collapse of the Soviet Union and China’s adoption of a form of state capitalism in 1976. But how effective is it when it comes to the just distribution of goods among members of society?

A late-night television wag once quipped that paradigms were the last refuge of the intellectually challenged. Preconceptions can be a useful starting point for organizing great masses of empirical evidence, but it is prudent not to edit the evidence to fit our normative theories about what the real world ought to look like.

This was the mistake made by the Medieval European philosophers who based their cosmology of an earth-centered universe on accepted Christian myths carefully propped up with Aristotelian logic. The result was the need for constant tinkering with their theoretical models to accommodate a growing body of astronomical evidence about how the known planets actually moved.

Not to mention centuries of embarrassment for the Roman Catholic Church after it forced Galileo to recant the evidence of his own eyes that supported the “heretical” sun-centered cosmology of Copernicus.

As capitalism matured and came to dominate western societies during the last two centuries, it attracted the attention of various writers who developed paradigms to explain it. Beginning with Adam Smith and proceeding through John Stewart Mill to today’s stained glass theorists of the Austrian and Chicago schools, these writers with the regularity of Swiss trains sought to purify their paradigms and give them a hard core of academic logic.

In Smith’s world, competition among those who pursue their own interest promotes the general welfare of society more effectively than the efforts of any individual who might deliberately set out to promote it. As he simply put it: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Critics argue that, as currently structured, capitalism disproportionately benefits the wealthy and powerful. They say it exacerbates both economic inequality and other pressing societal problems, such as environmental issues.

Stated differently, one downside of capitalism as currently practiced is that it results in the rich getting richer and the poor getting poorer. This has led to unprecedented stagnation in American social mobility and been a major factor in the anger many Americans are expressing.

This condition is a real challenge in a country where, just this past November, we learned just how deeply economic and demographic factors has divided the electorate. To paraphrase Florida Sen. Marco Rubio, it is a country in which half the people absolutely hate the other half. The relationship between the haves and have-nots is dramatized by the media and by politicians firing up their base.

In any case, the practical test of a vision’s standing in the real world is whether it can consistently pass the French Revolution Test. That is, whether it can win acceptance by a sufficiently large majority of a society’s members to withstand the inevitable assaults from those who find it objectionable and seek to replace it with their own visions – by force, if other means fail.

Originally Published: February 18, 2017

Make High Earners Save Social Security

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In these days of presidential interregnum, the American public has seen newspapers and digital media filled with discussions of tax cuts, increased military and infrastructure spending, economic growth proposals, regulatory relief, immigration reform, repealing Obamacare, reducing the national debt, keeping deficits on a short leash, draining the swamp of political and economic favoritism and other domestic traumas.

Social Security, however, has received little attention. How the new administration will accomplish all these promises without yielding to the temptation to cut programs like Social Security is an open question. President-elect Trump, who enjoyed the support of working class Americans, promised during the campaign not to cut Social Security. Speaker Paul Ryan said he has no plans to change Social Security, although he has been outspoken on the need for entitlement reform.

Funny how a politician can forget campaign promises after election day. Loyalty appears to be paramount for these folks until all of a sudden it isn’t. Politicians all too frequently forget, to put it in the cant language of the ‘hood, that a deal is a deal.

Social Security is a promise to all eligible Americans that they will not live in abject poverty if they become disabled or when they get old, but the Social Security 2015 Trust report finds that the fund has enough money to pay full benefits until 2034. After that it will collect only enough in taxes to pay 79 percent of benefits.

With the number of workers available to pay for Social Security benefits falling rapidly, there will inevitably be calls for benefit cuts, higher taxes or both. But there is a better way.

Social Securityis not an entitlement program; it is a “pay-as-you-go” system funded by the payroll tax. Companies and nearly 168 million working people pay into it to provide benefits to about 60 million retirees. Each generation pays for current retirees in return for a commitment that the next generation will do the same.

It is the backbone of retirement planning for millions of Americans. Almost a third of retirees receive practically all their retirement income from the system and about two thirds receive the majority of their retirement income from Social Security.

The top 100 CEOs, in contrast, have platinum pension plans. On average, their massive next eggs are large enough to generate about $253,000 in monthly retirement payments for the rest of their lives. Heaven for them, hell for the ordinary American worker.

Dealing with the coming Social Security funding crisis by raising the payroll tax places a significant burden on low-wage workers, especially when the Federal Reserve has kept interest rates so low that their saving accounts are yielding next to nothing, forcing baby boomers to work longer and retirees to rely even more on Social Security income.

An alternative that merits serious consideration is to increase the ceiling on annual wages subject to Social Security payroll taxes, which is currently at $118,500. All annual income above that amount is exempt from the tax, meaning that 94 percent of Americans pay Social Security tax on all their income but the wealthiest 6 percent do not.

Expanding the payroll tax to all earnings above $118,500 would wipe out funding issues. According to Social Security actuaries, it would keep the Trust solvent for the next 45 years.

Since Social Security began, the need for retirement income has risen as life expectancy has increased by 17 years. This is particularly true for top earners who need Social Security the least and whose jobs are less physically demanding than those of construction workers, janitors, etc.

Political leaders have time to decide how to address Social Security’s long-term funding problems. As they contemplate potential solutions, they should consider expanding the payroll tax to include all earnings. It’s a fair way to rescue the program from financial limbo and provide lasting stability without taking draconian measures that would harm tens of millions of hard-working Americans.

Originally Published: December 23, 2016

And God created woman

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The all-female leads in the latest “Ghostbusters” movie reboot have upset many misogynistic male fans. The film’s trailer is the most “disliked” in the history of YouTube.

No surprise here.

There are always men who are angered by women demanding their reproductive rights or running for president. From the dawn of human awareness, men have used their greater physical size and strength to control, oppress, subvert and generally abuse women, betraying a deep fear of losing male power.

Men have always come first in human societies. This is reflected in the standard version of the Adam and Eve myth that is enshrined in Judea-Christian culture and which, it goes without saying, was invented by men.

But there is a very different version of the myth, which draws on the Talmudic tradition of Midrash. According to this version, as God was nearly done populating the planet earth, he realized that he had not yet developed a really effective serial killer among land animals. He had created the shark, the barracuda, and the piranha, but these were sea animals. He needed a creature at least as formidably murderous to roam the earth’s land.

So God marshaled his creative powers and after much research and development, he finally came up with the greatest serial killer of all – the cat.

God immediately realized that this was his masterpiece among the earth’s creatures, so he developed more versions of cats than of any other species, ranging in size from 900-pound Siberian tigers to tiny felines of a little more than a few pounds each. All of them endowed with the physical and instinctive characteristics needed to be world champion serial killers.

God was so pleased with that he had done that he decided to award himself a prize. The prize was Eve, a remarkable creature who seemed to epitomize the grace and mystery inherent in the feline species. After admiring Eve for a while, God placed her in the Garden of Eden for safekeeping while he went off to clean up some loose ends on Jupiter.

But Eve, like all women, had her own ideas. One involved having a bigger, stronger, more-or-less mirror image of herself to take out the garbage, mow Eden’s lawns, bring her armloads of fresh fruit and fill her nights with ecstasy. So by herself, while God’s back was turned, she conceived Adam and brought him into the world to be her companion, even though Adam turned out to be something of a mixed blessing because of his domineering ways and general contrariness.

Thus began the great saga of human dominion over the earth. In metaphorical terms, this story is generally consistent with what many anthropologists believe actually happened when humans first appeared. But this Eve-first reality was too disturbing for the men who wrote the Old Testament men who, like all men, were instinctively terrified of women.

So they came up with a story that made Adam the first human being and reduced Eve to something of an afterthought created from, of all things, one of Adam’s ribs. They also invented numerous fairy tales to blame women for all the world’s troubles. “The woman made me do it,” Adam insisted when God asked him why he had eaten the forbidden fruit from the Tree of Knowledge.

This atavistic fear of women drove men to use their superior physical size and strength to develop male chauvinist societies in a fruitless attempt to make women seem less intimidating. Men denied them basic human rights, restricting their freedom, imposing on them the state of chattels (“Who giveth this woman in marriage?”) and all the other examples of male tyranny.

In one form or another, these irrational and fear-based attempts to suppress recognition of women as equals are universal in human religions, myths, cultural traditions, knee-jerk social norms and even legal codes. Now we can add the reaction to Hollywood casting decisions to that list.

Originally Published: Aug 6, 2016

Stock options for executives carry unintended consequences

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If you are Rip Van Winkle awakening from a 20-year slumber, you might not know about America’s outrageous compensation for chief executive officers. But almost everyone else does. The flow of most income and wealth gains to the few highest earners comes at the expense of everyone else.

Let’s not forget that Americans’ real median incomes have been stagnant. Annual U.S. household income reached $57,263 this past March but is still below the $57,342 median in January 2000, according to Sentier Research. Any wonder why Americans are angry?

In contrast, a recent AFL-CIO study found that heads of the Standard & Poor’s 500 companies are paid about 330 times as much, on average, as production and non-supervisory employees.

CEO compensation took off in the 1990s because activist shareholders, board members and academics, all mating like alley cats, pushed to better align management’s interests with those of shareholders. So corporations began to award stock options to senior managers

Executive stock options have been a controversial topic for some time because of the fortunes executives have made under these programs. Stock options come in several forms. In the most common, executives granted stock options have the right but not the obligation to purchase shares of their company’s stock at a favorable set price within a specified time period.

Stock options are often used in lieu of signing bonuses as a tool to attract talented executives. In theory, they also align shareholder and management interests. The idea is that granting stock options gives executives skin in the game and creates incentives for them to make decisions that lead to higher stock prices. Vesting periods for options give current managers incentives to remain with the firm.

While beneficial in some ways, this formulation has its downsides. It tempts executives to focus on the short term at the expense of long-term shareholder value. Let the next guy worry about the Ohio factory whose leaky roof should have been replaced years ago while management focuses on managing quarterly earnings figures to meet investor expectations and lift stock prices. Management may decide not to invest in research and development on projects whose payoff is down the road.

Recent revelations about Valeant Pharmaceuticals International offer a treasure trove of teachable moments. Conventional pharmaceutical companies spend about 20 percent of sales on R&D for new drugs. Valeant executives devoted only 3 percent to R&D. The firm also had to restate its 2014 and 2015 earnings because millions in sales had been recognized during the wrong period and an array of costs excluded to allow it to report fantasy earnings of $2.74 a share when each Valeant share earned 14 cents.

But wait, there’s more. While CEO Michael Pearson received a base salary of $2 million, his executive pay was tied to Valeant’ s stock price. He owned stock and options worth more than $3 billion, putting him on the Forbes billionaire list before the recent scandal crushed the stock.

Today’s business world is a playground for feckless conduct that pats you on the back for behaving badly. Maybe it is time to put an end to that by prohibiting hired gun managers from buying and selling stock in their companies, just like we bar professional athletes from betting on their own games. In lieu of stock options, give them big cash salaries plus generous bonuses linked to how profitable their companies are over several years as an incentive for them to manage for the long term.

When future historians look whether stock options are an effective way to align the interests of managers and shareholders, they will ask some basic questions: Do they motivate executives to act in the best interest of shareholders? What costs do stock options impose on the company and its shareholders?

The answer is that they may indeed accomplish those things, but with a lot of unintended consequences.

Originally published: May 14, 2016