Fifteen Eighty Four

Academic perspectives from Cambridge University Press


More on Ideology and Leadership

Bert A. Spector

All leadership is ideological; all business is ideological. I’ve made this argument in an earlier blog, “The Myth of Pragmatic Leadership,” as well as in Discourse on Leadership: A Critical Analysis.  Over the weekend, this matter burst into the public spotlight with the revelation that one of the Presidential candidates claimed a nearly $1 billion personal loss, which may have offered him a legal opportunity to escape federal income tax for up to 18 years[1].  What I want to focus on here is a defense mounted by one of the candidate’s primary surrogate spokespersons; that the candidate had a “fiduciary responsibility” to minimize tax payments.

To start with the obvious, this statement is simply wrong.  As has been widely noted in the immediate aftermath of the revelation – and the spin – there is no such thing as the fiduciary responsibility of an individual to minimize personal taxes.  Still, the controversy offers an opportunity to examine the concept and its application within the more appropriate realm of corporate leadership.

Fiduciary responsibility certainly requires corporate officers to protect the best interests of their corporation. That is not the same as demanding that leaders maximize either profits or stock price.[2] Officers are allowed under fiduciary responsibility to take any number of actions that may, in fact, reduce profitability in the short-term – say, donate to charities – but can be seen as advancing the long-term best interests of the corporation.  Contributing their fair-share of taxes to help support the host country’s operations is well within the boundaries of acceptable, legal behavior.

Of course, we know that corporate leaders can and do take actions to reduce or avoid taxes.  Corporate inversions, anyone?  But that is not a requirement placed upon them by fiduciary responsibility. In fact, the whole notion that corporate leaders are required to maximize both profits and shareholder wealth has no basis either in fact or law.  That doesn’t mean that it isn’t a widely accepted and deeply felt belief.  Rather, it means that it is a statement of what I call corporate ideology.

Corporate leaders face an ideological choice;  there is a debate, and a long-standing debate at that, over the legitimacy of the various ideological options.  On one side of the debate, the “shareholder primacy” ideology, corporate leaders focus on cost-cutting and maximizing margins.  Corporate governance seeks to ensure that these goals are built into metrics of performance, evaluation, and compensation. CEOs are hired, evaluated, compensated, and even fired based on their capacity to deliver on shareholder value.

The main competing ideology, stakeholder plurality, offers a profoundly different view of the role of leaders.  As officers of public corporations, leaders must be responsive to multiple stakeholders: shareholders, employees, customers, suppliers, the host communities, and the planet.  The task of the leader, then, is to act on behalf of the corporation as a whole by keeping the relationships among stakeholders in balance and resolving conflicts when they arise.

The candidate and his minions are entitled, of course, to adhere to any ideology they’d like, as are corporate leaders.  But let’s not pretend that tax avoidance, even when legal, is a responsibility imposed by the requirement of fiduciary responsibility.  It is a choice that these leaders make.  Unlike most corporate decisions, however, the upcoming election affords voters the opportunity to make an ideological choice as well.

[1] http://www.nytimes.com/2016/10/02/us/politics/donald-trump-taxes.html?_r=0

[2] Except under the specific circumstance when the company’s shares are in play.

About The Author

Bert A. Spector

Bert A. Spector (PhD, American History) is Associate Professor of International Business and Management at Northeastern University's D'Amore-McKim School of Business. His research ...

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