Kevin Horrigan in his Sunday column in the St. Louis Post-Dispatch brought up a study (pdf) by a couple of academics that question the practice of “peer benchmarking” CEO salaries in order to keep them from moving on to more lucrative jobs. The idea is that companies have to pay more in order to keep talented CEOs in place. The two researchers, Charles M. Elson and Craig K. Ferrere, question the wisdom of that practice:
… Scholars have long recognized a distinction between firm-specific and general skills. It is quite apparent that successful CEOs leverage not only their intrinsic talents but also, and more importantly, a vast accumulation of firm-specific knowledge developed over a multi-year career. Whether it is deep knowledge of an organization’s personnel or the processes specific to a particular operation, this skill set is learned carefully over a long tenure with a company and not easily capable of quick replication at other firms. In fact, when “superstar” executives change companies, the result is usually disappointing.
Horrigan was interested in the issue of CEO compensation, particularly as it involves Robert R. Archibald, the embattled director of the Missouri Historical Museum. It strikes me, though, that the point is just as apt when applied to businessmen who claim that their business success will allow them to shine as government leaders.
My thoughts went immediately to two GOP candidates for high elective office who want us to believe that they are qualified for those positions because of their past business careers: Missouri gubernatorial candidate Dave Spence, and ex-financial mogul and current presidential candidate, Mitt Romney. However, the Elson and Ferrere study suggests that there is nothing in the background of a successful financier and a plastics manufacturer that would necessarily translate to success in government.
Certainly history suggests that businessmen in government are rarely effective leaders. According to journalist Daniel Akst who consulted with Historian Barbara Perry about the relationship between the success of twentieth century presidents and their earlier careers:
It’s important to know whether a president has worked in business. It’s important because having worked in business is associated with being a lousy president, at least in the modern era.
Recollect that while Mitt Romney was successful in the highly specialized financial realm, he was also by many measures a failure as governor of Massachusetts. The performance of the Massachusetts economy under Romney wasn’t that great to say the least – there’s a reason few in the state support his presidential bid. Although Romney has tried to claim that the fault lay with the Democratic legislature, the current Democratic governor, Patrick Duval together with a largely Democratic legislature has been able to rescue the state from the Bush recession twice as fact as other states. Massachusetts currently ranks in the top 10 states in job growth. So much for Romney’s vaunted claims to understand what makes an economy successful.
Nor, by the measures that Elson and Ferrere suggest, should we assume that Mr. Spence’s success in a very specialized plastics business would translate into the skill set that would allow him to take the reins of a complex state government. As for his more generalized management skills, we have only to examine his to-date feckless, largely self-financed campaign, to get an idea of his ability to run entities that are not organized around a specific body of manufacturing knowledge.
None of this is surprising, of course. Think of successful businessman and colossally failed president Herbert Hoover. Or, to take a more recent example, think back to the hilarious spectacle of real estate tycoon Donald Trump contemplating a run for President and it’s easy to conclude that instead of a savy manager, successful businessmen transplanted to government are apt to prove either inept as in Hoover’s case, or total clowns, as would surely be the case were Trump to ever win office.