Why don't CEOs ever take a knock?

Originally published in 'Professional Management Review' magazine (PMR) Volume 15 Issue 10 2004

John Capel, Director (BeFSA) Bench Marks Foundation of Southern Africa for Corporate Social Responsibility

In a country riddled with poverty and inequality - and with high unemployment rates - it is astounding that income differentials continue to grow, at the expense of jobs. These jobs are much needed to stimulate economic growth.

In the USA, the rate of new jobs is used as an important economic indicator. The theory goes that the more jobs there are, the more consumer demand increases. This, of course, translates into a higher growth rate of the local economy.

In SA, we are encouraged to be more efficient, productive and competitive and to recognise that we operate in a global economy which demands speed and efficiency. For many CEOs it means simply cutting back on jobs at the lower end, while increasing the rewards at the top.

The argument goes that if CEOs were not rewarded in this way that vital talent would be lost. While this may seem realistic if one considers the present global nature of capitalism, it is also naïve in that it deals only with one aspect of the system - the global aspect - and ignores the development of the local economy.

When CEOs and directors of corporations decide to reward themselves with handsome packages - often at the expense of workers and the wellbeing of society - moral issues arise. While capitalism may not be a moral system, it nevertheless needs to be challenged to manage itself in a way that is seen to be just and which promotes the common good.

Capitalism as an ideology believes that if individuals fend for themselves, and are industrious, the benefits will trickle down, create jobs and so spread benefits.

The reason why CEOs earn such high salaries and benefits is supposedly because they have cut costs and increased profits. But if these profits have been made at the expense of jobs and the wellbeing of society, they are not sustainable.

When bonuses of tens of millions of Rand are paid out, followed swiftly by restructuring and job losses, one has to ask if this is moral and ethical.

It is shortsighted for businesses to retrench workers, believing that they will access global markets but at the same time not caring about the social and economic consequences back home. If we want to attract foreign investment we must offer an attractive destination, and an attractive destination demands social stability, not rising crime and poverty, the direct results of unemployment.

Workers are often asked to accept inflation rate wage adjustments in order to 'quell' inflation, presently at about 6%. Why are there no controls over wages at the higher level? And why is it permissible to make profits of 150%, often at the expense of people's livelihoods?

Sure, it is hard to compete when your competitors are cutting costs or paying lower wages than you are. But must it be workers who always lose their jobs? Why not trim excessive benefits at the top? Instead of lumping labour and executive wages together, let's separate them off and see exactly who is getting what. We might then begin to see that the biggest problem to improved cost efficiency is the wages paid to top management.

Sustainability is not just about economic performance, but about social and environmental issues. It is definitely not about philanthropy and good deeds born out of guilt. It is about building sustainable communities and livelihoods, access to economic life and development.

When corporations take decisions to reward top executives and retrench lower-order jobs, the benefits are skewed in favour of those at the top. And while there might be short-term benefits for the corporation, the long-term effects on communities lead to poverty, desperation, increased crime and often permanent unemployment.