{"id":5655,"date":"2015-10-18T20:25:06","date_gmt":"2015-10-19T00:25:06","guid":{"rendered":"https:\/\/thebigpictureandthecloseup.com\/?p=5655"},"modified":"2015-10-26T11:05:33","modified_gmt":"2015-10-26T15:05:33","slug":"diesels-directors-and-dogma","status":"publish","type":"post","link":"https:\/\/thebigpictureandthecloseup.com\/?p=5655","title":{"rendered":"Diesels, Directors and Dogma"},"content":{"rendered":"

The Big Picture Home Page<\/a>\u00a0|\u00a0Previous Big Picture Column<\/a>\u00a0| Next Big Picture Column<\/p>\n

Diesels, Directors and Dogma<\/h2>\n

Published in the Daily Record\u00a0October 23, 2015<\/p>\n

To a hammer, the proverb goes, everything looks like a nail. One might add: Even when it\u2019s nothing like a nail at all. <\/a><\/p>\n

Recently the workings of this principle popped up in a New York Times column on the Volkswagen mess by James B. Stewart<\/a>, a journalist whose beat is business<\/a>, and who seems, on the evidence of that column,\u00a0to have been covering it too sympathetically and too long. As of September 24, the day\u00a0Stewart’s\u00a0piece ran, and indeed as this column is being written in mid-October, we did not and do not know who in management ordered or who in management knew about the hidden software feature that fooled regulators into believing VW\u2019s diesel fleet emitted far lower levels of nitrogen oxides than it actually did. In fact, as cooler heads at the Times had admitted two days earlier, we still do not even know what the feature was designed to do:<\/a> save fuel, increase torque and acceleration, or both? Nor do we know how it worked.<\/p>\n

Undeterred<\/h3>\n

Yet none of that deterred Mr. Stewart from using the scandal to make far-fetched but familiar arguments better suited to the editorial page at the Wall Street Journal than to a responsible contributor to the news hole of the national paper of record.[1] The Volkswagen scandal, Mr. Stewart confidently informed us based on almost no facts, was the result of two things WSJ-ers cannot abide: a board on which founding family members and labor unions have a significant clout, and a commitment to maintaining a large labor force. Somehow \u2013 Stewart never tells us exactly how it came about \u2013 a board answerable to unusual constituencies, and a determination to see lots of German workers comfortably employed was to blame. How, then, do we know there was a connection? Well, because a professor at the University of Delaware said the governance scheme constituted \u201can accident waiting to happen.\u201d Oh, and \u201ca longtime former senior Volkwagen executive … agreed that a scandal … was all but inevitable at Volkswagen.\u201d<\/p>\n

Right. That\u2019s helpful and informative.<\/p>\n

A People’s Board for the People’s Wagen<\/em>?<\/h3>\n

Okay, so one could shrug this off as a simple instance of journalism unworthy of the Times, proof, if you will, that even Homer nods, and leave it there. But I see an unpleasant agenda at work here. The constituents of the board that so offended Stewart were the family of the people who had founded and built the corporation and the people who work there (all right, also Qatar\u2019s sovereign wealth fund and the government of Lower Saxony, which also control board seats). Running a board as if it were about people! Stewart was so appalled he needed to denounce it, even if board\u2019s makeup and goals may have had nothing to do with the engineers subverting the software.<\/p>\n

None of which is to excuse what VW did here. Nitrogen oxides in diesel exhaust are very bad for people who breathe them and bad for the environment.<\/a> They are what economists call an externality. As handily defined by Wikipedia<\/a>, an externality is a \u201ccost or benefit that affects a party who did not choose to incur that cost or benefit.\u201d By selling a car to a consumer, VW and the purchaser obtain the benefits of the transaction between them. They chose and will obtain those benefits. By selling a car which belches illegally noxious fumes, however, VW also burdens everyone with lungs plus all the leafy vegetation in countries which not only had not bargained for that kind of burden, but had actively sought to prevent it by regulation.<\/p>\n

False Choice of Externalities<\/h3>\n

The slick little ploy Mr. Stewart had sought to pull was to blame one form of externality (air pollution) on efforts to avoid another (unemployment). And what a terrible thing trying to avoid that second externality was! Imagine, as Mr. Stewart chronicled, VW using 600,000 people to build about the same number of vehicles as Toyota built with 340,000! Well, that Delaware professor knew just what to say about that<\/em>: \u201c[M]aximizing employment shouldn\u2019t be the primary goal of a board.\u201d So take that, VW! If only you fired about half your workers, you too could be like Toyota and \u2013 not pollute so much. Because that\u2019s the only possible choice, of course.<\/p>\n

I\u2019m going to assume (since Stewart didn\u2019t bad-mouth Toyota\u2019s board the way he did VW\u2019s) that he would be happier with Toyota\u2019s corporate governance and goals. But what then would Stewart say about the recent recall of the lethal Takata airbags in 5 million Toyota vehicles worldwide<\/a>? A bit of an externality, too, I think you\u2019d agree, but one you can\u2019t blame on a board of directors trying to stem unemployment. Or what about those even more lethal GM ignition switches<\/a>?[2] Was there an issue with too much philanthropy on GM\u2019s board that made those switches inevitable?<\/p>\n

Pro-Shareholder Dogma<\/h3>\n

Mr. Stewart\u2019s hysterical invocation of the quite possibly unrelated emissions scandal as a reason to distrust VW\u2019s corporate governance scheme betrays a palpable fear of allowing unconventional stakeholders a voice on corporate boards. The Delaware prof he quotes says that there is a \u201cfundamental conflict\u201d between profit-seeking, the only true goal of management in his eyes, and workers\u2019 interests, which unions promote, and that in view of that conflict, workers shouldn\u2019t sit on boards. Stewart acknowledges that workers do sit on typical German corporate boards. And how awful can that be? After all, Germany\u2019s is the strongest economy in Europe<\/a>.<\/p>\n

The dogma Stewart wants us to accept unquestioningly elevates the interests of one set of stakeholders (investors) above the interests of all others when it comes to directing corporate agendas. Yet corporations affect a wide variety of stakeholders, including workers and (as in the present scandal) people who must breathe the air. Corporations are creatures of state law. Historically corporations were created to implement state policy. Why then is it so unthinkable to have a policy of designating board seats for representatives of those affected by corporate externalities?<\/p>\n

Anti-Shareholder Realities<\/h3>\n

I assume that Stewart is happier with corporate governance in keeping with U.S. norms. But a notion that U.S. corporations are run in the interests of shareholders reflects reality about as well as VW\u2019s former claims about its cars\u2019 emissions. We haven\u2019t reached the situation where a tiny sliver of the population controls the vast bulk of the wealth<\/a> by having corporate boards look out for investors. Corporate boards are primarily made up of and look out for the interests of senior executives.<\/a> Two years ago Bloomberg News calculated the ratio<\/a> of the compensation of CEOs to the median compensation of other employees at the Standard and Poor top 250 companies. The ratios ranged from 1,795-to-1 down to 173-to-1. Those CEOs are a large proportion of the people who are getting the nations\u2019 wealth. Even at the lowest ratio, can anyone honestly say either: a) the interests of the stockholders are being well-served? or b) the interests of the workers are being adequately protected?<\/p>\n

To anyone who says yes, I have a used VW diesel to sell you. Trust me, it has super-clean emissions.<\/p>\n

_______________<\/p>\n

[1]. By way of full disclosure, I myself have had an article published in the Journal<\/a>, a publication which maintains high journalistic standards \u2013 except on the editorial and op-ed pages.<\/p>\n

[2]. As of this writing, it would appear that the airbags have killed eight people<\/a>. At least 100 appear to have died as a result of the ignition switches.<\/a><\/p>\n

Copyright (c) Jack L. B. Gohn<\/p>\n

The Big Picture Home Page<\/a>\u00a0|\u00a0Previous Big Picture Column<\/a>\u00a0| Next Big Picture Column<\/p>\n","protected":false},"excerpt":{"rendered":"

The slick little ploy Mr. Stewart had sought to pull was to blame one form of externality (air pollution) on efforts to avoid another (unemployment). Imagine, as Mr. Stewart chronicled, VW using 600,000 people to build about the same number of vehicles as Toyota built with 340,000! If only VW fired about half its workers, Stewart suggests, it could be like Toyota and \u2013 not pollute so much. Because that\u2019s the only possible choice, of course. Right?<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-5655","post","type-post","status-publish","format-standard","hentry","category-bigpicture"],"_links":{"self":[{"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=\/wp\/v2\/posts\/5655","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5655"}],"version-history":[{"count":9,"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=\/wp\/v2\/posts\/5655\/revisions"}],"predecessor-version":[{"id":5691,"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=\/wp\/v2\/posts\/5655\/revisions\/5691"}],"wp:attachment":[{"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5655"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thebigpictureandthecloseup.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}