Time to Outsource the CEO?

Workers in the industrialized world have been looking over their shoulders ever since the Industrial Revolution. First automation threatened their jobs. Then with the advent of globalization and the rise of free trade cheaper labor abroad either left them unemployed or kept a lid on their wages. More recently lax immigration law enforcement coupled with legal labor dumping through programs like the H-1b and J-1 visa programs have limited wages low paid hotel maids to high paying legal and computer jobs. Decades of this competition in which the American worker or professional feels as if she is running a Red Queen’s Race have fueled the support of anti-establishment, anti-trade candidacies of Donald Trump and Bernie Sanders. These workers and professionals are told that they must constantly upgrade their skills, change careers or uproot and move in order to earn a living, often by academics who are tenured and corporate executives whose jobs are secure against those same pressures.

Trump and Sanders peddle protectionist or tax solutions to decrease the gap between the rich and poor. But what if there was another way besides raising walls and taxes to level the pay gap between the average worker and the average corporate CEO?

What if business executives including CEOs and entire corporate boards felt that same pressure? Is it possible to outsource the corporate board, replacing it with a more effective and cheaper solution? After all, a company doesn’t exist for its workers nor for the benefit of society. A company exists to make money for its shareholders. Shareholders own the company not the CEO or the board of directors, so they work for the shareholders just as a minimum wage employee does. So why shouldn’t corporate officers face the same pressures as rank and file employees?

The Economist notes, “Boards are almost exactly as they were a hundred years ago: a collection of grey eminences who meet for a few days a year to offer their wisdom.”The past 100 years have witnessed assembly lines and mass production, automation, the rise of suburbia and the demise of rural life, free trade regimes, the death of labor unions in private industry and its expansion in the public sector, liberal immigration policies, offshoring, outsourcing, specialization and numerous other changes that have remade the American economy several times over. Yet corporate boards function as they did when most cars were hand built and women couldn’t vote.

Is this what our economy needs? Corporations run by boards packed with cronies like “the former headmistress of (former Disney CEO Michael Eisner’s) children’s school and the man who designed his house.” Why shouldn’t the top leadership be subject to the same economic Darwinism of the lower ranks?

In the May 2014 issue of the Stanford Law Review Professors Stephen M. Bainbridge & M. Todd Henderson suggest shareholders replace their corporate boards with “board service providers.” They advocate that  outsourcing the board of a company “will increase board accountability, both from markets and from courts,” improve corporate transparency, boost efficiency and lower the cost of corporate governance. In summary outsourcing the board would deliver the same promised results as offshoring production or outsourcing departments. Bainbridge and Henderson believe that all it would take would be a simple change to state corporate law requiring directors to be “natural persons.”

There are times when companies have truly visionary CEOs. Apple’s Steve Jobs or Microsoft’s Bill Gates come quickly to mind. But most companies don’t have anywhere near that level of talent, and would do well with experienced, efficient and competent leaders who also happened to be paid far less than they were in the past. It’s easy for those of us who have worked in IT for a generation and seen the changes in the field brought by outsourcing and offshoring to support such a change as replacing the board of directors with a board service provider. If we have to look over our shoulders and constantly upgrade our skills just to remain employed at the same salaries, why shouldn’t the decisionmakers at the top?

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