It may be largely owing to naivety on my part but the current economic turmoil does not really appear to be all that baffling. Indeed, at least from one perspective, it has an air of inevitability about it. Why it seems to have sideswiped so many of those whose area of expertise was supposedly centered on this very subject might be the greater, and ultimately more interesting, mystery.
Continuing along the lines of naive economic observation, we seem to see a couple of looming realities. One is that what passes as “ownership”, through the machinations of the financial marketplace, is a special kind of ownership – one that is utterly and completely divorced from responsibility. The question that struggles to the surface, at least for some, is whether or not ownership divorced from responsibility is not a contributing factor to some of the problems being evidenced.
While it would seem ludicrously unrealistic to imagine reconnecting ownership and responsibility, at least from the perspective of the financial markets, there are other deductions that can follow from the question. One is the related question that if the shareholders in a venture are not responsible, under the model of legal independence of corporations, then who is to be held responsible? The answer usually lands somewhere between the board of directors and the upper echelons of management. Of course this is what we might term residual responsibility and the “somewhere” ensures that what residual may exist is, in most cases, impossible to find. And this is completely by design.
Rolling the tape forward, and leveraging a model of atomic agents operating based on very simple rules, it would be completely expected that shareholders would snatch up and cast away shares according to a self-generated set of dynamics and management would frame targets that loosely matched those dynamics and reward themselves when concordance occurs (and very often when it does not). That the businesses on which this dance is conducted may be an increasingly hollow shell is effectively irrelevant at least while the dance can be sustained.
If one asserts that, at least on some level, ownership conveys responsibility then considerations turn to what form this responsibility might take for the shareholders, and their representatives and management delegates. One consequence for business operations might be the introduction of more tangible oversight and this would need to stand in for any practical "presence" of these shareholders and their "ownership responsibilities". The most likely consequence of establishing any connection at all between ownership and responsibility would be the introduction of directors and management to far more concrete liabilities than have been the case in the past. This would be unwelcome, naturally, and much industry would be exercised in finding new forms of obfuscation and avoidance, but this alone would underscore the merits of this line of reasoning. And the mantra of “shareholder value” would necessarily be weighed more carefully and more completely with other considerations. Quite frankly, all this would explain why ownership, at least in the present economy, is not defined in any way that associates it with responsibility.
Now let’s insert a small example of something that feels like a contrast. In a recent visit to San Francisco, a group of us staying at the Argonaut Hotel asked the doorman for some ideas on a restaurant. This doorman launched into an extended critique of the local choices with this critique ending in a recommendation: Capurro’s. It turns out that it was an inspired recommendation and not just because it was across the street from the hotel. The food was quite good, the service was excellent and the Jazz Trio that was playing was outstanding. At two points in the evening, a gentleman came up to us to ask how we were enjoying our meal and to talk about some of the items we had ordered. As our server noted to us, this was the owner. When we returned to our Hotel, we thanked our doorman, with this being coupled with a tangible token of our gratitude, and he then summed it all up perfectly. The owner at Capurro’s makes it his business to engage the customers and, as our articulate doorman pronounced, “that’s accountability”. Although the scale presents an issue when we set out to extrapolate this example to the larger economy, this is a case where a good product was offered at a good price and delivered with good service – and with the business owner being there to make sure that we, the customers, were happy. What a novel concept!