Saddham Hussein’s regime is a grave and gathering danger. To suggest otherwise is to hope against the evidence. To assume this regime’s good faith is to bet the lives of millions and the peace of the world in a reckless gamble.
–George W. Bush, September 2002
The situation in Iraq is grave and deteriorating.
–Iraq Study Group, December 2006.
American lives lost as of early December 2006: 2,900
American wounded as of early December 2006: 21,000
Iraq civilians killed as of early December 2006: 49,000
Cost of War to date: $400 billion and counting.
The costs to America’s reputation around the world have yet to be calculated. That may prove to be the most staggering price of all.
While the Baker-Hamilton committee correctly looks forward with ideas that might stem Iraq’s speedy descent into anarchy, an equally astute panel of wise men and women needs to look at the causes and failures that, like they did on 9-11, brought America to a point where it thought it never would be. This is a duty owed to future generations so that the missteps that led to what may be the greatest stumble ever in American foreign policy will never be repeated. It is a crucial task of those who govern and those who entrust them with that responsibility.
The other towering bookend of 20th century economics passed away this week. There must be something in the life of an economist that fosters “the long run”. Milton Friedman was 94. When John Kenneth Gailbraith died last April, he was 97.
I will leave it to others to chronicle Mr. Friedman’s staggering contribution to the literature and thought of the modern functioning marketplace. I have long contended that he underestimated the importance of the psychological aspect of the market and its interactions with people and governments and the consequences when public confidence in the workings of capitalism in a democracy is withdrawn. Were it not for the interventions of governments, whose intellectual champions were Keynes and Galbraith, it is widely believed that the free market would have collapsed entirely under the weight of the Great Depression and the rising tide of public outrage that was then shaping the political landscape. It remains a mystery to me why John Galbraith was never awarded the Nobel Prize for his work, if not the prodigiousness of his writings, in modern economics. Fortunately, the Nobel committee did not make that mistake with Mr. Friedman.
As for Mr. Friedman’s view that corporate social responsibility was “fundamentally subversive”: I think we have seen its absence in the boardroom, on Wall Street and in the environment on so many occasions and long enough to conclude that it is impossible for these giant institutions that shape the lives of countless millions to exist without being governed by the most evolved sense of social responsibility as to their conduct, which, at the very least, is to ensure that they do no harm. In any event, Mr. Friedman surely could not have failed to be impressed by the marketing potential that comes from companies attaching themselves to “good deeds” and popular social causes, which for many is what corporate social responsibility has been relegated to and through which shareholders often receive substantial rewards in company earnings and stock appreciation.
There are few on the scene today who begin to approach the passion, personality and authenticity of voice that were the hallmarks of these intellectual titans. It was good to have been a contemporary of a time when they both enlivened their profession and the lives of the people who occasionally glimpsed into it.
The owners of the greatest experiment in democracy the world has ever known get to register their judgment today about America’s legislative, and in some states, executive, management. Many see it as a vote on the performance and policies of President Bush himself. At the end of this day, I suspect the results will carry a message that even the most tone deaf CEO can hear. And it very likely will carry significant implications for America’s governance and direction –outside and inside the boardroom.
The old fashioned idea that the market will reward companies built upon real value seems to have eluded many of Canada’s top business leaders.
Reaction to the Canadian government’s decision to pull the plug on the income trust party is coming on strong. It is also entirely predictable. Much of it is of the “sky is falling” nature where CEOs talk about irreparable damage resulting from the announcement. The same kind of response greeted the move to create a personal and then corporate income tax regime in the early 1900s. You could hear the voices of boardroom doom when the first minimum wage was established and, before that, when child labor laws were enacted.
Income trusts took off because they were based on a very large tax loophole. I have never held any income trust units because it has been obvious to me for some time that this party could not, and likely should not, last very long. A previous government under Paul Martin (was there really one?) made a botched effort to close the loophole. Even a basic knowledge of civics would teach that governments (especially when driven substantially by bureaucracies) are seldom able to look the other way when fresh sums are within their grasp (or about to leave it) and it ought to have been apparent to even an untrained eye that change was not far off. What’s amazing is that so many huge companies, who pay millions to lobbyists and political advisors, did not seem to grasp the obvious fact that their actions in pursuing a conversion to income trust status would likely prompt the rethinking of government policy. Having said that, I must confess my boardroom experience with many corporate advisors, especially in the fields of law, public relations and government affairs, has often left me bewildered by their frequent state of insularity.
Suddenly many companies are crying that they have lost an important edge –especially important, I would imagine, to many already richly compensated CEOs who stood to gain tens of millions from the conversions alone. The old fashioned, time worn, idea that the market will reward companies that are built upon genuine value, that reinvest for the future and are managed and governed with a competitive edge seems to have eluded some of Canada’s business leaders. Along with a real world lesson in how governments operate, these CEOs would benefit from a crash course in market economics.
We’d like to have an opportunity to pound some sense into them, in a nice way.
— Bill Andrew, CEO of Penn West Energy Trust, interviewed in The Globe and Mail on the industry’s effort to change Canada’s newly announced policy to tax income trusts.
A different strategy for changing minds and winning friends, that’s for sure. Knock yourself out, Bill.
Conversions from traditionally-governed, stock-traded corporations threatened to change the landscape of the economy, the market and the boardroom in ways that few had properly anticipated.
A major step forward for Canadian taxpayers and the concept of stakeholder capitalism took place on Tuesday with the announcement by Finance Minister Jim Flaherty that the tax holiday enjoyed by income trusts is about to end. It needed to.
Income trusts are antithetical to the long-term interests of investors and everyone else who depends upon the innovation and sound governance of the modern business enterprise. No other institution is positioned to invest in the future and to address emerging social needs as is the major corporation. Income trusts demand such high payouts that any thought to research, reinvestment or innovation takes second place to the big cheques today. These creations are, for the most part, nothing more than a giant poker game where all the winnings are taken home at the end of the night. But corporations are more than casinos. They are about the lives and well being of customers and employees and communities, as well as investors. And sound governance is part of the discipline that companies need to perform over the long run and to ensure that the interests of all stakeholders –and not just those of management– are fully considered. Only a properly empowered board with an unswerving understanding of its long-term mission and an unyielding commitment to the concept of accountability can accomplish this task.
In addition to their obvious avoidance of otherwise payable income tax (a cost now measured in billions of dollars), conversion to income trust status of companies that previously sold common stock can present an opportunity to evade important corporate governance reforms that have taken place over the past number of years –reforms that came about because of a broad consensus, painfully gained by society, that when major business institutions become disjoined from proper oversight and transparency, the consequences can be catastrophic. Canadian corporate governance guidelines are already a pale imitation of the gold standard exemplified by the Sarbanes-Oxley Act of 2002. With income trusts added to the equation, any certainty of remedial protections or consistency of practices to be relied upon by Canadian investors is illusory at best. Income trusts amount to a further roll of the dice because they lack a coherent regulatory framework and employ structures that frequently compromise principles of board independence and accountability of management. What were once owners of the company are for the most part reduced to little more than coupon clipping unit holders, with significantly reduced redress and protections both in law and in corporate governance practices. These conditions threatened to dramatically change the landscape of the market and the boardroom in ways that few have properly anticipated –not the wisest situation when billions are on the line and the jobs of tens of thousands are at risk. It is disturbing how many business leaders, gate keepers and even small investors seemed unbothered by these realities.
It was a clever game concocted and promoted by a lot of whiz kids looking for fat fees and instant mansions. The game is over. Perhaps the adults can get back to work making money the old fashioned way, which includes building for tomorrow and not just joy riding today. Business needs to be managed, directed and controlled by those with a sense that the well-governed, shareholder-owned, stakeholder-driven corporation is one of the most remarkable inventions of modern society –and way too important to be just another chip on Bay Street’s blackjack table.
