FIXING THE GAME: HOW RUNAWAY EXPECTATION

Americancapitalismisindirestraits,caughtinaperilouspatternofincreasingvolatility,decreasinginvestorreturns,andongoingbadbehaviorbyexecutives.Andit'sgettingworse.Sincetheturnofthetwenty-firstcentury,we'veseentwomassivevalue-destroyingmarketmeltdownsandastringofethicsbreaches,includingaccountingscandals,options-backdatingschemes,andthesubprimemortgagedebacle.Justwhatisgoingonhere?IsittheinevitabledeclineoftheAmericaneconomy?Isitthenewnormalinatechnology-enabledglobalmarketplace?Orisitpossiblethattheverytheorieswe'veembracedtounderpinourcapitalmarketsareactuallyproducingthesecrises?In"FixingtheGame",RogerMartinrevealstheculpritbehindthesorrystateofAmericancapitalism:ourdeepandabidingcommitmenttotheideathatthepurposeofthefirmistomaximizeshareholdervalue.Thistheoryhasledtoamassivegrowthinstock-basedcompensationforexecutivesand,throughthis,toanaiveandwrongheadedlinkingoftherealmarket-thebusinessofdesigning,making,andsellingproductsandservices-withtheexpectationsmarket-thebusinessoftradingstocks,options,andcomplexderivatives.Martinshowshowthistightcouplinghasbeenengineeredandlaysoutitsresults:asingle-mindedfocusontheexpectationsmarketthatwillcontinuedrivingusfromcrisistocrisis-unlessweactnow.UsingtheNationalFootballLeagueashisprimaryexample,Martinillustratesthatitispossibletotakeamuchmorethoughtfulandeffectiveapproachthanwenowdototheintersectionoftherealandtheexpectationsmarketsandtogovernanceingeneralinthecapitalmarkets.Martinshowshowwecanacttoendthedestructivecycle,including:restructuringexecutivecompensationtofocusentirelyontherealmarket,nottheexpectationsmarket;rethinkingthemeaningofboardgovernanceandroleofboardmembers;and,reininginthepowerofhedgefundsandmonopolypensionfunds.Concise,hard-hitting,andentertaining,"FixingtheGame"advocatesseizingAmericancapitalismfromthejawsoftheexpectationsmarketandplantingitfirmlyintherealmarket-anditpresentsthestepswemusttakenowtodoso.