Meet the New Boss: The Sociopath As Banker

Brian Basham writes:

In a paper recently published in the Journal of Business Ethics entitled “The Corporate Psychopaths: Theory of the Global Financial Crisis”, Clive R Boddy identifies these people as psychopaths.

“They are,” he says, “simply the 1 per cent of people who have no conscience or empathy.” And he argues: “Psychopaths, rising to key senior positions within modern financial corporations, where they are able to influence the moral climate of the whole organisation and yield considerable power, have largely caused the [banking] crisis’.

But this is the part that floored me (boldface mine):

Cut to a pleasantly warm evening in Bahrain. My companion, a senior UK investment banker and I, are discussing the most successful banking types we know and what makes them tick. I argue that they often conform to the characteristics displayed by social psychopaths. To my surprise, my friend agrees.

He then makes an astonishing confession: “At one major investment bank for which I worked, we used psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles.”

Here was one of the biggest investment banks in the world seeking psychopaths as recruits.

It seems to be pretty widespread (boldface mine):

Just look at how banks like Chase behaved in Greece, for example.

Having seen how well interest-rate swaps worked for Jefferson County, Alabama, Chase “helped” countries like Greece and Italy mask their debt problems for years by selling a similar series of swaps to those governments. The bank then turned around and worked with banks like Goldman, Sachs (who were also major purveyors of those swap deals) to create a thing called the iTraxx SovX Western Europe index, which allowed investors to bet against Greek debt.

In other words, banks like Chase and Goldman knowingly larded up the nation of Greece with a crippling future debt burden, then turned around and helped the world bet against Greek debt.

Does a citizen of Greece do that deal? Forget that: does a human being do that deal?

Operations like the Greek swap/short index maneuver were easy money for banks like Goldman and Chase – hell, it’s a no-lose play, like cutting a car’s brake lines and then betting on the driver to crash – but they helped create the monstrous European debt problem that this very minute is threatening to send the entire world economy into collapse, which would result in who knows what horrors.

There is no way to understand the collapse of Big Shitpile without understanding the criminal mind. This is as much a problem of fraud, as it is macroeconomics (and microeconomics). We would be better served by listening to professors from criminal justice and psychology departments, as opposed to economics departments.

On the other hand, a sociopath does seem to share many of the characteristics of the rational ‘Homo economicus.’

And here’s exactly what I’m talking about (boldface mine):

When someone whose job is to craft multi-million dollar pay packages for corporate CEOs thinks you’re overpaid, you’re probably overpaid.

Hammergren is not the richest or even the highest-paid CEO in the world, but the structure of his compensation is raising eyebrows even in the already outsized world of the 1%. He took over McKesson, a firm that specializes in supplying presrciption drugs to pharmacies, in 1999 after a fraud scandal took out of many of the company’s top executives. Since that time he’s been paid nearly $500 million as the CEO and Chairman of the Board.

His salary is a modest $1.66 million a year, but he also gets annual cash bonuses of between $10 million and $13 million. His perks are many and lavish, including a company car and chauffeur, unlimited personal use of the firm’s corporate jet, and a generous pension plan not available to rank-and-file employees. (Their pension program was canceled in 1997.) Last year, McKesson contributed $13 million to Hammergren’s retirement fund, which if he walked away tomorrow, would be worth $125 million.

Then there’s the stock grants and options, a standard form of compensation at most corporations, but one that McKesson has used with reckless abandon. Hammergren owns $129 million in McKesson stock, plus another 1 million in options that have yet to vest. (In 2011, he received $12 million in stock and another $7 million worth of options in his pay.) Oh, but don’t worry. According to Rivlin, the company paid him $483,000 last year to make up for the dividends Hammergren didn’t earn because he doesn’t own the stock yet.

And then there’s a provision so outsize it’s drawn the attention of corporate-governance watchdogs like GMI, the research group that put Hammergren in the top spot of its latest survey of CEO salaries. If Hammergren loses his job due to a change in ownership, he receives an immediate $469 million payout, GMI found—giving him perverse incentive to see it happen.

In other words, despite all the money that McKesson gives him each every year, Hammergren stands to make even more if he can find a way to sell the company to someone else.

Whether or not he’s earning his keep is up to the shareholder to ponder, but Hammergren is also the Chairman of the Board. He may leave the room when they vote on executive pay, but he decides who was in the room…

And it’s not ethical:

“As far as I’m concerned, a board that keeps loading up its chief executive with more stock and options each year is, from a shareholder perspective, basically committing theft,” says Albert Meyer, a former accounting professor who runs a money-management firm called Bastiat Capital.

We are governed by sociopaths.

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2 Responses to Meet the New Boss: The Sociopath As Banker

  1. Pingback: How to Extract Wealth, Mitt Romney Style: The Bain Bust Out | Mike the Mad Biologist

  2. Caladhiel says:

    Hmmm. First time reading here. Interesting stuff, Mike. I’ve long thought that our not so esteemed prez fits into this category. Oh. Oh. Did I really say that? Might get me arrested for thinking and speaking outside the box. Good article. I will be reading further here.

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