The Vacuum Part 2: Benign Or Malign?

"When all the errors are in the bank's favor, you can be forgiven for thinking there's more than sloppy arithmetic at work." -- Me.

I didn't originally intend a follow-up to the previous piece, but some of the comments have been priceless, and the "private" email that invariably outweighs them has urged me to continue. Why, you'd think I might have accidentally illuminated some heretofore undiscovered truth about human nature or something!

Charles Murray pointed this out in his classic Losing Ground:

"People respond to incentives and disincentives. Sticks and carrots work."

When America's foremost social analyst says something that pithy, people should pay attention -- especially as it crosscuts the "received wisdom" of our political class. And they did, Gentle Reader, they did. But when that unsurpassed fount of wisdom Fran Porretto follows with something like this:

"An agreement to sell one's labor is the same as an agreement to sell anything else: the good to be delivered and the payment for it must both be well defined."

...the sky trembles, the Earth moves, the angels weep...and the horde determined to differ with me rushes forward to quarrel, quibble, and declare all manner of exceptions.

I don't mind disagreement, as long as everyone respects the rules of polite argument. Some of my emailers didn't, as you can probably imagine, and as Liberty's Torch is a family-friendly website...well, most of the time, anyway...I shall refrain from elucidating further. But one particular thread that ran through quite a lot of the emails was the assertion that anyone hostile to making working arrangements more flexible must hate business or lack a decent work ethic. With that, I must take serious exception -- serious enough to merit another essay.

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The joint-stock corporation was originally conceived as a way of amassing capital for a new venture. In that regard it was quite successful. However, that mission was quickly encrusted with others that were, to be gentle about it, less constructive. Today I'm uncertain that the "traditional" corporation, with its paired command and control structures of a managerial hierarchy and a Board of Directors, will survive more than a few decades longer.

The most controversial of all the accretions to the corporate idea was and remains that of limited liability. Stripped to essentials, limited liability treats the corporation as a person in its own right, whose responsibilities may not be offloaded onto uninvolved others. This concept protects individual shareholders from being held liable for damages caused by employees and agents of the corporation. Only the assets of the corporation may be garnished to pay for such damages.

The idea seemed quite reasonable at first. After all, a shareholder typically stands at some remove from corporate operations, interested only in getting a return on his money. He might not have the faintest idea what agents of the corporation are doing. However, the Law of Unintended Consequences was bound to have its say.

The first obviously negative consequences -- the use of limited liability to shield a wrongdoer from the consequences of his deeds -- are difficult to place in time. However, they evoked sharp legal responses: corporate officers, plus persons whose service to the corporation involves fiduciary responsibilities (e.g., lawyers and accountants) were excluded from the limited-liability shield. The change in incentives elicited a swelling of middle management's ranks, to bury ever more decision making below the corporate-officer level so that shenanigans could be plausibly denied. "Shell corporations" and "interlocking directorates" further complicated the picture. As litigiousness by and toward corporations increased, legislatures anxious for clear legal targets enacted "whistleblower laws" intended to protect non-officer employees from retaliation for having reported wrongdoing by their superiors.

But laws can only have such consequences as people's knowledge of the law and faith in its enforcement will sustain. A law that's generally unknown, that's obscure of import, that cannot be invoked for contextual reasons, or that's enforceable only at the discretion of an indifferent or biased authority, will fail of its purpose at best or be turned against its devisers' intentions at worst. This is especially the case as regards enactments intended to elicit candid testimony about wrongdoing behind a corporate facade.

Worse yet is the impact of the SNAFU Principle:

Shea and Wilson [Illuminatus!, 1975] defined an illuminating notion called the SNAFU Principle, which they stated as “communication is only possible among equals.” The basic idea is simple: when two people do not perceive one another as equals, they will slant their communications — unconsciously and without any particular volition — to protect themselves in that disparate relationship....

Wilson and Shea were both writers, and basically literary people; their summary is literate and verbal. But, being a computer scientist and at least somewhat literate in signal theory and information theory, it struck me that the SNAFU Principle wasn’t sufficiently precisely stated. It should be restated as followed:

“In any social hierarchy, the noise added to a communication between individuals in that hierarchy is directly proportional to the distance between them, and the factor of proportionality will be proportional to the perceived risk to them.”

In a corporate-employment setting, the SNAFU Principle functions bidirectionally. Not only will lower-level employees shade the truth when reporting to their superiors; those superiors will condition what they tell lower-level employees out of consciousness of possible hazards to themselves. This effect arises directly from the recognition that inside a corporate hierarchy, power is a two-way street. Yes, the superior has overt power over his subordinate, usually through assignment of responsibilities, salary reviews, and the power to fire. But corporation law as it stands today gives the subordinate power over his superior as well: through the "whistleblower laws," and through the effects of imputation upon corporate well-being.

The result is a systematic bias -- a degradation -- of communication, command, and control that often suits upper corporate management very, very well. It drives the relocation of as much responsibility for decision making as possible to levels in the hierarchy where power-deadlocks can effectively silence all parties concerned.

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One of the functions of a Board of Directors -- in many analysts' view, the central one -- is protecting the stockholders against the effects of wrongdoing by the officers and agents of the corporation. The most obvious hazard is, of course, stockholders' potential loss of their invested principal. However, as enactments multiply that allow the penetration of stockholders' limited-liability shield, the protection of stockholders' private, uninvested assets becomes ever more important.

The powers of a Board of Directors will be set forth in the company's by-laws. Some such boards will have very narrow powers, limited to decreeing dividends and appointing or removing the chief executive officer. Others will have broader scope. But except for those made up of corporate officers themselves -- a dubious and highly dispreferred arrangement -- all boards have limited knowledge of the internal workings of the corporation, usually conveyed by monthly or quarterly reports. Here again, the SNAFU Principle comes into play.

Chief executive officers are anxious to perpetuate their tenures. Those who report to them are fully aware of the CEO's incentive structure, and will seek to propitiate him by serving it. To the extent possible, bad news traveling "up" the hierarchy will be filtered out, diluted, or qualified to reduce the probability that those required to report it will be made to suffer for it. The CEO will qualify or suppress whatever remains to the extent required to keep his Board of Directors from summarily replacing him. However, at every stop along the way, he who receives bad news will make it known to those who reported it that "you should never report a problem without having a solution already in hand." No one likes to be forced to deceive those who hold his fortunes in their hands; the risk of being found out is never zero and the consequences can be dire.

This creates an incentive that drives management to push the perceived responsibility for decisions that embed a degree of risk -- essentially all decisions of consequence -- ever downward toward persons whose positions effectively prevent them from being identified or interrogated. The more layers of management stand between the CEO and the line workers, the easier and more effective this is. However, perceived responsibility is not necessarily authentic responsibility. Authentic responsibility must be mated to authentic authority over the decisions for which one will be held responsible -- and managers are always reluctant to surrender authority.

How much duplicity occurs in the corporate environment will depend on the ethical soundness of those who populate it. That, of course, will be conditioned by the ethical soundness of the population from which corporate employment is drawn. Time was, the American people being the most ethical of all the peoples of the world, we could count on that soundness being very sound, and therefore on deceit being rare and generally easy to remedy.

Time was.

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The enslaved Hebrews in Egypt, “their lives made bitter with hard bondage,” were a bickering, back-biting lot. Moses had to give them a promised land before he could join them together. -- Eric Hoffer, The True Believer

Sad as it is to accept, people under pressure will more often serve their personal material interests than obey their moral-ethical conditioning. Contemporary corporate employment places the employee under a kind and degree of pressure unknown to previous generations of Americans. This pressure is exacerbated by those political trends -- e.g., rising taxation; rampant inflation of the currency; regulatory authorities that obey no limits and recognize no regions of personal property or privacy -- that endanger the material well-being of Americans generally.

Long ago, as part of a story, I wrote:

    Everyone who ever works for a sizable company eventually faces an ethical dilemma. Ethical dilemmas are created by middle managers; a company whose top bosses were in direct contact with the peones and knew what they were doing could never have one.

    There’s really only one ethical dilemma for an employee: a middle manager tempts you to suppress something you know you ought to broadcast. He’s invariably trying to advance at the expense of his equals in the organization. Deny him, and he’ll vow revenge. Accede to him, and he’ll own your soul.

    The middle manager is indispensable to the dilemma because you can’t tempt yourself. If you have ethics, then you’ll know what’s right and what’s wrong. If you don’t, then you’re not a man; you’re vermin, and you ought to be crushed.

The protagonist of that story was an unusually clear-eyed young woman. Yet in retrospect, her view fails to account for the general deterioration of ethical conduct in our era of secularism and moral relativism. These days, managers at any level can and will impose ethical dilemmas directly on their subordinates whenever it suits their interests. He whose livelihood depends on corporate employment is vulnerable at every instant of his working life.

Combine that with the "progressive" trend toward "flexible working arrangements" in which one can never be sure when one is "off the clock" -- author and occasional commenter Joseph P. Martino captured this as "Am I working at home or living at the office?" -- and the picture becomes too muddy for the typical working stiff to be certain of anything.

There are still corporations whose mamagements' conduct consistently conforms to Judeo-Christian ethical constraints, but fewer than before. As relativistic moral-ethical rot progresses through our society -- and really, Gentle Reader, what influences are poised to halt it? -- these will dwindle still further. The implications for traditional wage employment are grave.

Food for thought.