One area in which stateholders will need to be very careful is the structure for compensation. As institutional health is restored, governments will reap the benefits by selling part or all of their stateholding. Bankers who have a sense of public service and are eager to redeem their industry in the eyes of the public will embrace this noble and delicate challenge. Remuneration ought to follow, but without the excessive bonuses that boards previously awarded their managers (and even themselves). The foremost reward for public service ought to be public recognition, not financial gain. Again, this points to the difficulty: Without a proper framework and adequate guidance, few people will venture to undertake the task.
The crisis thus does offer a surprisingly positive public-service opportunity for financial executives. Working for a stateholder represents a contribution that will help the banking and corporate sector find redemption. These are new roles in business and in society. They will be training grounds for future leaders in governance and business. And they can also provide a direction for emerging leaders. Our business and law schools might rethink parts of their curricula and begin to develop coursework and cases around the stateholder position and best practices in this domain.
Welcoming the Stateholder
Paradoxically, governments’ failures as regulators have now led to their massive presence as stateholders. Having reached this point, governments now represent our greatest hope for corporate reform. They have an opportunity to enter the system as a governor, make effective changes, and then exit. Furthermore, they have a chance to be active players in governance when normal market conditions no longer apply. They ought to develop frameworks and methods for guiding their intervention.
This will not be easy, and governments will need to tread carefully in a domain where knowledge is limited and ambiguity abounds. Yet the biggest mistake would be to engage in wishful thinking that this is the final economic crisis of capitalism, and that the current crisis simply ought to be managed. Our point is to insist that one lasting impact of the crisis to be hoped for is the introduction of the stateholder, which works for the good of the capitalist system, as a supervisor as well as occasional intervener in cases of massive corporate destruction and governance failure, and also as an advisor and preemptive actor in cases that appear to be on their way to failure.
We believe that all stakeholders ought to actively support the stateholders in the definition and execution of their mission. We may not get another chance like this for a long time.
Reprint No. 10101
- Robert Gogel is a serial turnaround executive and cofounder of the European Executive Council (EEC), a think tank of senior multinational executives.
- Ludo Van der Heyden is the Solvay Chaired Professor of Technological Innovation at INSEAD, an international business school with campuses in Fontainebleau, France; Singapore; and Abu Dhabi.
- The authors thank members of the EEC, INSEAD professor Jean Dermine, University of North Carolina professor Paolo Fulghieri, and Booz & Company Partner Richard Rawlinson for their valuable comments.