In Defense of Bosses

In these polarized times, it is harder than ever to achieve consensus. Everyone has their unique perspective, often tied to their political, religious or cultural "tribe". Online life promotes echo chambers where dissenting opinions are shunted to the side, further aggravating societal divisions. But there is one area where we can all agree: bosses are evil and the more we can do to rein them in, the better.

The list of bosses' misdeeds is long:

• Companies are using high inflation as an excuse to raise prices, making a serious problem worse.
• Entertainment businesses CEOs are giving themselves big hikes on top of their already substantial pay packages while pushing back on raising salaries further down the corporate hierarchy.
• Oil majors ignore environmental concerns in their unbridled pursuit of profits.
• Elon Musk is a whole story unto himself, between jettisoning 80% of Twitter's staff the day he took over the company, making unsubstantiated accusations of pedophilia, and lashing out at the Anti-Defamation League (ADL) and their efforts to fight anti-semitism.
• And much more...

But is the situation quite so clear cut?

The classic counterargument is that capitalism's rapacity is a feature, not a bug. Sure it leads to greater inequality, but its rising tide raises all boats. After all, the profit motive underlying capitalism has led to a massive increase in worldwide aggregate wealth, raising 800 million people out of poverty in China alone. By doing their job and pursuing the profit motive, bosses are contributing to the flourishing of the capitalist system. It is unclear that expanding their remit beyond the pursuit of shareholder returns would be to the net benefit of society.

Taking each of the aforementioned misdeeds in turn:

Price gouging by companies is making the inflation problem worse. But is it? The question is at best controversial, with factors like low interest rates, the post-pandemic supply shock and the increasing indebtedness of national governments cited by economists as the main causes of inflation. Even Janet Yellen is on record stating that actions by companies are probably not to blame for current high inflation levels.

Meanwhile it seems natural that companies will aim to charge as much as they can for their goods and services. If they go too far, they open the door for more efficient competitors–or those willing to operate on smaller margins–to cut into their market share. Arguably this is a better way to ensure fair pricing than relying on public disapproval to pressure bosses to "do the right thing". If monopolistic practices or other market distortions are allowing companies to charge more than they should, those issues can and should be addressed via existing laws and regulations.

CEOs are overpaid relative to their staff. But are they? Bosses can have an outsized influence on company success. If a big company makes $1 billion/year in profit, even a 1% increase contributes an additional $10 million to the bottom line. So there are potentially solid financial reasons to pay a boss a lot of money if this enables the company to attract a better CEO whose performance contributes to larger company profits.

Some might argue that the optics of a extremely high CEO pay–sometimes hundreds of times greater than that of low-level staff–are unacceptable even if the compensation package can be justified from a purely financial perspective. Top-tier salaries are naturally governed by power laws, however, so it is normal that the highest earners make many multiples more than those at the bottom of the pay scale. The same dynamics are at play when determining top athletes' compensation, after all, and no one bats an eye when they are paid eye-bleeding salaries. Western societies accept these pay discrepancies because, in theory, anyone can make their way into the salary stratosphere if their skills and performance justify this.

Companies abuse the environment. Damn straight. However, you don't have to be a complete cynic to fear that some company will always be willing to sacrifice the health of the planet in the pursuit of corporate profits. If one company abjures this behavior, another will just step in to take its place. Is public disapproval the best way to combat this? The enforcement of government regulation protecting the environment, which has been a major topic since the enactment of the Clean Air Act in the U.S. in 1970, is arguably a better way to keep companies in line.

Elon Musk is an asshole. This seems well-supported by the evidence. But as I have argued, being an asshole is almost a prerequisite for founding a world-beating company. The benefits these assholes provide to society are significant; in the case of Musk, they include major advances in both emission-free cars and interplanetary space travel. As far as Twitter is concerned, the company was, by all accounts, massively overstaffed and bleeding cash. It is easy to condemn someone coming in and immediately axing the majority of the staff. The move was sorely needed, however, and perhaps we should appreciate the fact that there are assholes like Musk who are willing to make these tough moves despite the inevitable blowback.

This is not to suggest that there is no room for improvement in the upper management ranks. Like the knee-jerk impulse to condemn bosses, arguments in their defense are often one-sided. Take executive pay, for example. It doesn't seem so outrageous to pay a big company boss a huge salary if their skills and contribution to the company justify it. But the way executive pay is determined is less objective and transparent than for, say, Lionel Messi. Salaries are usually set by a compensation board made up of–you guessed it–other companies bosses who have every incentive to keep overall CEO pay high. Furthermore, companies often strive to pay their boss an above-average salary just to support the case that they have an above-average boss.

As far as environmental and other regulation is concerned, there is an appealing case for government to enforce good behavior while companies focus on maximizing profit. This assumes, however, that government is able to act independently. The level of corporate capture across the Western world, but especially in the U.S., calls this assumption into question. In many cases, company lobbyists even draft new legislation whole cloth and pass it over to lawmakers for passage. Legislators, mindful of their need for corporate donations and of the revolving door between government and business, have little incentive to fight back against company interests.

Are bosses angels? Of course not. They are humans like the rest of us, inherently selfish, fallible, and potentially even downright malevolent. On the flip side, to rise to the top of the corporate hierarchy, they probably worked extremely hard, took risks and, despite stereotypes about the proverbial "pointy-haired boss", are probably impressive individuals with outstanding hard and soft skills. It is easy to condemn them for every misstep, or even for pursuing their fiduciary duty to maximize profits (and therefore shareholder value). Before doing so, however, we should also consider the benefit they provide to society, whether we would be willing to do the same job, how successful we would be if we were, and what kind of compensation package we would expect.

In the meantime, if we want to address the flaws in the system that lead to unjustified executive pay, regulatory capture, and other misbehavior by big business, we should do exactly that. Condemning bosses is an easy and satisfying way to bemoan the unfairness of modern society. Fixing the flaws in the fabric of our society and government is much harder. The latter, however, would be a much better way to preserve the ability of our capitalist system to create wealth, while limiting the damage caused by corruption and corporate misdeeds.