Status-Anxious CEOs Will Sacrifice Profits for a Knighthood

Picture the platonic, if slightly exaggerated, ideal of a CEO: a focused leader of their subordinates, a relentless pursuer of profit -- that is, of course, unless he or she gets distracted along the way. Come to think of it, "sir CEO" has a really nice ring to it, doesn't it?

In a new paper, researchers Konrad Raff and Linus Siming found that CEOs were willing to let their firm's performance suffer for the sake of...a knighthood (or a damehood, if she happened to be a woman). Chief executives, it seems, actually forsake cutting costs or firing employees when presented with the possibility of the archaic honor -- the award of which might be hurt by, say, a round of ugly layoffs.

Governments, in turn, may be using such awards as a low-cost means of boosting employment in companies run by CEOs that are suckers for status symbols, according to Raff and Siming, who are professors at VU University Amsterdam and Bocconi University, respectively.

The pair examined the performance of companies in New Zealand, where honors like knighthoods were abolished in 2000 and then reinstated in 2009. In the interim years, when knighthoods and damehoods were no longer available, the net profit margins of firms run by native New Zealanders -- that is, those who had been eligible for honors - improved by 52 percent. (The research looked at low-competition industries, in which a CEO might have room to keep some fat on the payroll without sending his company into bankruptcy.) At the same time, the companies also saw a decrease in both staff costs and the number of employees, an indication of where those extra profits might be squeezed from.

But when the honors were reinstated, net profit margins fell by 44 percent. "The results indicate that government awards distort CEO incentives to the detriment of shareholders," the authors write.

As for whether politicians are doing this consciously -- using knighthoods to encourage the continued employment of dead weight -- Raff and Siming aren't sure. They do note, however, that awards are "less costly than alternative measures" -- say, subsidies or regulations.

The bottom line: CEOs aren't entirely creatures driven by profit. They're also surprisingly drawn to archaic, wholly symbolic, honors like knighthoods. Who says chivalry is dead? 

Flickr/Hans Splinter


Snowden Called in to Putin’s Telethon. Does That Really Make Him a Kremlin Pawn?

One of the pleasures in writing about Edward Snowden is his predilection for the absurd. The NSA whistleblower abandons his dancer girlfriend for a life in exile, hides in airports, studies Dostoyevsky, appears by teleconference at a technology conference in Texas, and even attempts to learn Russian to acclimate to his new home in Moscow. It’s a delicious story, and on Thursday, Snowden delivered his latest morsel: He called in to Vladimir Putin’s televised Q&A session with the Russian public.

True to form, Snowden asked the Russian strongman whether his government engages in practices similar to those the whistleblower has exposed at the NSA. Moreover, Snowden inquired, does Putin think that governments are justified in placing entire societies under surveillance rather than just targeting individuals if such dragnet eavesdropping may help combat terrorism?

Putin’s reply was a perfect illustration of the inherently bizarre situation: “Mr. Snowden, you are a former agent, a spy. I used to be working for an intelligence service. We are going to talk one professional language.”

But that “professional language” could also be described another way: a lie. Putin proceeded to inform Snowden that, no, Russian security services do not engage in dragnet surveillance and that such tactics are against Russian law anyway. “We don’t have a mass system of such interception, and according to our law it cannot exist.” But even if it wanted to do so, Putin said with a smile, Russia has no where near the money or technological sophistication of the American intelligence services. “I hope we won’t do that, and we don’t have as much money as they have in the States and we don’t have these technical devices that they have in the States.”

But that’s not entirely true. During the Sochi Olympics, for example, the Russian security services are said to have tested a total surveillance system designed to collect nearly all communications in the area. By hoovering up both the content of an email or phone call and their metadata with little legal restraint, that’s a variety of dragnet surveillance that arguably goes further than any NSA operation Snowden has revealed. And while Putin claimed that surveillance operations in Russia must be approved by a court, that too doesn’t quite accord with the truth. Court approval is hardly a hallmark of Russian surveillance operations.

Here’s the full exchange:

The full Q&A contained a wealth of other interesting tidbits. Putin, for example, referred to eastern Ukraine as "Novorossiya," or "New Russia," a term that corresponds to areas of Ukraine conquered by Russia’s czarist regime in the 18th century. Putin has often been accused of hoping to revive the Russian empire, and his use of this term is sure to fuel such speculation. Putin also admitted for the first time that Russian troops had deployed to the Crimean peninsula, which has been annexed by Russia.

As to whether a compromise solution can be found to the stand-off in eastern Ukraine, where three pro-Russian activists were shot to death by Ukrainian security forces on Thursday, Putin said that he planned to protect the rights of ethnic Russians in the country’s east and emphasized that he had been granted authority to dispatch Russian troops there. “I remind you that the Federation Council has given the president the right to use armed forces in Ukraine,” Putin said, referring to the upper chamber of the Russian legislature. “I really hope that I do not have to exercise this right and that by political and diplomatic means we will be able to solve all of the sharp problems.”

But it was Snowden who stole the show on Thursday, and the response his appearance generated is something of a case study in how the whistleblower has become a Rorschach test for perceptions of Putin’s Russia. The columnist Anne Applebaum spoke for many of Putin’s critics when she tweeted that Snowden had made himself into a Kremlin propaganda tool by calling in to the show:



But if the Kremlin was hoping to turn Snowden into a propaganda tool, it didn’t do a very good job of it. Like mold in a Soviet-era apartment block, denunciations of Putin’s use of surveillance are popping up everywhere. For a master-class in the genre, just read Eli Lake at the Daily Beast. Putin’s claims about limits on Russian surveillance “may be true in a parallel universe where Crimean citizens all on their own with no orchestration from Russia spontaneously voted to join the Russian federation after random mercenaries with no ties to Moscow seized its airports and government buildings,” Lake writes. “But in the world as it is, it’s just an outrageous lie.”

As is easily intuited from Lake’s article, Putin’s answer was comical on its face -- and that should give us doubts about the extent to which Snowden is a really a “pawn” in some grand propaganda scheme. Does anyone actually think that Putin doesn’t aggressively use surveillance to go after his opponents and that Russian surveillance is strictly governed by the law? After all, the Russian intelligence services have spent the last few weeks leaking intercepted phone calls between Western officials.

So thanks to Snowden, here we are talking about how Putin is a liar and a skilled user of aggressive surveillance tactics. That probably isn't the response the Russian strongman was hoping for.

Snowden’s critics have relentlessly accused him of being a hypocrite by taking refuge in Russia, a country that can’t be described as a bastion of free speech and civil liberties, in order to blast the surveillance tactics of the United States. Those same critics have argued that Snowden has sacrificed his credibility by failing to speak out against Putin’s use of aggressive surveillance.

But did Snowden finally speak out against Putin’s surveillance tactics on Thursday? His critics obviously don’t see it that way. By appearing on a highly scripted television show with no opportunity for adversarial questioning, Snowden perhaps allowed Putin to present a version of events divorced from reality and to do so without challenge. All the same, it is too easy to see through Putin’s remarks in order to consider them some propaganda coup for the Kremlin.

Can we really consider Snowden a pawn in the Kremlin’s game when his question only exposed Putin’s essential dishonesty?