Considering the near total lack of responsibility or risk that a bad manager of a major corporation has, should thier be more risk associated with thier position?No, I don't think there should be more risk. Instead, there should be less reward.
I read somewhere in the UK coverage of the Bear Stearns fall-out that a key problem is that the whole
agency theory of management, with it's consequent use of stock options as a reward vehicle (supposedly to closer align the interests of management to those of stockholders) has, over the 30 years or more in which it has been the paradigm, led to a situation where the culture of management, especially at board level (with its rolling annual contracts, severance payment clauses, etc.), is to expect
entrepreneurial rewards for
managerial performance.
This doesn't just mean that people doing those jobs have come to expect double digit percentage raises and massive tax-avoiding bonuses for overseeing growth rates of, say 4% in year-on-year profitability.
But - critically - part of the idea of "managerial" performance is the implied sense that the only thing you risk is someone else's resources and - at most - your own job. And at that level, with the networked connections that come with the territory, losing your job isn't such a terrible thing. Especially when your contract says that you have to be paid the rest contract's salary as a lump sum, or better if you're a strong negotiator.
Just as we would in any other market that has been distorted by false assumptions, we need to challenge them. Managers who behave as if they are entrepreneurs but who face none of the risks should
either accept their share of those risks
or accept lesser rewards.
I'd vote for the latter, myself, and indeed I'd vote that a targeted tax should be applied in such cases.
If yes what?Not applicable.
Take away liability protection from lawsuits by homeowners? That wouldn't hurt.
Take away bankruptcy protection for those officers as well- allowing thier houses, and all possession to be siezed and auctioned off to pay those that need to be made whole?Hmm - I think this isn't such a great idea, as it would open the whole idea of a limited liability business to challenge. After all, the managers are only the appointed representatives of the stockholders (even if by proxy). This may not be a terrible idea in some specific cases like this - stockholders who lost their shirts in Bear Stearns' crash were perfectly happy to take the money in the good years, when (after all) the same sub-prime scam has been going on for at least the last five years.
The trouble then is that you have to go after a whole bunch of pension holder and savings plan holders and the like. Some kind of obligation on stockholders to take a more active role in corporate governance might not be amiss - I dare say that many *** NOTICE: THIS WORD IS AGAINST THE RULES. FAILURE TO REMOVE IT WILL RESULT IN A STRIKE. *** stockholders would have made their displeasure known if they'd been more in touch with what was being done with thier company. I'm not sure how it could work - maybe that any shares are automatically sold at the current market rate if you don't vote at the AGM more than two years on the bounce - I don't know, I'm just floating ideas.
More goverment regulation attached to loan guaruntees, such as requiring that no Bear Sterns person can work after the take over, at any more than the consulting level, in a decision making capacity?
Something else? Make thier actions criminal? Well, it's always a bad idea to legislate in retrospect, and (so far at least) it doesn't look like any laws were broken. Ultimately it's just a function of markets - as long as capitalism has existed, bits of the market go crazy over some "innovation" or another that turns out to be a figment of the imagination, or worse, and then lots of people take a bath.
Of course, if
everybody got burned in crashes, they'd have been outlawed centuries ago. Unfortunately, it is possible to get filthy stinking rich off the back of other people's crashes, which is why they haven't been regulated out of existence. The essence of capitalism (and lotteries) is that depite lots and lots of other people losing a little (or a lot), a few can gain a lot (or a heckuva lot).
Everybody persist in the hope that
next time, they'll be the lucky ones. Without noticing that - more often than not - the lucky ones this time around are the same people who were lucky last time. And the time before that. And the... hey, you'd almost think that the casino people had rigged the games so that they always won out overall.
They wouldn't do that.
Would they?