The common belief that firms exists to maximize shareholder value has led to massive growth in stock-based compensation for executives and a naive and wrongheaded coupling of the “real” market (the business of designing, making and selling products and services) with the “expectations” market (the business of trading stocks, options and complex derivatives). It’s a bit like confusing winning the Super Bowl with winning a bet on the Super Bowl.
In the world of business, we make sure that those playing in the real game must also play in the betting game. Why do we expect point shaving in sports but honest incentivizing in business?
Roger Martin’s recommendations in Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL include:
- Restructuring executive compensation to focus entirely on the real market, not the expectations market;
- Rethinking board governance and the role of board members and the autonomy of auditors;
- Reining in the power of hedge funds and monopoly pension funds;
Fixing the Game artfully links theory and practice, and reminds us that getting both right is important if we are going to fix capitalism. Roger Martin asks provocative questions about what constitutes good management, and forces the reader to consider the ways in which elegant logic or a compelling theory actually undermines commonsense business practice. And along the way he identifies changes—in regulation, business, and governance—that will realign private incentives with the public good.
— Judith Samuelson, Executive Director, Business and Society Program, the Aspen Institute