Although he probably wasn't the first in this crisis cycle to do so, New York Times (NYT) columnist Frank Rich makes a rhetorical reference to the guillotine while discussing the public's response to CEO and management underperformance on Wall Street and in Detroit. (It should be noted that the French deployed the guillotine for the express purpose of dealing with those seen as standing in the way of economic and political change during the French Revolution.)

As far as Rich is concerned, aside from CEO Rick Wagoner at General Motors (GM), CEOs and senior managers in corporate America have thus far largely escaped the guillotine, or an end to their tenures, despite similar management mistakes.

GM's errors as bad Wall Street's?

Rich argues that those who think GM did not mirror Wall Street are deluding themselves. GM peddled dubious products (cars) to foreign markets (South America, Russia), used creative accounting to disguise balance sheet woes (moving health care liabilities for retirees "off its books" and into a trust), and placed risky bets (on large SUVs instead of efficient cars) when history indicated this could only end badly. All of the above led to GM's stock plummeting, like certain financial stocks, from $70 to $3 on CEO Wagoner's watch.

Nevertheless, the American public has somehow spared GM and Wagoner from the wrath it has voiced about Wall Street. The populist anger and pitchforks are pointed toward Wall Street, Rich says, and no one has seemed to notice that Wagoner has walked away with $23 million for his failure. (In fairness, some Wall Street CEOs have been in their jobs for too short a time to warrant the guillotine, but not Bank of America's (BAC) CEO Ken Lewis: eight years.)

For Rich, the above is a classic double standard. The public should be blaming corporate America as much as Wall Street: the nation has just overspent and overborrowed in a reckless culture that has dramatically underperformed everywhere, and is now being replaced by a new economic order.

Economic Analysis: Rich doesn't succinctly state in abstract terms what he believes is the reason for the public's GM/Wall Street double standard, but he does offer real-world examples; e.g., "sending one of six CEOs to the guillotine is not enough."

The view from here argues that the reason the American people are not judging corporate America's managerial performance more harshly is its tendency to blame the rascals, not the system. Historically, Americans blame the decision makers, not the economic system -- and they throw the rascals out. Blaming corporate America as much as Wall Street (even though there was a remarkable similarity in management mistakes and excesses during the era), would imply the need for substantial changes to the economic system, and that's something the American people are not prepared to support or to do, at least not at this juncture.

Bottom Line: Look for the financial crisis to drive only modest reforms -- some changes to the board of directors system, some changes that provide incentives for longer-range corporate planning and that discourage short-term financial incentives, and some moral suasion to discourage ridiculous CEO and senior executive and management pay structures. Further, President Obama's proposals on energy, education, health care, and infrastructure -- most of which will be passed -- will place the nation on a sustainable growth track, but it appears national industrial policy and other systemic changes will have to wait for another day.


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