Communications vacuum impairs judgment

Operating in a vacuum — where the only input you get is from animals of your own stripe — will surely produce skewed perceptions of the dangers that lurk in your jungle. Wall Street executives and the nation’s largest bankers have been swinging from their own trees for so long that they have failed to perceive all of the threats around them — those in the larger American habitat.

This apparent lack of clear corporate perception promises potentially dire consequences for these executives, their companies, and the rest of America.

Effective corporate communications are based, in part, on a dialogue among executives and stakeholders to gain insight and support.

As we have said in previous posts [see Cessna], executives who manage without the knowledge such dialogues provide do so at their own peril — and now everyone else's, too.

Such an outcome has emerged “buried deep inside the $787 billion economic stimulus bill,” the Times reports [1-15-09]

“Much tougher” than proposed by Treasury Secretary Tim Geithner, the very restrictive compensation aspects of the bill are the handiwork of Connecticut Democrat Sen. Chris Dodd, who seems to enjoy his ability to smack around business leaders on behalf of his constituents.

“The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence,” Dodd said. “These tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.”

“These tough new rules” also may have some negative unintended consequences, according to both Administration and outside experts.

First among these is a brain drain in the financial industry. The top talent, the best traders and managers may flee to hedge funds and foreign banks not constrained by Congressional action.

“These rules will not work. Any smart executive will… get another job,” compensation consultant James F. Reda told the Times.

Second is the likelihood banks and other financial entities covered by the bill can simply increase executives salaries.

“About the only way to address these limits is to pay large salaries,” according to Michael S. Melbinger, an executive compensation lawyer at Winston & Strawn in Chicago. “There’s no pay for performance in this,” which is what bonus are all about and help ensure quality output.

And finally, “at some point, you begin to wonder: has the government given up on these companies anyway?” asked Alan Johnson, a compensation consultant and advisor to Wall Street banks. “Why would the government or White House want to go along with that unless they have come to the conclusion they will have to nationalize these firms anyway?”

Hearing these argument against Sen. Dodd’s addition to the rescue bill makes one wonder if the CT Democrat is hastily helping along the President’s effort to redistribute wealth in America — ushering in The Socialist Era in America.

In any case, bankers operating in a corporate information vacuum have brought the nation to this uncomfortable situation.

[Read The New York Times' story on this Congressional action.]