Tag: security

Why Golden Parachutes are Better Than Tenure

People argue for tenure as a way to allow risk taking, bold explorations into controversial ideas, and new frontiers in academia.  Without knowing their job can never be lost, how would professors have the incentive to take risks?  And after all, even if many don’t pay off, the most important advances come from big risks.

Any time you’re in a non-market or highly distorted market, it’s hard to know what really works and what doesn’t since genuine signals are absent.  Higher education is not even close to a functioning free market industry, so in order to assess the merit of claims about the value of tenure we ought to look elsewhere.

If tenure is really effective we should see it in other areas where risk taking and controversial advocacy are necessary.

It turns out we don’t really see it anywhere.  In a genuine market, it’s not used as a mechanism for incentivizing risk-taking behavior, even where such behavior is arguably far more valuable even than it is an academia.

Entrepreneurs do not have tenure.  Their risk has no subsidy or backstop except the safety net of their own skill and ability to earn a living elsewhere if the venture fails.  Raising capital from an investor is one way to create the space necessary to experiment with bold ideas, but investors fight to ensure the opposite of tenure.  They want seats on the board and the freedom to vote the founder out.

Inventors and artists need to explore wild, crazy, unthinkable ideas.  Yet tenure is not common in any private sector research labs or the entertainment industry and certainly not in the garages and basements of individual creators.  Intellectual property laws can provide a kind of hedge against risk for the tiny percentage of creators with the means to gain and defend IP, but on net IP actually increases the risk to inventors and artists (when other people gain patents and sue).  Even if IP is gained, it protects the creation, which still has to sell to consumers, it doesn’t ensure an income for the creator.

What about CEOs?  Especially in large publicly traded companies, CEOs need to be free to take major risks.  They need to alter the brand, company culture, product lines, production processes, and anything else that might be inhibiting growth.  CEOs need to advocate crazy ideas and bring bold new visions to fruition, with no guarantee whatsoever they will work or be well received by customers, employees, or investors.  Billions of dollars and thousands of careers are on the line.  Do boards offer them tenure as a way to ensure they are properly incentivized to make unpopular decisions or advance bold ideas?

Never.

But the need for such protection is real.  An incentive structure too hard on failed risk-taking would be hugely detrimental.  Instead of the beloved tenure, something else has emerged in the market.  The despised “Golden Parachute”.

CEOs of large companies get really nice compensation packages, even if they get fired or the company tanks.  This is a hugely valuable tool.  Without it, the CEO role would be undesirable, and bold changes would almost never occur.  If they know they won’t be left out in the cold after a risky idea fails, they’re more likely to try it.  Additionally, if the previous CEO wasn’t impoverished for failure it will make the search for a high-quality new CEO far easier.  No one wants to work for a place that might destroy them if things don’t work out.

The huge advantage the golden parachute has over tenure is that it protects the individual risk taker without letting them bring down the quality of the institution.  Tenure for CEOs would be a disaster.  Boards would be stuck with bad CEOs for life, embarrassing the company and making everyone suffer.  Golden Parachutes, in contrast, allow for a speedy dismissal of a bad executive before they bring down the firm, but still create an incentive structure for risk-taking on the part of CEOs.

While some level of protection from catastrophic failure or public opinion is valuable for encouraging risk-taking and innovation in some fields, tenure seems an inferior method than what emerges in the market.

The Worst Protection

You feel safe in your neighborhood, but worry about the small chance of a break-in or act of vandalism. To protect yourself from these risks, you pay a security company to look after your house. It costs a little more than you’d like, but you determine it’s worth it.

They put an unarmed guard in front of your house at night, just to keep an eye out. It seems a bit unnecessary, but you rest easier knowing he might deter would be thieves. The guards start coming earlier and staying longer. It seems silly to have them there before sundown, but you ignore it. Soon, they’ve got someone there almost around the clock. Then they send you a bill with a new higher rate for their services. You suggest going back to night only guards, but they assure you this is necessary to protect you, and also tell you the neighborhood is getting a bit more dangerous. You pay.

The next week, not only do they have a guard around the clock, but he’s armed. Then there’s two or three patrolling at a time. Rates go up again. You’ve been hearing more stories about how dangerous the neighborhood is, so you pay. Before long, they have a constant cadre of armed guards patrolling not just your sidewalk, but the whole neighborhood. They start randomly knocking on your neighbors’ doors and searching their houses for anything they might use against you. They set up permanent stations throughout the area, manned 24/7. Guards constantly patrol and conduct random searches, without permission, and occasionally they cage or kill someone. They assure you; there was reason to believe these neighbors had it in for you. It’s a jungle out there. They raise their rates.

Some of your neighbors object. Some devise ways to protect from being searched or bullied. All become suspicious of you, and a little angry. After all, the guards are invoking your name when they do this. The more the neighbors resist or lash out at the guards, the more the company explains just how unsafe you are unless you purchase the latest upgrade. You do. They deploy more street walkers. They pre-emptively kill and cage more neighbors. It seems a fight breaks out every day. Bands of neighbors form for the sole purpose of combatting you and your security team. Their children grow up afraid of you and they hate you, and your children, for it.

The company says more is needed; threats can come from anywhere. Now guards are groping your guests and your children each day before they enter or exit your house. They search your house on occasion, just to be sure your conspiring neighbors don’t have an inside man. They treat you like a suspect on your own property. You pay the new fee with the only credit card you haven’t yet maxed out.

Every day you wake up scared of your neighbors, suspicious of your guests, leery of your own children, and irritated by the guards who may or may not rummage through your belongings. You juggle money around just to keep the lights on, meanwhile the guards roll around in tanks, thanks to your borrowed money. You remind yourself that they’re here to protect you from an increasingly dangerous neighborhood. It’s worth it. Sure, they could cut some costs, but it’s a struggle to convince them of anything, and it’s a little intimidating to try. Besides, what’s a few dollars overspent compared to the imminent danger you’d face if they scaled back too far?

One day it hits you: you’re not safer. You’re paying a lot of money, not to insure you against unlikely violence, but to stir it up. You’re paying to create enemies, not defend against vandalism. You’re paying to be treated not like a customer, but a criminal in your own home. You’ve been ripped off. You have fewer options when it comes to social circles, since you’ve made a lot of enemies. You can’t travel down certain streets, because there your name has become a byword. You’ve learned to fear your neighbors and you’re not really sure why, or what threat they pose except to the guards that harass them.

You fire the company and begin the long task of putting your life back together.

Unfortunately, it’s not that easy in the real world. You can’t fire those that provide supposed security. You have to pay, and you have to obey, or else. Don’t be mistaken: just because it’s done on a grander scale and wrapped in a lot of fuzzy feelings and national myths, doesn’t make it different from the neighborhood story above. States are supposed to provide protection; instead they poke people with sticks and incite them to violence.

The United States has enemies. I do not have enemies. There is no one in a far flung place in the world looking at a map and saying, “Here, on the Atlantic coast where the Cooper and Wando rivers come together. The people who have chosen to live on this bit of land are terrible. Let’s invade them. Let’s kill them.” Every international threat to me is a threat to me because I am associated, whether I like it or not, with the United States government.

Acts of terrorism and war are strategic acts. They are intended to pressure the state into changing its policies, or to make it pay for previous policies. Attackers know that the state ultimately responds to the views of its people and the interests that form around it. They attack civilians because they believe it creates impetus for the state to do what they want. We are the pawns in the game of states. We are at risk because we are seen as leverage with which to manipulate the political class.

The state is often defended as necessary to secure individuals against foreign aggression. Yet foreign aggression has no target if there is no state. The state does not make us safer, it makes us less safe. It kills in our name, with our money. It harasses us in our own country in the name of protecting us. It makes us suspicious of people we’d otherwise never know, or know only through Tweets or peaceful commercial interactions. It makes us hated.

The sooner we can forge an identity separate from the states that claim to protect us, the safer we will be. If the state is a kind of security provider, or insurance against international aggression, it’s the worst form of protection I can imagine. You wouldn’t stand for a company that marauded through the neighborhood in your name; you shouldn’t stand for a nation that does either.