17 March 2005

The Crown

An item in Professor Ribstein's blawg this morning leaves me rather puzzled. Of course, I'm not a corporations-law scholar; unfortunately, with the continued consolidation in the media industry—despite Viacom's largely illusory decision to split that leaves almost all content-creation in the same conglomerate, whose slightly smaller size will just make it a more-attractive takeover target—I'm having to learn more about this than I want to. And since I reject the election-law premise (Buckley v. Valeo, 424 U.S. 1 (1976)) that "money is speech," that means a lot of trips to Wonderland.

In any event, Professor Ribstein doesn't like empire-building.

So the answer to the abuses and mistakes of imperial CEOs is a more bottom-up market-oriented approach to management that takes decisions away from flawed individuals. Maybe instead of the imperial CEO, we could have "CEO for a day." Instead of "The Apprentice," we could have a reality show to replace the boss.

He's got a distinguished record of attacking both imperial CEOs and imperial regulators. Perhaps I'm just missing something, but I don't see a correction mechanism here. It's all well and good to theorize on what a better structure/attitude for corporations (or business firms in general) and regulators might be. In fact, that's essential. What I'm not seeing, though, is how one gets from the status quo of imperialism (virtually every media company is an empire) to that promised land of better governance. Almost by definition, defeating an imperial CEO, who is not subject to term limits or the viscissitudes of the changing partisan landscape, requires an attack from outside. Also almost by definition, an imperial CEO has managed to insulate him/herself from shareholders. (And, ironically, the bigger the empire—that is, the bigger the corporation—the harder it is for dissident elements among the shareholders to obtain enough power to actually force change.) So how do we get rid of the imperial CEO who has entrenched him/herself? It seems to me that the only alternative we've got left, then, is some kind of regulatory attack—an attack that in most (if not all) circumstances can be viewed as imperial itself.

Maybe my concern with mechanisms for change, and the abuses of, in, and caused by those mechanisms, is merely a relic of my former profession—the management of violence—and particular specialization. (It's rather ironic that a line officer—who by law is not specialized—can admit to being specialized in practice, while a lawyer cannot.) Maybe I'm just being paranoid; I don't think so. A significant proportion of media consolidations in the last fifteen years—including virtually all of the hostile ones—has occurred during the aftermath of a change in firm governance or in the face of an oncoming battle over firm governance. In other words, a lot of consolidations have had little or nothing to do with their economic or business values. If that sounds like a description of regime change in so-called banana republics, it should; that's where I got the idea. Although the comparison between, say, Newscorp today and the Somosa-led Nicaragua of the mid-twentieth-century might seem a bit invidious, I think there's more to it than the politically correct "it can't happen here" protests conceive.

None of this is to criticize Professor Ribstein's state analysis (state, that is, as a chemist conceives of it); the reaction mechanism, though, seems to be as important as the reactants or the products (let alone the intermediates and contaminants). I'd like to know what that mechanism is if not "imperial regulators"; "wait for the shareholders to act," as noted above, isn't a realistic option.