Will the disparity of weath distribution destroy America?

[Snowboarder_Bo]

@Algher

That is called an interlocking directorate, and does not have the same impact as you think it does. When you add in the impact of the Clayton act where you can’t serve on the BOD of a company that is in your field if the combination of your firms would cause issues for the Trust Busters - you don’t get this big “hey Jim, I will vote for your pay if you will vote for mine.”

More realistically, you get, “Dammit, Fred makes X and me and this company are worth twice that and you better match it.”

I have heard the latter, never experienced the former.

I think interlocks are more common than you may think, and I disagree about the impact it can and does have.

[

Behind the controls of the nation’s top businesses lurks an inner sanctum of friends, colleagues and partners who sit on corporate boards together. This clique of powerful people is supposed to oversee corporations and protect the rights of millions of shareholders.

](http://www.usatoday.com/money/companies/management/2002-11-24-interlock_x.htm)

[

Examples of the tight ties that bind together America’s boards:

[ul]Eleven of the 15 largest companies, including Pfizer and Citigroup, have at least two board members who sit together on another board.[/ul]
[ul]Of those 15 companies, four have at least two board members in common with another of the top-tier firms.[/ul]
Those are in addition to other situations that corporate governance experts find even more troubling. Prime among them: CEOs who serve on one another’s boards — such as Citigroup CEO Sandy Weill’s relationship with AT&T that has drawn so much attention.

](http://www.usatoday.com/money/companies/management/2002-11-24-interlock_x.htm)

According to a 2003 article by Noah Wardrip-Fruin and Nick Montfort which appeared in New Media Reader

at least 1 in 8 of the interlocks in the United States are between corporations that are supposedly competitors.

The wikipedia article where I found that quote also contains graphs showing interlocks from as recently as 2004 which make it clear that “friend of a friend” relationships are pervasive in both business and government. The 2010 documentary movie Inside Job also shows how the banking industry and government regulators are interlocked with each other, to the detriment of the economy.

Further, interlocks occur not only between businesses, but also in the form of boards of non-profit policy groups, which are not regulated by either the Clayton Act or it’s predecessor, the Sherman Anti-Trust Act.

Also, the Clayton act only regulates businesses in the United States. Multinational and transnational companies escape it’s reach.

With the globalization of financial capital following World War II, multinational interlocks have become progessively more common. However, a relatively small number of individuals—a few dozen—bind this multinational network together by participating in transnational interlocks and sitting on the boards of multiple global policy groups (such as the Council on Foreign Relations).

Here’s a graph showing the CFR’s interlocks, in case anyone is curious.

[Zeriel]

@Algher

Last point - you can’t complain about Union payouts (or defend) while also complaining out CEO payouts (or defend). In both cases, both sides negotiated an agreement. Blame the idiots who signed off. The Unions and the CEOs simply took as much as they could get, including a nice golden parachute.

Sure you can. Union workers are fundamentally negotiating with a different class of person (manager) who is never (by law) a member of the union club. CEOs are fundamentally negotiating with the same kind of people (other CEOs and Board of Directors members) and can cross-pollinate.

[Zeriel]

You don’t need to have

@Algher

“hey Jim, I will vote for your pay if you will vote for mine.”

when (as you admit happens) you have

“Dammit, Fred makes X and me and this company are worth twice that and you better match it.”.

especially if Fred is voting for Jim’s pay and Jim is voting for Mike’s and Mike is voting for yours, etc…

“If everyone else’s pay goes up, relatively speaking, so does mine. A rising tide floats all yachts, and none of the lower-echelon guys are voting so I don’t really have to let them in on it.”

This is the difference between accusing the publicly-traded-corporation CEO/Board of Directors class of something evil like collusion (which I’m not) and pointing out a structural positive feedback loop in the system.

Ironically your pointing out of the public nature of everyone’s salaries only reinforces my point–the people who are raging about high CEO salaries by and large are NOT the ones setting same, so having them publicly known hurts no one in that class. What it DOES do is apply an additional upward driver on the whole market every time someone gets a raise, because ALL of their peers know it happened.

[daryll]

The middle class is the “Job Engine”. As the middle class shrink, a lot of businesses will evidently fail. Countries without a small or nonexistent middle class have a lot of poverty and high unemployment.

Businesses won’t open or survive, or expand, in any quantity, if there is not a growing middle class. Business can’t sell their skills, services, or products to the air.

If there is no middle class, companies from Harley Davidson to Ford Motor Company will fail. As a result, there will be fewer job opportunities for CEO’s and other higher paid executives.

Don’t bail out failed companies. You just encourage the current system with excessive executive salaries.

Eliminate non-compete agreements. They discourage new competition.

Pass the Employee Free Choice Act.

Raise the taxes on the wealthier people. Higher taxes have never discourage people from wanting higher incomes. If this did, every one would be looking for part-time minimum wage jobs, or starting a business, and wanting to be poorly paid.

Divide the world into self-contained economic regions, and back off on automation. These regions should only import products, skills, or services they can’t produce within their economic region.

Two class societies breed extremist groups.

Educated, more prosperous people tend to have smaller families. This reduces over population.

[daryll]

Disappearing Middle Class

The middle class is the “Job Engine”. As the middle class shrink, a lot of businesses will evidently fail. Countries with a small or nonexistent middle class have a lot of poverty and high unemployment.

Businesses won’t open or survive, or expand, in any quantity, if there is not a growing middle class. Business can’t sell their skills, services, or products to the air.

If there is no middle class, companies from Harley Davidson to Ford Motor Company will fail. As a result, there will be fewer job opportunities for CEO’s and other higher paid executives.

Don’t bail out failed companies. You just encourage the current system with excessive executive salaries.

Eliminate non-compete agreements. They discourage new competition.

Pass the Employee Free Choice Act.

Raise the taxes on the wealthier people. Higher taxes have never discourage people from wanting higher incomes. If this did, every one would be looking for part-time minimum wage jobs, or starting a business, and wanting to be poorly paid.

Divide the world into self-contained economic regions, and back off on automation. These regions should only import products, skills, or services they can’t produce within their economic region.

Two class societies breed extremist groups.

Educated, more prosperous people tend to have smaller families. This reduces over population.

[Voyager]

@Zeriel

Ironically your pointing out of the public nature of everyone’s salaries only reinforces my point–the people who are raging about high CEO salaries by and large are NOT the ones setting same, so having them publicly known hurts no one in that class. What it DOES do is apply an additional upward driver on the whole market every time someone gets a raise, because ALL of their peers know it happened.

Dan Ariely notes that the great boom in CEO salaries began when they began to be published. This was supposed to shame the CEOs into limiting their compensation - instead it became a pissing match.

I’m sure Algher is correct that there isn’t a lot of tit for tat going on. They are a lot more subtle than that. I think it is more like - if you don’t think I’m as good as Joe over there, fire me, otherwise give me as much as he is making, and more. I believe one of the Times columnists noted how the pool of comparable companies which are used to set CEO salaries is deliberately distorted in order to raise the comparables. That’s like telling the assessor which houses to use for comps when you want to sell yours.

[Askance]

Will the disparity of wealth distribution destroy America?

No. America is (I think) unique in modern prosperous societies in having somehow convinced their middle and lower classes that the interests of the upper class are their own interests too, in that should they ever happen to chance their way through then wealth redistribution would work against them. The fact that it would work for them in the meantime (always of course assuming that each individual considering this choice believes that they themselves will be the in the 1 in 100 who makes that transition) seems to be considered un-American. As Kurt Vonnegut said "every (working class) bar has a sign saying “if you’re so smart why ain’t you rich” ". The plain implication being that poverty is its own reward; the un-rich are so because that’s all they deserve. They just don’t try hard enough - lack of opportunity or fortune is nothing to do with it.

Excessive reward for the mildly talented or the fortunate is allowed to be a carrot for the poor underclass - larger than in any comparably wealthy society - and ends up as an accusation that “the very fact you haven’t ‘succeeded’ means that you are ipso facto unworthy of even modest means”.

[emacknight]

http://crossbordergroup.typepad.com/say_on_pay_forum/2010/02/wells-fargos-shareholders-get-say-on-pay-again.html
“Wells Fargo & Company, for the second year in a row, is giving shareholders a non-binding advisory vote on executive compensation at its annual meeting.”

"Microsoft Corp, Apple and Verizon are among the large public companies that have voluntarily adopted say on pay. "

As a Wells Fargo shareholder I get to vote on the following motions at the upcoming shareholder meeting:

1. Election of Directors (13 members I can vote for or against)
2. Proposal to approve and advisory resolution to approve the named executives’ compensation.
3. Advisory proposal on the frequency of future advisory votes regarding named executives’ compensation (1,2 or e years)
4. something about auditors
5. Motion to allow 10% stock holders to call special meetings.
6. something about voting
7. Proposal to adopt a policy to require and independent chairman.
8. Stockholder proposal regarding an advisory vote on director compensation.
9. Proposal regarding an investigation and report on internal controls for mortgage servicing operations.

And if you search Google “Stockholder proposal regarding an advisory vote on director compensation” you’ll notice a number of companies that have it as part of their shareholder vote (I noticed McDonald’s and IBM).

[Zeriel]

@emacknight

http://crossbordergroup.typepad.com/say_on_pay_forum/2010/02/wells-fargos-shareholders-get-say-on-pay-again.html
[indent]“Wells Fargo & Company, for the second year in a row, is giving shareholders a non-binding advisory vote on executive compensation at its annual meeting.”

I like this. Next structural obstacle: I don’t know if I am a Wells Fargo stockholder since I invest primarily in mutual funds through various managed programs (401k, that saving-for-dependent’s-college thing that I can’t remember the name of, etc). What’s your position on mutual funds offering something like the ability to vote your fractions of a share to the mutual fund, which will then be propagated up to the actual vote?

[emacknight]

@Zeriel

I like this. Next structural obstacle: I don’t know if I am a Wells Fargo stockholder since I invest primarily in mutual funds through various managed programs (401k, that saving-for-dependent’s-college thing that I can’t remember the name of, etc). What’s your position on mutual funds offering something like the ability to vote your fractions of a share to the mutual fund, which will then be propagated up to the actual vote?

My opinion is don’t buy mutual funds. You either want a stake in the company or you don’t. Buying into a mutual fund spreads your allocations, and passes the hard work off of research on to someone else. My solution would be to give the vote to the mutual fund, and let subsequent investors then vote-with-their-wallets by paying in to successful mutual funds.

People that invest through options don’t get a vote. I do the bulk of my investing through ETFs and as far as I understand doesn’t allow my to vote. It’s possible they are buying non-voting shares.

If you want a say in a particular company, you need to have an ownership stake.

[Zeriel]

@emacknight

My opinion is don’t buy mutual funds. You either want a stake in the company or you don’t. Buying into a mutual fund spreads your allocations, and passes the hard work off of research on to someone else. My solution would be to give the vote to the mutual fund, and let subsequent investors then vote-with-their-wallets by paying in to successful mutual funds.

People that invest through options don’t get a vote. I do the bulk of my investing through ETFs and as far as I understand doesn’t allow my to vote. It’s possible they are buying non-voting shares.

If you want a say in a particular company, you need to have an ownership stake.

First of all, it IS an ownership stake–just not necessarily one denominated in whole shares. Heck, if I bother to dig it up, I could tell you how many virtual shares of any given company I own, I’ll just have to dig into the stock distribution of the funds in which I am invested. Second of all, I’m paying that mutual fund director a not insignificant percentage in return for his hard work and research, it’s not like it’s free.

Also, two subordinate structural issues: 1) the 401k my company’s matching funds go into doesn’t offer anything but managed funds–no direct stock choosing. This has been the case for every 401k plan I’ve been enrolled in. 2) Due to the tax structure, IRAs are a no-brainer if you’re investing $5k or less a year–no income taxes now, and only income taxes with no penalties if you’re withdrawing early for a list of reasons that include most of the things people save for: college funds, house-buying, medical expenses, disability.

This is a major portion of the market investment that low to medium-income families will likely put their money into (granted, not a small assumption), and that relatively lowers their voting power–barring some specific interest in voting shares.

[emacknight]

@Zeriel

This is a major portion of the market investment that low to medium-income families will likely put their money into (granted, not a small assumption), and that relatively lowers their voting power–barring some specific interest in voting shares.

If they were interested in the health and well being of the company, they’d take an active part.
The people you just mentioned were happy to have huge gains from the bottom in 2002 up to peak in late 2007, and then felt cheated when it all vanished in 2008. They could have asked what was driving those returns but didn’t. Look at all the people who were subsequently angry at the bonuses financial companies paid out after the crash. Those were on record before the crash, the board of directors was on record. Investors *could *have known but chose not to.

It’s that behavior that turns the stock market into a ponzy scheme. People that handed over their live savings to Madoff did the same thing. He offered steady guaranteed returns, and his clients (for the most part) didn’t bother to question it. As far as I know he didn’t even own any shares. They aren’t angry until AFTER their money is gone. I bet the people that made money off Madoff before he went bust don’t give a shit about the rest of his victims. \

[Euphonious_Polemic]

@Askance

No. America is (I think) unique in modern prosperous societies in having somehow convinced their middle and lower classes that the interests of the upper class are their own interests too, in that should they ever happen to chance their way through then wealth redistribution would work against them.

For short, this is referred to as the “Joe the Plumber Syndrome”.

[msmith537]

@Askance

No. America is (I think) unique in modern prosperous societies in having somehow convinced their middle and lower classes that the interests of the upper class are their own interests too, in that should they ever happen to chance their way through then wealth redistribution would work against them. The fact that it would work for them in the meantime (always of course assuming that each individual considering this choice believes that they themselves will be the in the 1 in 100 who makes that transition) seems to be considered un-American. As Kurt Vonnegut said "every (working class) bar has a sign saying “if you’re so smart why ain’t you rich” ". The plain implication being that poverty is its own reward; the un-rich are so because that’s all they deserve. They just don’t try hard enough - lack of opportunity or fortune is nothing to do with it.

America is unique in modern prosperous societies in being the the most prosperous society in the history of the planet. That wealth was built by the 1 in a 100 who made the transition through innovation and creativity (as opposed to societies where the “transition” is made through being born to the right family with the right connections). Does it matter if only 1 in 100 become “rich” as long as they have an equal opportunity to attempt to do so? I mean what happens when people have the opportunity to go to the best schools and live in communities with the best infrastructure and they still turn into fuckups?

Does it matter how people found their wealth? Should Derick Jeter’s salary, an investment banker’s seven figure bonus, a multi-million dollar inheretance and the capital gains on a startup company’s IPO be taxed at the same rate?

[Zeriel]

@emacknight

If they were interested in the health and well being of the company, they’d take an active part.
The people you just mentioned were happy to have huge gains from the bottom in 2002 up to peak in late 2007, and then felt cheated when it all vanished in 2008. They could have asked what was driving those returns but didn’t. Look at all the people who were subsequently angry at the bonuses financial companies paid out after the crash. Those were on record before the crash, the board of directors was on record. Investors *could *have known but chose not to.

It’s that behavior that turns the stock market into a ponzy scheme. People that handed over their live savings to Madoff did the same thing. He offered steady guaranteed returns, and his clients (for the most part) didn’t bother to question it. As far as I know he didn’t even own any shares. They aren’t angry until AFTER their money is gone. I bet the people that made money off Madoff before he went bust don’t give a shit about the rest of his victims. \

I’m not really disputing any of that, but can you comment on my actual point?

To summarize: As long as 401k contributions are untaxed, AND 401k disbursements are not penalized beyond a standard tax as long as the disbursement is used for an approved reason–and many/most common reasons that a low-to-middle income family would liquidate investment holdings anyway are on that list (the only ones I don’t see are “car” and “unemployed”–and even the latter allows disbursements while unemployed to pay for health coverage)–there is a structural incentive to investing in 401ks (and thus, in managed funds) for people investing up to the 401k tax-free cap of $5000/year. Thus, people who are investing below $5k/yr are given a structural benefit that encourages investing in a way that removes their ability to vote on corporate issues with their shares.

[Zeriel]

@msmith537

Does it matter how people found their wealth? Should Derick Jeter’s salary, an investment banker’s seven figure bonus, a multi-million dollar inheretance and the capital gains on a startup company’s IPO be taxed at the same rate?

In my opinion, yes, as it’s all income. I’d be willing to accept a inflation adjustment for what’s currently “capital gains” income, though, since that makes sense (and is, as I am given to understand, why we have a lower capital gains rate anyway).

[Farmer_Jane]

Has it ever mattered? Seriously. Was wealth distribution more even in the 17th C?

edit : I’m not saying the economies are the same. But really, since when have the wealthy let its own security fail?

[gonzomax]

@emacknight

http://crossbordergroup.typepad.com/say_on_pay_forum/2010/02/wells-fargos-shareholders-get-say-on-pay-again.html
“Wells Fargo & Company, for the second year in a row, is giving shareholders a non-binding advisory vote on executive compensation at its annual meeting.”

"Microsoft Corp, Apple and Verizon are among the large public companies that have voluntarily adopted say on pay. "

As a Wells Fargo shareholder I get to vote on the following motions at the upcoming shareholder meeting:

1. Election of Directors (13 members I can vote for or against)
2. Proposal to approve and advisory resolution to approve the named executives’ compensation.
3. Advisory proposal on the frequency of future advisory votes regarding named executives’ compensation (1,2 or e years)
4. something about auditors
5. Motion to allow 10% stock holders to call special meetings.
6. something about voting
7. Proposal to adopt a policy to require and independent chairman.
8. Stockholder proposal regarding an advisory vote on director compensation.
9. Proposal regarding an investigation and report on internal controls for mortgage servicing operations.

And if you search Google “Stockholder proposal regarding an advisory vote on director compensation” you’ll notice a number of companies that have it as part of their shareholder vote (I noticed McDonald’s and IBM).

Not quite the whole story. I know a guy who works for a company that investigates executive pay and benefits and makes suggestions for their pay. After they get all the info, the suggestion is always for more money. They are competing to get these self important people who are so irreplaceable that they have to keep giving them more ,even when the company they run loses a bundle.
The study is given to the board, that is composed of friends or people who owe their financial future to the exec. I wonder what happens?

[Le_Jacquelope]

@Askance

Excessive reward for the mildly talented or the fortunate is allowed to be a carrot for the poor underclass - larger than in any comparably wealthy society - and ends up as an accusation that “the very fact you haven’t ‘succeeded’ means that you are ipso facto unworthy of even modest means”.

The shorthand for this is “social Darwinism”.

[Le_Jacquelope]

@Algher

Last point - you can’t complain about Union payouts (or defend) while also complaining out CEO payouts (or defend). In both cases, both sides negotiated an agreement. Blame the idiots who signed off. The Unions and the CEOs simply took as much as they could get, including a nice golden parachute.

Since no one is brave enough to answer you, I will go ahead and answer for them.
Union payouts cause companies to go bankrupt.
Not like CEO payouts which come off of trees.