Wednesday, May 31, 2006

Business interest undermined by top execs' self-interest

I remember being taught at my business school how markets had a sort of superior wisdom and why it made sense to manage in the best interest of shareholders. Aside from the fact that I believe in taking into account more factors than just the financial interest of shareholders, it seems that managing in the best interest of a corporation (that is also the best interest of its owners) is not the main objective of many top management teams. Tom Peters has an interesting post about that on his blog and let me quote something that I found striking:

"Over the last five years, INTERPUBLIC GROUP lost about $2 BILLION—and
the top five execs were collectively paid $107 million. During the same
five years OMNICOM's top five pocketed $111 million—on a profit of $3.2

I believe that the issue of executive pay and performance management are among the hottest topics to be tackled these days. In part the answer lies in proper management of people and talent, which is simply not done today as many HR departments do little more than payroll and low level administrative support. In fact, Tom Peters says that the pay of executive is closely correlated with the size of the organization and not that closely correlated with the business performance of the organization. I guess it is one more argument in favour of breaking the pyramids and bureaucracies and moving towards businesses organized as networks of small interconnected business units, some of those units being potentially one-person companies. Anyhow, this is an extremely interesting topic.

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