Page 38 - Chapter One

6 The Management Shift

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ability of business to do the right thing, and governments are faring
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even worse. According to the 2013 Edelman Trust Barometer, less than
one- fifth of the general public believes business leaders and government

officials will tell the truth when confronted with a difficult issue. The
trust gap between institutions and their leaders is also growing – trust
in businesses is 32 points higher than in their leaders. This research also
confirms trends in democratization, where influence is redistributed
from traditional authority figures such as CEOs or government ministers
towards employees and peers, as well as to people with knowledge and
credentials, including academics and technical experts. Another prominent
trend is related to replacing hierarchies by horizontal networks.

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According to the National Bureau of Economic Research there is growing
inequality between the rich and poor, with substantial disparities in
the growth of price indexes and in life expectancy. Between 1980 and
2000 the life expectancy of the bottom 10 percent of earners in the US
increased at only half the rate of that of the top 10 percent. Furthermore,
the top 10 percent of earners saw their share of overall income rise from
27 percent in 1966 to 45 percent in 2001. A study of 1,500 firms found
that the compensation earned by the top five corporate officers in 1993 to
1995 equalled 5 percent of their firms’ total profits during that period; by
2000 to 2002, that ratio had more than doubled to 12.8 percent. In 2007,
CEOs in the S&P 500 had an average compensation of US$10.5 million
annually, 344 times the pay of an average American worker. In 2000,
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this ratio was even higher at 525 times the average pay. Astonishingly,
one of the recent S&P reports shows that the CEO of Walmart has been
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paid 1,034 times more than a median Walmart worker’s salary. Over-

compensation of C- suite executives is leading to disastrous business
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consequences, including a serious misallocation of capital and talent,
rising income inequality, repeated governance crises, and a lack of
international competitiveness.

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Other problems include increasing unemployment, especially among
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young people, continuing failing of the banking system, declining
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Consumer Confidence Index (CCI), decreasing Life Satisfaction Index,
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declining Purchasing Managers’ Index (PMI), declining house price
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affordability, 30,31 gender inequality, career stagnation, child poverty,
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