It was a regular feature of the John McCain Traveling Vaudeville Act last summer and fall to step into a quick riff on the lack of experience Barack Obama had in, well, anything.  No business experience, extremely limited executive experience, and the specialized field of knowledge typical of law student turned law professor.  Now that we are more than two months past Inauguration Day, and the American media has still taken a vow of silence on linking his inexperience to an astonishing record of mismanagement, lack of action and buck-passing, it may be a question from an Australian reporter that cracks the shell on this bad egg.

Embedded within President Obama’s response to a question regarding the need for guidelines for executive compensation, was the following gold nugget of misconception:

During the large press conference held Thursday after the G-20 Summit meetings, a reporter from the Australian Broadcasting Corporation asked President Obama who, based on the decisions made at the G-20 Summit, would be making decisions about executive compensation.  Specifically, the reporter asked whether the emphasis on controlling executive compensation would be in setting principles for corporations to use, or by imposing legislation.

“The principles that we outlined I think put in place, er, move us in the direction of what I consider to be the best practices, which is that there is some accountability with respect to executive compensation. 

Now, theoretically, that should be the shareholders, but the way that too many corporations have operated for too long is that you have a CEO who basically selects his Board.  Uh, the Board, in a fairly cozy relationship, often times with the executive, uh, hires a executive compensation firm which surprisingly tends to think that it’s necessary to retain the best talent to pay people twenty or thirty million dollars a year, uh, and we get into the kinds of habits and practices, uh, that I think have not been, have not served shareholders well, that I think, uh, ultimately distort the decision-making of many CEOs.”

Does anyone else see what is wrong with that statement?  It is not theoretical that each corporation’s shareholders elect the Board of Directors.  Despite the President’s complex scenario of executive compensation being rigged by the CEO, the Board ultimately decides what the CEO and other executives compensation will be, and the Board is ultimately responsible to the shareholders. 

Perhaps the President is confusing corporations with Congress where it is customary for employees to vote themselves a pay increases and perks.  It may be true that there is dysfunction in the way that many corporations have behaved, and that a pathological back-scratching club keeps executive compensation high despite corporate performance, but government interference with the shareholder’s ultimate right to exclusively weigh in on these issues is anti-capitalistic and un-American. 

The shareholders of the corporation are the ones who suffers the losses; no mechanism needs to be created, legislative or otherwise, that allows those not invested in a corporation to make decisions about how that corporation should operate, including how employees should be compensated.

The entire press video of Obama’s press conference can be viewed at C-SPAN here.  The question and answer mentioned in the post comes at the 24:00 mark.  [Have your air sickness bag handy for Obama's statement: "I strongly believe in a free market system."]

Mister President, you just failed Business 101 in front of the G-20.

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