Posts filed under “Philosophy”

Is McKinsey to Blame for Skyrocketing CEO Pay?

In 2011, I posed the question “Is McKinsey & Co. the Root of All Evil ?” This was not a tongue-in-cheek query, but rather, a look at how so many recent disasters traced their origins back to McKinsey & Co.

Which brings us to the latest issue negatively affecting the United States, skyrocketing CEO pay and income inequality. The parade of bad societal effects that are related to that has been well established — especially with income mobility.(Surprisingly, Wikipedia has a good overview).

Duff McDonald has a new book coming out this Fall titled The Firm: The Story of McKinsey and Its Secret Influence on American Business. He points to you-know-who as the early mover in a number of societal ills. It should come as no surprise that CEO pay is one of them.  In terms of income & wages, Duff traces McKinsey’s influence back to 1935, when “managers sought advice about how to deal with the rising power of unions, they turned to outside advisers such as McKinsey & Company.”

That then morphed into something different entirely in 1952. That was when the CEO of Pan American World Airways got interested in a McKinsey study of stock options.

The entire We can trace the rise of CEO compensation to that date:

“Anyone who has worked in the corporate milieu knows that the arrival of McKinsey on the scene tends to not be a sign of good news for the rank and file. What is less known is McKinsey’s role in the creation of the CEO-to-worker gap itself. In 1951, General Motors hired McKinsey consultant Arch Patton to conduct a multi-industry study of executive compensation. The results appeared in Harvard Business Review, with the specific finding that from 1939 to 1950, the pay of hourly employees had more than doubled, while that of “policy level” management had risen only 35 percent. If you adjusted that for inflation, top management’s spendable income had actually dropped 59 percent during the period, whereas hourly employees had improved their purchasing power.

The “academic” imprimatur of Harvard Business School’s house organ gave the work a certain credibility and the study was suddenly an annual affair, appearing in HBR for more than a decade thereafter, at which point it moved into McKinsey Quarterly. From 1948 to 1951, HBR had one article a year on executive compensation. A few years later, the review was running five times that amount. This was actually a perfect moment for the new “field of study,” because in the post-World War II years, there was a shortage of executive talent and corporate leaders had begun poaching executives not just from the competition but also from entirely different sectors. And they had to know how much to offer, did they not? Moreover, in the post-Depression years, no one had wanted to talk out loud about compensation. But after the war, they were ready to raise the volume.”

Crony capitalism and the transfer of wealth from shareholders to insiders goes back much further than you may have guessed.

Good ideas gradually die of their own accord, replaced with better ones. Bad ideas have a death grip on society, often with wealthy sponsors benefiting from them. That’s why they seem to hang around forever…

 

Source:
The Godfather of CEO Megapay: McKinsey Consultant Arch Patton Didn’t Invent Wealth Inequality — He elevated it to an art form
Duff McDonald
NY Observer 8/13/13
http://observer.com/2013/08/the-godfather-of-ceo-megapay-mckinsey-consultant-arch-patton-didnt-invent-wealth-inequality/
 

Category: Crony Capitalists, Philosophy, Really, really bad calls, Wages & Income

On the Value of Not Knowing

Its Philosophy Phriday, and as such, I want to discuss my ignorance. Or rather, my justifiable pride in my willingness to say “I don’t know.” I use this phrase frequently, for there are a wealth of subjects I know very, very little about. Sometimes I am asked things I could not possibly know, particularly about…Read More

Category: Investing, Philosophy, Psychology

The Best (Non-Financial) Financial Books

From time to time people ask me to give them recommendations on good finance books. When I respond, I either get blank stares or laughs… What’s so funny about the Tao Te Ching, Thoreau’s Walden, or Daniel Gilbert’s Stumbling On Happiness? Were they expecting something like Dave Ramsey’s Financial Peace, Kiyosaki’s Poor Dad / Rich…Read More

Category: Books, Philosophy

“What’s Your NFP Number?” [Don't have one]

This morning, the single most asked question I hear is “So what’s Your NFP Number?” That’s one of the more interesting side issues about this Maine event/fishing trip/conference. Its overrun with economists and Fed folk, who are the fairly focused on short term data. Regular readers number I have little interest in making bad predictions…Read More

Category: Data Analysis, Employment, Philosophy

Third Dynasty, 2005 B.C. (before crisis)

Tom Keene says some astonishingly nice things about your humble blogger. Its based in part on our prior discussion of “our god-given right to be wrong in picking stocks,” and what that means for investor psychology as well as portfolio decisions:   click for full article   Much more of this and I will become…Read More

Category: Media, Philosophy

Independent Thought: Earning Your Free Will

Ahhh, sleeping in my own bed — such a delight. After a trip to Denver for an FA Mag conference and then onto to Vancouver for the Agora event, I am back home again. It is just for a week, and then I head off to my annual Maine fishing event. Travel is good for…Read More

Category: Philosophy, Psychology, Travel

90% of Everything is Crap

Source: Mental Floss     As someone who has spent his fair share of time debunking nonsense, I love the elegant way Theodore Sturgeon trashed this anti-SciFi trope in the March 1958 issue of Venture: “I repeat Sturgeon’s Revelation, which was wrung out of me after twenty years of wearying defense of science fiction against…Read More

Category: Philosophy, Quantitative, Rules

The Narrative Fails

Its Friday (and a hot summer Friday at that), and as such, I like to wax philosophical about what I see around me as some of the broader issues today. Cullen Roche of Pragmatic Capital sets the scene for us: “The economy continues to do okay, the stock market is hitting all-time highs every day,…Read More

Category: Cognitive Foibles, Investing, Philosophy, Psychology

Nikola Tesla: Passing Through

Happy Birthday Nikola Tesla!   “Like a wave in the physical world, in the infinite ocean of the medium which pervades all, so in the world of organisms, in life, an impulse started proceeds onward, at times, may be, with the speed of light, at times, again, so slowly that for ages and ages it…Read More

Category: Philosophy, Weekend

Confidence Crisis

Cassandra Does Tokyo is a former hedge fund manager and ex NY Trader, who is now living abroad. ~~~ I am in a reflective mood, navigating, what one might call say, a crisis of confidence. What is the root of this self-doubt? I am, you see, squarely in my middle years, and as I look…Read More

Category: Philosophy, Psychology, Really, really bad calls, Think Tank