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MINISTERS OF FINPOLITY:
THE UPPER EXECUTIVES
Top executives of top American corporations are, after the Kremlinrulers, the most anxiously studied and written about small group of persons in thecontemporary world of affairs. Each group is more sedulously and continuously scrutinized,in sober truth, than the much larger and far more crucial collection of scientists.
More numerous than Russian politicos, American upper corporationexecutives are nevertheless very few. If we take the elite Fortune list wehave before us only 500 industrial companies, 50 commercial banks, 50 public utilitycompanies, 50 transportation companies (rail, air, highway and water), 50 life insurancecompanies and 50 merchandising enterprises--750 in all. This is the cream, with assetsranging from as low as $7.444 million (Needham Packing) to $30.906 billion (AT&T).
Each of these enterprises glories in a chairman, a president, usuallyat least one executive vice president, sometimes a comptroller and always a treasurerand a secretary, the three latter rarely involved in policy formation. The arrayof vice presidents varies by size of enterprise but, no matter how large it is, thesemen are usually mere divisional or departmental managers, direct instruments of topmanagement but not in top, management themselves.
So truly imperial is the domain of the largest finpolitiessuch as AT&T, General Motors and Standard Oil that the executive vice-presidentialfunction is often divided among several men, who meet as an executive committee.General Motors in 1964 had three executive vice presidents; Standard Oil of New Jersey,five; but Ford, only one.
In the ordinary case the top officers are a trio: chairman, presidentand executive vice president. The president's duties correspond to those of the captainof a ship, are virtually as routinely formalized; and those of the vice presidentcorrespond to the ship's executive officer.
If we allot to big management an average of five men we have 3,750upper executives. Because some of the larger companies have more than five in topmanagement, it may be that as many as 5,000 should be reckoned. As there are smallishfairly important companies not included in Fortune's compendium, the numberof top management people may be as great as 10,000, the number set forth in BusinessExecutives of America, published by the Institute for Research in Biography in1950. But this total included men in Canadian as well as United States companies.
Important corporation executives certainly do not exceed 10,000.More probably there are fewer than 5,000, a restricted group. Naturally, if one looksdown the entire nondemocratic para-military chain of command to junior executivesand foremen, the number of executives is much greater. None of these shapes policyand few ever will. They are cogs of the order of middle-range Soviet commissars andlower bureaucrats. The system is indeed very much like the Soviet's, which was modeledafter it.
Corporations generally are run by the executive vice president (orvice presidents), the president usually supervising and intervening directly onlywhen he feels it advisable. In newer, reorganized or problematic companies the president,it is true, may be a dynamo of activity. The chairman is available for consultationon nice points of policy; only rarely if ever, one gathers, does he tell the president,unbidden, what he ought to be doing.
Within the bounds of determined policy and the nature of the businessthe president is a complete autocrat. Such being the case he usually acts with greatrestraint, like a jet pilot who knows that the slightest touch on the rudder maycause a wide deflection of course.
The chairman comes into fullest bloom at meetings of the directors,over whom he presides. These are held quarterly or semi-annually; and are mostlyroutine affairs. Top officers are directors, and one may ascertain who is and whois not in top management by noticing whether he is or is not a director as well asan officer, a point in elementary corporatology.
The chairman, president and executive vice presidents are invariablydirectors; the vice presidents sometimes are. In Ford and Standard Oil of New Jerseysome vice presidents are; in General Motors at present only executive vice presidentsare.
Apart from company officers, directors usually consist of officersof other friendly companies or friendly banks, of lawyers, sometimes foundation officersand college presidents, former officers and large stockholders (sometimes themselvesformer officers). Directors who actively question or suggest are usually owners orrepresentatives of large blocks of stock or senior obligations. In most cases theoutside members are passive, merely listening and taking note of what is reportedby the executives. They evaluate what they hear in terms of their own business experience.
Except where forbidden by law, as in the case of banks, directorsare usually cogs in widespread interlocks, a phenomenon abhorrent down through theyears to many congressmen. Congressmen who dislike this practice of interlockingdirectors--that is, a few directors from a cluster of key companies spread aroundamong a large number of satellite companies--would like it forbidden on the groundthat it signals central moneybund or "Wall Street" control. They wouldprefer that a man be a director of only one company at a time, thereby bringing inmany "unsound" outsiders.
My own objection to forbidding interlocking directors is that itwould be ineffective in breaking the true interlock, which exists by prior dispensationin a small ownership coterie through blood relationships, intermarriages, privateschool associations and club memberships. We must not forget that the entire corporatesituation directly concerns no more than 2/10ths of 1 per cent of the adult population(fewer than 200,000 people); with some 8/10ths of 1 per cent less involved; and nevermore than 10 per cent even infinitesimally involved except as rank-and-file employeesand consumers. Abolishing corporate interlocks would not alter any basic situation,would at most provide only one more futile pseudo-reform. If it led anyone to believesome basic change had taken place, it would be grossly deceptive.
Those who oppose interlocking directorates, if they were seriouslyconsistent in their recommendation, should call for the outlawing of intermarriage,hereditary trust funds, common schooling and common metropolitan club membershipamong large property holders and corporate families. One could isolate each one,incommunicado, in a private telephone booth.
Except where they represent large blocks of stock or are officersof the company, directors are seldom vital to the conduct of affairs--serve mostlyas window dressing. There is a school of corporate thought that contends directorsshould direct; but this is a minority view. Directors generally do not direct unlessthey are also big stockholders or officers; as outsiders they usually don't knowenough about the specific situation. Even the notion that some bring to bear an indispensablebroad-gauged public point of view, valuable in preserving the corporate image asa benign entity, won't hold water because efficient public relations departmentstend to this simple detail. A few directors, in fact, are invited on boards solelybecause they are witty or eccentrically knowledgeable fellows, thus tending to perkup otherwise dull meetings of essentially stodgy men.
In crises directors may be collectively called up to tap their generalbusiness experience. Some internal dispute over fundamental policy may be submittedto them, in which case they function as a board of judges. If they cannot resolvethe dispute it will be resolved at the next meeting of stockholders, where the bigshareholders will assert themselves. But such an occurrence is rare because amongthe directors it is known who speaks for large stockholdings. It is known where theultimate power lies.
Despite all the devotion to voting in corporations, the process ishardly democratic because the vote, in any showdown, is by shares of stock, not byindividuals. All the thousands of rag-tag stockholders in the Ford Motor Companycould not outvote the Ford family. The situation is absolutely or effectively thesame in every company, which means that a very large and paramountly vital part ofinternal American affairs is under essentially autocratic rule, as in Russia. Atvariance with democratic ideology this statement surely is but nevertheless, alas,it is true, true, true.
As long as matters progress smoothly, as they ordinarily do, thepoint of view of the managing officers prevails at board meetings. Organizationaltrouble appears only if a very large stockholder, or someone speaking for large blocksof stock, seriously opposes the management.
While newspapers report from time to time on internal struggles forcompany control, such reports rarely involve the biggest companies. Control is seldoman issue in the big smoothly running enterprise. Whenever it is, the issue is quicklyresolved, either by internal vote or by court decision.
The Executive Mystique
Corporation officers are of interest in this inquiry mainly becausethey are the front-line deputies of the rich and the super-rich when they are notthemselves of the rich. They are the watchdogs and overseers (usually hired) of greatwealth. As such, their earned take-home pay is rivaled only by that of persons inthe sports and entertainment worlds who become tremendous box office attractions--home-runhitters, knock-out punchers or seducers-seductresses of the screen. Because onlya handful of these fireflies maintain their box office charisma for any considerabletime, as a group they are not in the income class of the executives, who even inretirement continue to be handsomely rewarded. Entertainers and athletes in generalare paid little.
Just what is it that makes an upper corporation executive worth hispay, ranging on the record from $200,000 to $800,000 a year in the merely cash portions?A standard answer, part of what I shall hereafter refer to as the executive mystique,is that "the value of an upper-echelon executive lies in the decisions he makesand influences." 1
It is made evident that the decisions for which he is rewarded sohandsomely are money-making decisions. While he may at times make wrong decisions,most of his decisions (at least the big ones) must be the right ones, the winningones. Or so it is argued.
One cannot deny that the top executives are decision makers. Butthis observation is not very profound because, paradoxically, not to make any decisionis a decision. We are all, as it happens, decision makers. But we are not--most ofus--money-making decision makers.
The kind of decision making the big executive engages in, accordingto theory, is as follows:
He makes one big decision (or a series of decisions) that vastlyimproves the relative position of his company, reflected in earnings; that slightlyimproves or holds steady the relative position of his company among rivals; thatin any general economic decline leads his company to lose ground less rapidly thanothers; or that enables his company, at the bottom of a slump, to spring up again,phoenix-like, and astonish the world--or at least the editors of Fortune andthe Wall Street Journal.
More exactly, he is not supposed to make those decisions by himself,out of the whole cloth, but to fit together the advice and insights of many others,like a master craftsman, and extract the winning decision.
In theory the decisions he makes must be winning decisions. Becauseif one is paying for decision making, as the big stockholders are supposed to bedoing, one surely does not want to pay for losing decisions. And yet, highly paidexecutives often make momentous losing decisions, sometimes all together, sometimesin industry groups and sometimes in single companies.
In the early 1930's, the leading corporate executives all made acollectively losing decision. They decided to maintain their economic positions amidsudden price declines through cost-cutting, mainly by wholesale discharges of unprotectedworkers, the rank-and-file patriots. The theory was that as demand for goods wasrestimulated at lower price levels, business would pick up at more normalized levelsthan in the 1920's, workers could be rehired at lower wages as in the slump of 1920-22.Then the process of money-making could resume on a "sounder" basis.
There was no pick-up, however, because during the serial processof wholesale layoffs workers exhausted their meager savings and credit.
When prices reached low levels they continued to fall to still lowerlevels, except where they were "administered." Much less business was donebecause many people had no money. The economy began stagnating, the Communists gloatedbecause Marx had predicted capitalism would lose the ability to govern in one ofthese slumps. The Great Depression was on, produced by master minds who instead ofliving up to their reputation as entrepreneurs had become, turtle-like, solely interestedin preserving working capital.
Ironically, surrounding conditions from a business point of viewwere perfect. There was no government interference with business. There had beentwelve years of uninterrupted lax Republican rule under figurehead presidents. Taxesunder Treasury Secretary Andrew Mellon had been brought to very low levels. Tariffwalls against odious foreign goods were at record high levels. Big Business ruledthe roost more fully than it did later under Lyndon B. Johnson.
If it were a fact that executives are paid as decision makers theywould all have been fired. For they had all, acting according to crowd psychologyas they usually do, made a general losing decision, reflected in steady corporatedeficits. There never was a major winning decision in this situation in the senseof one company moving ahead of others. No corporate master mind showed himself, forthe simple reason that there were no corporate master minds. The emperors were allstark naked. In national self-defense the government moved, slowly, to intervenewith its own programs, amid witless cries from the corporate press of "creepingsocialism."
One often sees the same sort of collective losing decision makingin an entire industry, as in the railroad industry since World War I. Suddenly facedwith new competition--from pipelines, trucks, buses and airplanes--the railroad industrydown through the decades, instead of adjusting services to meet new conditions, insteadof participating by one avenue or the other in new forms of transport, decided tocurtail services. The industry decided, forsooth, to go out of business on the installmentplan.
Where one company clearly falls behind all others in the same industrythrough having failed to adapt to new currents or to take advantage of some innovation,it is obvious that the chief executive (or his subalterns) has not been alert andhe is, unless he is a big stockholder, usually dropped. This was the case with respectto Charles Luckman, president of Lever Brothers after World War II and widely toutedas a "wonder boy." The rest of the industry stole a march on him in theintroduction of detergents in place of soap powders, and Lever Brothers underwentsetbacks in the market until it tardily took up detergents. Luckman was fired.
But when Ford Motor Company lost a reported $250 million on its haplessEdsel model in the 1950's, Henry Ford II did not walk the plank. He, along with otherstockholders, simply took it in the pocketbook. He could not be fired because bewas a chief owner. This simple fact revealed the source of true power in an executive.
Aging Sewell Avery, a big stockholder, stubbornly held to his positionat the head of Montgomery Ward and Company after World War II and decided to retrenchin expectation of a resumption of the depression. Ward's arch-rival, Sears, Roebuckand Company, decided to expand in expectation of an inflationary boom, and soon passedon to astronomic heights of latter-day success. Here we have a case of a losing anda winning decision, both made by experienced managements, one rather inflexible.To argue that Avery was a poor executive because he made a less advantageous decisionis like arguing that Napoleon was a bad general because he lost the battle of Waterloo.
In all the loose talk about executive decision making it is overlookedthat corporate decisions are usually made collectively, more recently on the basisof a vast mass of information assembled and digested by computers. After carefulsifting by low-paid technicians--statisticians, economists, mathematicians, psychologistsand even at times anthropologists--a set of alternatives is laid before the executiveboard. If the correct data have been fed to the computers these mechanisms may themselveshave the answer: Expand, branch out, retrench, stand pat, fight, submit, deny. Again,the decisions are rarely of life-and-death caliber. They are usually fairly routineand marginal.
John F. Kennedy, it is reported, faced divided counsels among hisadvisers on the religious issue in 1960. Some said he should avoid it, some saidhe should stress it, others felt he should touch on it, but lightly. The problemwas put to a computer into which a mass of data was fed on the characteristics ofthe American population. The computer replied: Stress the issue. And this was done.While one cannot say that this is why Kennedy won, it obviously did not cause himto lose. So it was presumably the right decision-made by a computer. The masterlydecision in this case was evidently to turn to the computer.
Corporation officials often face issues that arise from a set oflosing decisions of long- or short-term nature. And they know they are losers. Whatthey often do then is to make no decision, ride with the tide in the hope that somethingof a saving nature will turn up. They are not, then, paid primarily to make dramatic"right" decisions, although they participate in corporate serendipity andwill be penalized for obviously bizarre judgments, now increasingly eliminated byexpert analysts and computer technology. But corporations, their nets spread wide,are not run by ear, as the decision-making theory suggests. If they sometimes gamble,it is only in small ways. Almost never do they stake their lives on a single lineof policy. They do indeed have alternative policies, sometimes all in effect in differentareas at the same time. They play both ends against the middle and the middle againstboth ends.
There is much else, which need not detain us, to show there is littlein this contention that high compensation is given for profitable decision-making.The decision-making theory is part of the executive mystique. This mystique, dubbed"Management," has been developed partly for psychological reasons: To giveexecutives in a long chain of command down to the newest junior executive and foremana sense of worth in essentially boring jobs. It also provides an impressive rationalefor the payment of grotesque salaries. For as decision makers, most company chairmenand presidents could not fight their way out of a paper bag, as is repeatedly shownwhen they are dragged into full public view and subjected to searching questioningunder subpoena. Then they almost invariably wilt, show themselves as very ordinarymen.
This is not to say that corporation executives are without ability.They are able people, the ablest that can be found for the task. Their ability residesin a varying combination of qualities. The big factor that enters into their selectionand compensation is that they are custodian-trustees and overseers of vastly valuableproperties. As they are agents of often absentee large owners, and are sometimescaught in tight situations where one decision is as bad as another or is a Hobson'schoice, their pay is in part an inducement to guarantee loyalty at the beginningof a chain of command. Below the top, loyalty can be enforced by sanctions. But theinitiator in the chain of command has a wider sphere of action.
Owing to their strategic position at the head of complex propertiesthe top executives are in excellent positions for self-enrichment. They bold thecombination to the office safe, know many inner company secrets. They are exactlyin the positions of Rockefeller and Carnegie with their early enterprises, exceptthat they are not the chief owners. (They usually own very little of the company.)But, as corporate history shows, they are in a prime position to help themselvesto goodies at the expense of the company and its stockholders. Many have done so,a few from time to time are still caught in the act.
Though partly a crowning reward for long service in a variety oflower positions throughout the company, their compensation is mainly, a shield againstthe temptation of helping themselves at the company's expense. Such temptations areguarded against in many technical ways, as by outside audits and analyses, but thebasic way is to make it always evident that a sure and comparatively high earnedincome awaits the man who avoids the dark risks of high adventure at the company'sexpense.
That astronomic executive compensation has nothing whatever to dowith decision making or competitive wizardry is proved by the fact that executivecompensation in the noncompetitive electric utility industry is as high as, oftenhigher than, in straining, striving industrial companies. Copious figures on thecompensation drawn by executives in these utility sinecures, which could easily befilled by bright collegians, are presented for twenty pages by Senator Lee Metcalfof Montana in his Overcharge (David McKay Company, N.Y., 1967), a study offancy financial capers by the entire contemporary electric utility industry.
There is even more to the need for high compensation. As the companywants the top executive's undivided attention, it wants him to feel free of all thenagging worries that beset other men. As far as these problems can be met by money--biglife insurance, schooling for the children, residence in soothing surroundings, acontented wife--they are met in the compensation awarded. Problems that cannot besolved by money, such as problematic wives, will cause a likely prospect to be passedover because the company cannot afford to have its affairs in the hands of a broodingman. Much has been made of the fact that an alcoholic or socially withdrawn wifewill cause a man to lose the nod of advancement. But anything at all bizarre or worrisomeabout the wife will have the same result. It is not minded if she is a big spender,but if she overspends or in any way shows she is out of control, she will certainlyjeopardize his chance. Indeed, any member of the family far out of control and thusthe object of worry to the man will count heavily against his selection for a topposition.
Hence the high salaries, elaborate fringe benefits and deferencein the corporate press to ostensibly brilliant decision makers.
The hired top corporation man, then, as distinguished from the hereditaryowner-executive, is much like the cormorant or fishing bird, still used in China.A strap is fastened around the birds neck, permitting him to breathe but not allowinghim to swallow his catch. He dutifully brings the fish back to the boat. Now andagain (paydays) the strap is loosened and he is allowed to swallow a fish. The birdis a percentage participant in the process, which was established by and for others.2
It is part of the corporation mystique that the corporation executiveis inherently a powerful person--that he freely and autonomously extemporizes. Butif such ability were either extensive or crucial it would be easy to shift top officialsout of industries where the average net return on capital was high, such as automobiles,cosmetics or pharmaceuticals, into industries where it was low, such as coal, railroadsor steamships. The wizard decision makers would then be able to make decisions thatwould move the lagging enterprise far above the traditional rate of return for theindustry.
This is not done. Executives are not attracted from booming industriesto lagging ones, from whaling and pearling to sponge fishing. When an industry hitsthe skids all the enterprises in it go down, some perhaps faster and further thanothers. No amount of experienced executive decision making in a single company isable to arrest the process.
There is in fact no consistent relationship between high executivepay and company success. Even in a company on a downhill course, paying no dividends,executives may be paid better than in more profitable companies. Thus for years BethlehemSteel, although paying no dividends and running at deficits, paid Eugene P. Graceas president up to $800,000 a year, a record as of 1956 in cash emoluments. Somebody,including himself, apparently wanted Mr. Grace in charge of the properties.
That the British take a somewhat jaundiced view of inordinately highexecutive salaries was shown recently by the case of Wilfred Harvey, sixty-seven-year-old,$750,000-a-year chairman of the British Printing Corporation. Four fellow directorsforced his resignation on the ground that his salary scale was "grotesque andridiculous." He also had a special expense account. The annual earnings of thecompany were those of General Motors for a single day. So exercised did the Britishbecome that acidulous editorials were written and questions were asked in Parliament.3
The chief executives of the big companies, in addition to directinginternal affairs, also represent the company vis-a-vis the world, government, laborunions and the general public. Their role is, basically, that of politicians anddiplomats. As shrewd politicians some, irrespective of the prosperity of the company,are able to make a better deal for themselves than others among the various factorsof major owners, small stockholders, government officials, labor leaders, banks andcustomers. Some are where they are because they are married to a daughter of thechief stockholder or the daughter of the banker that holds the company's notes. Theymay, indeed, just be a friend of the bank, which is interested only in its notes,not in record earnings.
Henry Ford II, aged twenty-five, was not spirited out of the Navyin 1943 to become vice president of Ford Motor (executive vice president the nextyear) because he was considered a wizard decision maker. He had failed to graduatewith his class of 1940 at Yale, couldn't make the grade. Nor, years before, was hisfather Edsel at age twenty-six made a vice president because of any then evidentgreat decision-making ability. Henry Ford, when he appointed Edsel, told newspapermenit showed what a remarkable country the United States was that so young a man couldachieve such a high post so early. On this score Bourbon France was a far more remarkablecountry, for Louis XIV became king at age five.
The Power Elite according to Mills
That the top corporation executive is a person of commanding powerin his own right is part of the executive mystique and is uncritically incorporatedinto his theory of the power elite by C. Wright Mills, the American sociologist.As originally argued by the Italian sociologist, Vilfredo Pareto, in every branchof human activity people can be given an index number on a scale. To those with thelargest accumulated indices of achievements or specific qualities, in whatever category,he gave the name of elite. There is, obviously, an elite for every function and quality:barbers, violinists, scientists, bankers, seductive women, politicians.
People, too, possess powers, from zero to 100, in asserting themselvesover large areas of affairs. Those able to assert their wills, thus affecting manyothers, perhaps even against their wills, are said to have power. And, paraphrasingPareto, Mills said that those with the most such power are to be regarded as a PowerElite. Where Mills becomes original, or quasi-original, is in his description ofwhat purports to be the more recent American power elite. He constantly uses thewords "new" and "today," so that the situation as it stands isevidently something freshly perceived by Mills.
Although the corporate rich or big owners belong to the elite ofMills, be says their role has been reduced in phases--first by big politicians asin the New Deal and more recently by generals, admirals and corporate officials ofthe Warfare State. 4 The big rich are being phased out or down and arebeing replaced by executive types, either military or civilian. If Mills is correct,the message of these pages is somewhat passé.
The inner core of the power elite consists, first, of those who interchangecommanding roles at the top of one dominant institutional order with those in another:the admiral who is also a banker and a lawyer and who heads up an important federalcommission; the corporation executive whose company was one of the two or three leadingwar materiel producers who is now Secretary of Defense; the wartime general who donscivilian clothes to sit on the political directorate and then becomes a member ofthe board of directors of a leading economic corporation. . . .
The inner core of the power elite also includes men of the higherlegal and financial type from the great law factories and investment firms, who arealmost professional go-betweens of economic, political and military affairs, andwho thus act to unify the power elite. The corporation lawyer and the investmentbanker perform the functions of the "go-between" effectively and powerfully.. . .
The outermost fringes of the power elite--which change more thanits core--consist of "'those who count" even though they may not be "in"on given decisions of consequence nor in their career move between the hierarchies.Each member of the power elite need not be a man who personally decides every decisionthat is to be ascribed to the power elite. Each member, in the decisions he doesmake, takes the others seriously into account. They not only make decisions in theseveral major areas of war and peace; they are the men who, in decisions in whichthey take no direct part, are taken into decisive account by those who are directlyin charge.
On the fringes and below them, somewhat to the side of the lowerechelons, the power elite fades off into the middle levels of power, into the rankand file of Congress, the pressure groups that are not vested in the power eliteitself, as well as a multiplicity of regional and state and local interests. If allthe men on the middle levels are not among those who count, they sometimes must betaken into account, handled, cajoled, broken or raised to higher circles. 5
There has in fact been accomplished a Managerial Revolution, Millsimplies. Power in the United States has insensibly shifted from the owners to themanagers, from property to technical function (Berle-Means, James Burnham, J. K.Galbraith). Here be echoes a long line of modem writers increasingly emboldened inwhat they assert. 6
According to Mills, within the new managerial grouping, power isin the flux of coalition among managers. It follows that if the Fords, Mellons, Rockefellers,Du Ponts and others still count, they count for much less than they once did. Ifmoney once talked, now it only whispers in the halls of power, hushed by the presenceof the organization man.
The major new segment in the managerial group, according to Mills,consists of "the warlords," the military. Owing to the emergence of a bigcold-war military establishment and the infusion of corporations with hundreds ofretired officers (who were really available because 13.5 million men were mobilizedfor World War II), the military establishment has become an independent politicalsegment, Mills contends. War and peace are dictated, not in Wall Street as socialistsand populists used to claim, not in Congress and the White House as formal constitutionalistsbelieve, not in the populace as naive democrats believe, but in the Pentagon. TheJoint Chiefs of Staff, professionals, have the determining voice in this matter andRockefellers, Mellons, Du Ponts et al. must just tag along.
Although the situation as projected by Mills creates a complicatedand dramatic picture, one must object to it on compelling grounds. Mills has raisedwhat are clearly subordinate advisers and technicians into his elite of power. Manyof the persons he mentions as power wielders are known, in Wall Street and Washington,as "office boys," "fat boys," court jesters and errand boys.Even by categories they do not rate. Lawyers and bankers, as such, do not rate. Thepoint is: Whose lawyer or banker are they?
Mills's classification was purely subjective, externally applied.Most of the members of his elite are subject to the decisive will of others. Theydo not have a wide range of power in their own right, as do Communist leaders, butderive it. They are but the representatives of power, held in reserve by others.Yet Mills claims that "the higher agents" of the economic, political andmilitary domains "now often have a noticeable degree of autonomy" and "thatonly in the often intricate ways of coalition do they make up and carry through themost important decisions." 7 He asserts in effect that if the Pentagonsays "No" to Wall Street and the White House there ensues at least an internalpower crisis.
As to this, it can be shown that on "important decisions,"such as the discontinuance of manned bombers as well as on other matters, the jointChiefs have been flatly, pointedly and publicly overruled amid cries of anguish fromfriends of the bomber program in Congress. The present weakness of manned airpowerhas been dramatically shown in Vietnam, where American plane losses against a minorfoe have been staggering.
A salient fact about any elite is that it is not only a classifiableentity but it really has what it is supposed to have. The elite heavyweight puncherscan really outpunch other men. All the orchestral conductors in the world, in meetingduly assembled, could not vote Leonard Bernstein out of the category of elite conductors.This is because Bernstein has all the characteristics stipulated for an elite conductor.One might meaningfully say, "I don't like Bernstein's conducting"; butone could not meaningfully say, "Bernstein is not an elite conductor."
And this is particularly so of anyone in a power elite. If someonecan say of anyone in a supposed power elite, "You no longer have power,"and this statement is true, did the object of the remark really have power?
But most of the members in Mills's power elite are readily removable,or may be ignored, by other members. Most of the members of Mills's power elite areindeed no more than advisers and technicians. They were hired and can be fired, holdtheir positions only during satisfactory conduct. This is not to say that while inoffice they are not powerful. But their power is derived power, not their own, notautonomous.
All of Mills's military officers, first, are subject to retirementunder pre-existing rules. Moreover they can all be retired early. None of them cansay, "I don't believe I shall retire just yet." Furthermore, none of themmade the rules.
Again, each can be ordered to change his command, his driving willthwarted. In a salient case President Truman relieved General Douglas MacArthur ofthe Far Eastern command. MacArthur did not want to be relieved. But when all thechips were down, he was powerless. The same goes for the Joint Chiefs. In speakingof the autonomous power of the American military, Mills sounds as though he werespeaking of the German and French officer corps of an earlier day, when a factionof landed (propertied) army families actually had deputies sitting in the legislature.The General Staff was a legislative force, could unseat ministers. The United Stateshas no such independent politically ensconced officer corps and it is misleadingto imply it. In the United States, generals (even loud talkers like Curtis E. LeMay and George Patton) can be moved around like pieces on a chessboard.
Corporation officials, similarly, are retired on schedule and arealways dismissible at the behest of the large blocks of stock. While they may bepowerful, it is not their own power on behalf of which they speak. It is derivedpower.
In all of Mills's collection of power-elite people, only the bigowners (the finpols) and the upper pubpols cannot be dismissed. Hereand there, too, some underling is established through the dialectic of intrigue,usually in a limited way. Members of the Supreme Court are ensconced for life, collectivelyhave ultimate power in the area of interpreting the laws; they can void statutes,can precipitate an inner nationwide power crisis (as with the school desegregationand state legislative redistricting decisions). The president has full executivepower, but only for a limited term; all appointed national officials are subjectto his whim. Congressmen each wield fractional power for formally limited terms.Only a very few of these in the Senate have some national stature based on innerrank or on constituencies they have attracted outside their home states. Those inoffice for many terms from noncompetitive electoral districts come, on the basisof deals and understandings with each other, to constitute a powerful inner directorate.In combination this directorate can easily frustrate newcomers. They are the "oldboys" in the school, know where all the jam pots are hidden. They are the "powerelite" in each, house. Collectively, they "run" Congress. State governors,legislators and judges are clearly second-rank figures: they may be secure, but invery limited areas.
The upper hierarchy of the Catholic Church, too, owing to its psychichold on many voting church members, should be considered pretty much as high-rankingpubpols, between the first and second ranks. It consists of churchpols.This is the end of the power elite as far as pubpolity alone is concerned.
Two people of a type not here included who fit into Mills's conceptionof the power elite are Secretary of State Dean Rusk and former Secretary of DefenseRobert McNamara, respectively derived from the Rockefeller and Ford stables. Thesemen meet all the Millsian criteria and I wouldn't suggest that they should be regardedas ciphers. It is, however, noteworthy that each significantly changed his tune ifnot his entire public personality in the transition from service under PresidentJohn F. Kennedy to service under President Lyndon B. Johnson. Each, indeed, changedfrom ostensibly reasonable and moderate men to fire-eating hawks, from cosmopolitanmen to provincial men. In each case, it is obvious, their public script was suppliedby the president, who held the power of dismissal over both. Each, no doubt powerfulas a go-between, was powerful only as an underling.
J. William Fulbright, Richard B. Russell, John C. Stennis and othersof the Senate Directorate in the interim experienced no such change of attitude.They remained implacably themselves.
There has in fact been no such phased change since 1930 as Millsand others refer to, although there have been changes--mostly in the way of moreintense concentration of wealth with some greater preemption of roles by pubpols.Pubpols and finpols have both enhanced their powers, not with respectto each other but with respect to the public. One of the hundreds of external evidencesof this is the shift of the major tax burden to the lower labor force. But thesechanges have not been basic changes that have altered the structuring of power inthe United States.
What is the case is that American society has grown very large andcomplex and requires a more complex hierarchy of managers and officials with delegatedpowers. But to ascribe autonomous, initiating power to this hierarchy, as thoughit or any member of it below the very top could initiate or veto policy, is to befogthe picture. The decisive power is at the very top, as was shown by the futile outcryof almost the entire intellectual and academic community against President Johnson'sruinous Vietnam policy. This policy was given the endorsement of leading pubpolsand of big owners and corporation officials. And this was, for those with a stomachfor it, a demonstration of power.
Let us look at a few recent big decisions of history and ask ourselveswhat role the Millsian power elite played in them.
In 1940 the facts of atomic theory were put to President Roosevelt.It seemed possible to develop an atomic bomb, Hitler might do it. Beyond scientists(not in Mills's power elite) telling the president of the technical possibilities,what elite led to the decision to go ahead with the Manhattan Project? None, as faras the record shows. If it had proved a costly failure who, besides the president,could have been blamed?
When it came to dropping the bomb on Japan, who was consulted onthe pros and cons? Only President Truman figured in the decision to do it. The droppingof the bomb, like its manufacture, came as a surprise even to the corporate press.Similarly, who joined in the decision to oust General MacArthur? Only President Truman.As the saying goes, he wasn't asking anybody, he was telling them. This is, clearly,demonstrated power.
During the Cuban missile crisis many advisory voices counseled PresidentKennedy: Invade Cuba, bomb it, blockade it, go to the United Nations, consult foreigngovernments, ignore the whole business, stick to economic blockades. Most suggestions,it is clear, were ignored. One course of action was selected--by President Kennedy.
The Bay of Pigs operation, however, appears to have been a true Millsianpower-elite decision (Pentagon and CIA) which the president doubtfully accepted,with a crucial modification (withdrawal of air support) that in effect scuttled thewhole thing.
When it came to committing American military power openly in Vietnamin 1965 the whole idea, as far as the record shows, arose in the mind of PresidentJohnson, who appeared to believe he could pull off an easy coup, a grandstand playthat would show him a political wizard. As far as the record shows, no combined groupsuch as Mills talks about recommended any such action, and the president in the campaignof 1964 had explicitly opposed militant action as recommended by Barry Goldwater.Key Democrats of the inner Senate Establishment, such as, Richard B. Russell of Georgiaand John C. Stennis of Mississippi (elite of the elite as far as inner politicalpower is concerned), were opposed to the procedure. Yet the president, and the presidentalone, gave the fateful signal that put the United States on the course toward blunderingand costly slaughter and the loss of valuable friends all around the world. The operation,indeed, put the United States on all fours with Soviet Russia in its brutal suppressionof the Hungarian uprising of 1956, stripped from the United States all pretensionsto humane superiority over what is described on every hand as a sinister totalitarianpower.
In all of Mills's collection of alleged power elite people only thebig owners (what I have called the finpols) and the upper pubpols cannotbe questioned, and they never were in question. While the big owners can be proceededagainst with much hue and cry, investigated, chivvied, demagogically denounced oreven fined, they cannot be knocked out short of revolutionary change; for their positionis woven into the very warp and woof of the legal system. The upper pubpolscan at most be gradually undermined in a series of electoral defeats. Even in defeatthe pubpols often still have much power, like mortally wounded pythons.
This being ineluctably so, the situation is precisely where it wasbefore Mills introduced his dazzling army of underlings. Necessary instruments ofit, they are not members of the power elite although in the ruling class; they areits fringes, at most its dispensable advisers. Whatever power they have is by appointmentunless they become big owners, which they may do by marriage, or win big elections.Nelson A. Rockefeller, Robert F. Kennedy, Edward Kennedy, W. Averell Harriman anda few others hold elite rank on both counts.
Members of the topmost elite are not answerable to anyone for whatthey do in the ordinary course of affairs. This condition eliminates the pubpols,who are ultimately answerable to the electorate and to peers. The pubpols,for example, must spend a good part of their time conspicuously entering and leavingchurches; the finpols can take the churches or leave them alone, as they usuallydo. Nelson A. Rockefeller no doubt diminished his standing as a pubpol byhis divorce and remarriage; he did not diminish himself a bit as a finpol.Nor did Henry Ford II diminish himself as a finpol by divorce and remarriage.He even weathered automatic excommunication from the Catholic Church, which a pubpolcould not have done.
A finpol may be an alcoholic, a drug addict or a homosexual;a pubpol would hardly have those choices. A sybaritic finpol can swingelections; his checks are as good as those written by a puritan. A known sybariticpubpol could not make it. The finpol, in short, has a surer and moregeneralized power base: money.
Finpols spend much of their time abroad, often maintain foreignresidences--palazzos, ranches, plantations, haciendas, latifundias and evenresort hotels. Pubpols must remain close to the home soil, with an occasionaljunket abroad on "fact-finding" trips. They can't even be seen at Las Vegas.
Finpols, with no dilution of their essential power, can alsolead la dolce vita fully orchestrated, with a full entourage of Corybanticgirls. Tendencies in this direction have been moderated of late amid tightening worldtensions, as a slight concession to public sensibilities. But jollification continueshere and there--in Rome, Marrakech, Monaco, Rio and St. Moritz--behind closed doors.
Best of all, the finpol cannot be toppled by elections. Ifone party loses out he has many pubpol friends in the other party. As longas the factories are running he is right in the swim. Reforms come and go; trimmingin the back committee rooms goes on forever.
As a finpol one obviously has a surer footing.
The difference with Mills on the structure of the power elite andother details mentioned earlier does not mean that his book is without merit: Millswrote as a moralist and a political analyst rather than as a sociologist. As a sociologisthe was unable to make contact with readily available data, he did not have the underlyingfacts. Yet Mills, despite much shuffling with ranks and cadres of underlings, alwaysand despite everything comes around to the paramountcy of money in the situation.He is especially mordant in his final chapter, "The Higher Immorality,"where he writes:
Whenever the standards of the moneyed life prevail, the man withmoney, no matter how he got it, will eventually be respected. A million dollars,it is said, covers a multitude of sins. It is not only that men want money; it isthat their very standards are pecuniary. In a society in which the money-maker hashad no serious rival for repute and honor, the word "practical" comes tomean useful for private gain, and "common sense," the sense to get aheadfinancially. The pursuit of the moneyed life is the commanding value, in relationto which the influence of other values has declined, so men easily become morallyruthless in the pursuit of easy money and fast estate-building.
A great deal of American corruption--although not all of it--is simplya part of the old effort to get rich and then become richer. But today the contextin which the old drive must operate has changed. When both economic and politicalinstitutions were small and scattered--as in the simpler models of classical economicsand Jeffersonian democracy--no man had it in his power to bestow or to receive greatfavors. But when political institutions and economic opportunities are at once concentratedand linked, then public office can be used for private gain. 8
The Big Money
Just as one cannot be sure how much a man is worth by ascertaininghow much stock he owns directly, so one can tell little about the true compensationof a top corporation executive by ascertaining what his salary is. It is pointlessto mention specific formal salaries. There was a time when a corporation executivekept all of his generous salary. But with the introduction of the graduated incometax, cash income was eroded.
The tax laws seriously undermined the objective of purchasing theloyalty of worry-free essentially pecuniary men, and ways had to be found to makeup the difference. Cash bonuses would not do because these required that the corporationexpend (as the laws stood up to 1964) $100,000 for every additional $10,000 thatfound its way into the executive's pocket.
The two thoroughly sound ways that were found to avoid this contre-tempsturned out to be cut-rate stock options, a concealed untaxed gift, and lavish expenseaccounts. These latter have more recently been delicately trimmed, but the stock-optionplan is flourishing as never before. 9
The effect of the stock-option plan on executive take-home pay, assuminga doubling in value of the stock spread annually over a decade, was as follows inone company under the law as it stood in 1961: 10
Total Cash Estimated Capital Gain After-Tax Income Compensation after-Tax after Taxes Plus Capital Gain Income on on Options as Percentage Cash per Year of Cash Compensation $240,000 $72,000 $144,000 90 150,000 59,000 79,000 92 95,000 46,000 43,000 93 65,000 37,000 26,000 97 45,000 29,000 14,000 96 30,000 21,000 5,400 85
The effective yearly executive tax in this company ranged, then,from 3 to 15 per cent, or less than the rate applicable to the lowest taxed ordinaryincome receiver in the country. The pecuniary advantages, direct and sub rosa,of being an upper executive are obvious.
We need not detain ourselves by reviewing untaxed expense accountmoney, applied to some extent to entertainment and diversion and otherwise simplypocketed, or to other perquisites in the way of retirement funds and investment tipshanded around among insiders on the top corporate level.
Depending on the extent of the stock-option plan and the nature ofthe company, this new wrinkle turned out to be the new royal road to riches in somecompanies. In pioneering General Motors, as we have noticed, it converted a longstring of successive top executives into multi-millionaires: Raskob, Sloan, Knudsen,Mott, et al.
Stock options dilute the equities of stockholders--that is, outstandingstock is insensibly reduced in book value as blocks of stock are parceled out atcut rates. Until limitations were imposed outright, stock bonuses were popular, andin these the dilution was more plainly evident. The question now is: Do the stockholders,particularly the large stockholders, know what is taking place?
Leading stockholders always know precisely what is taking place,want to whet the acquisitive appetite of eager-beaver officers. In General Motorsthe Du Ponts, with a 23 per cent stake, obviously knew what was going on, acquiescedin it and possibly planned it that way. In at least one case some General Motorsstockholders objected and terminated a then existing plan in court. In other companiesstockholders are not at first aware of what is taking place and, when some do becomeaware, they may go to court to have the plans struck down, as in the 1930's in AmericanTobacco and Bethlehem Steel among others. In those cases a largely nonowning managementhad set up the plans as a way of subtly obtaining enlarged ownership of the companyat bargain-counter prices.
Where some of the large hereditary owners, as in IBM among others,are executives and therefore participants in a stock-option plan, they experienceless dilution of equity. The equity of the stock they already hold, true enough,is diluted but the dilution is partly or wholly compensated for by the participationin the juicy options.
Executives as Nonpecuniary Men
It is evident from the various schemes of corporate executive compensationthat the acquisition of property and more property appears to be the overriding goal.One so concludes upon considering the large formal salaries, stock bonuses, stock-optionplans, generous expense accounts and lucrative retirement plans, without consideringvarious fringe benefits: long vacations, medical services, college scholarships andthe like. This is all, very plainly, Easy Street in the latter-day corporate era.
And yet it has been seriously suggested that corporation executivesare not really interested in money and money-making. We shall come to more itemsin this black-is-white mythology later, but right here seems a good place to attendto the notion that executives are not interested in making money.
1. The line, echoed in many management utterances, is stated succinctlyby Osborn Elliott: ". . . the top men of U.S. industry possess the kind of driveand energy that separate the winners from the also-rans. Yet strangely enough, ina society based on the profit motive, these staunchest defenders of private profitsare not themselves primarily motivated by money. Many of them, it is true, quitenaturally entertain a healthy regard for the six-digit pay check. For when a mansteps into a top job, his pay is likely to accelerate almost to escape velocity."
There follows a review of some of the opulent salaries, up to EugeneGrace's $800,000 in 1956.
"Yet," Elliott resumes, "the promise of money is notwhat keeps most top executives coming to the office every day. For one thing, hightaxes make a raise almost meaningless. . . ."
We have, though, already seen how that little impediment is bypassed.
"This is certainly the way Crawford Greenewalt [of Du Pont]feels about his own pay as president of du Pont," Elliott continues. "Itis a well-known fact that on Greenewalt's wedding day in 1926, his father-in-lawIrénée du Pont gave him 1,000 shares of Christiana Corp., the holding companythat owns gobs of du Pont stock. By 1959, Greenewalt owned 4,096 shares of du Pontcommon (at $250 a share) and 687 shares of Christiana common (at $17,000), for totalholdings worth $13 million. Thus Greenewalt does not exactly depend on his $300,000-oddyearly salary and bonus from du Pont to keep body and soul together.
But Greenewalt's paycheck, Elliott admits, nevertheless has at leastemotional meaning to him. He would not like to work for nothing. For, Greenewaltis quoted, "Money is a symbol in the same way that a Nobel Prize is a symbolto the scientists. You can't eat a Nobel Prize. Of course, you can eat the $50,000that goes with it, but that's not why people want to win one." 11So, this strange spectacle of elaborately large pay taken in various tax-skippingforms, does have a rational if recondite explanation. It is, we are assured, purelysymbolic, analogous to a Nobel Prize in science. A slight difference is that theNobel Prize usually comes only once, cannot be solicited and is for a modest $50,000.It carries with it no stock options, gifts or retirement pay that amounts to morein one year than the average worker makes in twenty to forty years.
And the recipients of the pay, we are assured, are akin to scientists,but better paid.
Lest it be thought that I dismiss the strange contention out of handlet us prayerfully consider it together. There may be some subtle point here, asin higher mathematics, which lesser mortals have difficulty in grasping. All thismoney is a symbolic prize apparently for rare and profound management insight exercisedto keep the infinitely complex industrial system going.
Looked at coldly, the contention in the light of all surroundingcircumstances is an insult to intelligence. Comparison of year-in-year-out executivepay to the Nobel Prize compounds the insult. If the money were a mere symbol it couldbe hung on the wall, like a diploma. As it is, it is treasured, carefully invested,locked into the strongest vaults. If a stranger gains access to it without permission,he is liable to be shot out of hand. It is, then, more than a symbol. It is the substance,the ultimate goal.
It is entirely possible, of course, for a man to say honestly thathis salary of $300,000 or so means little to him (especially when 70 or 91 per centof it is taxable) in the light of the fact that he has other large income steadilyaccruing to him in dividends, undistributed profits, retirement funds, prepaid lifeinsurance and perhaps capital gains from cut-rate stock options. Anyone might feelthis way about $300,000 in such circumstances. But that this disproves an interestin money is hardly tenable. Rather could it be interpreted more reasonably as showingan interest in money that has been so well satisfied that $300,000 additional beforetaxes is a trifle!
Still, Osborn Elliott may be exactly correct in the letter of whathe says, although he is certainly errant in rendering the essence. For he said, theclose reader will note, that these men are not primarily motivated by the prospectof large gain. What primarily motivates any man might be difficult to say. Most menappear to be primarily motivated by a desire to continue breathing from moment tomoment. But somewhere along the way the big money-makers, after primary motivationshave been served, appear to be grasped by a very strong, compulsive, overriding motivationto gather in large sums of money by a variety of devious avenues.
Careful studies of executive inter-company mobility, based on largenumbers of companies, are inconclusive in showing a clear pull of money alone inthe attraction of executives. This is in part because the effect of stock options,which became pervasive only after 1950, has not been fully studied and because theeffect of hidden perquisites like wide-open expense accounts cannot be measured.But even though pre-1950 data do not clearly show the pull of bigger money 12it is agreed by observers in the field that either money or greater responsibilitiesand higher positions invariably associated with money are factors. 13
Business Week in 1953 found that 422 job-changing executivesgave the following reasons for moving: bigger job, more responsibility, 29.9 percent; greater opportunity for future growth, 21.6 per cent; increased income, 17.8per cent; disagreement with management policies, 16.1 per cent; discharged, 14.7per cent; need for change of activity, 10.9 per cent; all other reasons combined,50.9 per cent.
As Roberts points out, on the executive circuit the first two reasonsare usually associated with more money, so that in this group 69.3 per cent of thereasons given concerned money-making. The total of reasons exceeds 100 per cent becausesome of the men stated more than one reason. 14 "Many similar surveyshave been made and, while they differ in the weight given to individual factors,they point to a complex web of motivations in which money by itself [my emphasis--F.L.] appears to be relatively unimportant, but in which money contributes to an unknowndegree to the attractiveness of non-financial factors." 15
All that this indicates, after tracing through the fine print, isthat a salable executive will not ordinarily stay in a well-paid job if he is seriouslyhumiliated, mistreated or frustrated and will not seek a better-paying job if itdoesn't offer him at least as much security of treatment and status. But none ofit suggests that executives are not attracted by better money offers. A man paid$100,000 net by Du Pont might not respond to an offer of $200,000 from Podunk Armsbut, unless he saw better things in sight for him at Du Pont, he would almost certainlyexamine carefully an offer of $200,000 net from Allied Chemical or Union Carbide.He would, as everyone recognizes, owe it to his wife, his children, his mother, hispastor, his Alma Mater and the family dog to do at least this much.
If executives were not drawn by better money offers, despite alllabored statistical analyses, such offers would not be made (and often accepted)as they commonly are. The fact that all the offers are not accepted shows the weightof the old maxim: Money isn't everything.
Yet the asserted disinterest of the high executive in money, attestedto by Greenewalt of Du Pont, has achieved high academic certification, as have manyother strange notions relating to wealth in the United States. Professor Daniel Bell,Columbia University sociologist, thus assures us that the new corporate men "werea special breed, often engineers, whose self-conscious task was to build a new economicform, and whose rewards were not primarily [there it is again--F. L.] money--fewaccumulated the large fortunes made by a Carnegie, a Rockefeller, a Harriman, ora Ford--but status achievements and, ultimately, some independent power of theirown. Thus T. N. Vail, who created American Telephone and Telegraph, Elbert Gary,who became the public relations face of U.S. Steel ('He never saw a blast furnaceuntil he died,' said Ben Stolberg once, bitterly), Alfred P. Sloan, who fashionedthe decentralized structure of General Motors, Gerard Swope, who held together GeneralElectric, Walter Teagle, who rationalized Standard Oil" are representativesof a new social upward mobility. 16 And this last may be true.
The big corporation man here stands forth as a status achiever, notprimarily interested in money. (It has never been established, one should notice,that Carnegie, Rockefeller, Harriman, Ford or any of the progenitor moguls were primarilyinterested in money. For my part, I should say they were not.)
All these men--Vail, Gary, Sloan, Swope and Teagle--were agents.Behind Vail, Gary and Swope stood J. P. Morgan and Company. Behind Sloan was theDu Pont family and behind Teagle were the Rockefellers.
The only one of these to amass a very considerable fortune, thanksto stock options and a preternaturally skyrocketing large industry, was Sloan.
Professor Bell's thesis here is that family capitalism, once dominant,is breaking up, making way for the New Men of power, the new managers, who are verymuch akin to the members of Mills's power elite, although Bell has many well-takencritical reservations about Mills. Like Mills, he believes in the managerial revolution,in new coalitions of men not primarily interested in money (except as collectors)but interested in status, achievement and play with power. The power of the "rulingclass" has been dissolved. Everything is in flux. 17
That the concrete evidence shows this has not happened--at leastnot yet--the reader is now well aware.
What I suggest is that the big executives, the new men, are interestedin money, perhaps not primarily but prominently. I deny that ultimate power eitherin a company or nationally lies with the executives, unless they are also big owners.
I don't by any means suggest that the big executives are straw men,water boys. They would be of slight use to the powers-that-be if they were. Consideringwhat little is expected of them by their superiors they are perfectly capable. Theyjust do not call the shots, either singly or in coalition. Their role is advisory.If, creatively, they develop large plans, these plans are subject to approval--inpolitics by the president and the congressional Establishment (with the concurrenceof the Supreme Court) and in industry-finance by the big and few stockholders (notby the twenty million shareholders of the Stock Exchanges "People's Capitalism").
To show that what I assert is not so, all anybody has to do is tocite a single case wherein a single executive or coalition of executives, lawyers,military men or others carried out any project whatever in government against thewill of the president and Congress, and in industry-finance against the will of thebig owners either directly present or always ready to step in. Berle in The ModernCorporation and Private Property shows a string of big companies undermanagement control by one legal device or other, but a few years later the managers,who were often big owners elsewhere in the economy, were knocked out by legislationand most of the companies were also knocked out of existence, especially in publicutilities,
All this is so even though, as I am aware, there are cases of bigowners who haven't the foggiest notion about anything until they consult the presidentof their company and their lawyer. They are completely dependent for guidance uponthese far more knowledgeable men, who exercise power by proxy. In the circles ofpower, too, everybody knows for whom they speak. But I see no validity in lookingupon such representatives of absentee power as "new men" of power. To methey look like old-fashioned agents, overseers, by no means to be disparaged. Atthe same time, they should not be enthroned--at least, not until after a coronation.
Social Origins of Executives
The origins and backgrounds of big business leaders have been studiedunder the most refined academic auspices and their careers statistically traced withfine-caliper methodology. 18 We may profitably take note of some of thefindings.
Of the large sample studied for a period of twenty-five years, 52per cent had fathers in business and 22 per cent had fathers in professions or white-collarwork. Only 9 per cent had sires who were farmers, and 15 per cent laborers.
The fathers of 8 per cent were owners of large businesses, of 15per cent were major executives, of 18 per cent were owners of small businesses, of8 per cent were minor executives and of 3 per cent were foremen. 19
This finding was widely at variance with the distribution of occupationsin the population as of 1920, when 47 per cent of all adult males were classifiedas laborers. If big business leaders had been 47 per cent the sons of laborers, themobility rate for laborers would be 100. As it was it was only 16, while that ofsons of farmers was only 40. The upward mobility rate for the sons of owners of smallbusiness was 360, of sons of professional men 350 and of sons of foremen was 133.
Most significantly, the upward mobility rate of men whose fatherswere business executives or owners of large business was 775, nearly eight timesthe statistical projection. The sons obviously either had friends at court or gotproper coaching.
As the University of Chicago sociologist W. Lloyd Warner sees it,the "royal road" to high executive success was higher education. Whereasin 1928 only somewhat more than 30 per cent of big business leaders had a collegeeducation, by 1952 the quota was nearly 60 per cent. In 1928 only 15 per cent hadsome college study but by 1952 20 per cent had at least been to college. 20Of 505 business leaders as of 1952 as many as 216 went to only 14 different colleges,and these same 14 colleges were mentioned 87 times as the ones attended secondarily,either for graduate work or in transfer. Yale, Harvard, Princeton and Cornell werenamed most often, with Harvard as the dominant choice for graduate work. 21Very nearly a third went to Harvard and Yale as undergraduates or graduates.
In no fewer than 62 cases the men went to a second "select"group of 10 colleges, of which Northwestern, Pennsylvania State, Stanford, Wisconsinand Western Reserve were tied for first place. 22
"Education has become the royal road to positions of power andprestige in American business and industry," says Warner. "That this royalroad is open to all men is given ample testimony by the large number of educatedmen from the bottom social layers who appear in our sample." 23
That this royal road, so optimistically saluted, may not in factbe such is suggested by the continuing merger movement and the steady progress ofcomputer analysis. Decision making, whatever its role in the past, is inevitablybeing narrowed in scope by the increasing refinement and elaboration of computers;live decision makers, whatever their role in the past, are becoming increasinglydispensable. Furthermore, the merger movement is continually reducing the numberof top executive posts. Every merger, while it does not necessarily reduce the totalof vice presidents and executive vice presidents, does reduce the number of chairmenand presidents. If all companies were combined into a single company there wouldbe places for only one chairman and one president, and at most twenty-five membersof the board.
That education is not the true gateway to the "royal road"is shown by the concentration of elite schools, long the special wards of the propertied.These schools, eclipsing others, produced most executives because they were mostpatronized by the upper classes. In view of the fact that sons of members of thebusiness elite, owners or big executives, were disproportionately represented andshowed the highest index of upward corporate mobility, it would appear that belongingto the business in-group and the socially related professional group was a more significantfactor than level or place of schooling in obtaining big-business position. Sonsof owners, executives and professionals as a matter of course are more likely togo on to college, particularly to elite colleges, and after that into the higherexecutive posts. True, as Warner shows, men of lower social origins can and do makethe grade, but in far lesser proportion than the incidence of low social origin inthe population. Otherwise put, those who are already in at the beginning are morelikely to be in at the final reckoning.
The typical business leader of the 1950's was 54 years old, had beenwith his firm 24 years, achieved his high position 24 years after entering businessand had held his job for almost 7 years. Most men began business between age 21 and22, freely shifted jobs and companies until about 29 years old when they joined theirpermanent firms. Typically, the man was 45 or 46 years old when he clearly emergedas a top dog. 24
But the longer his period of schooling the quicker he made it tothe top. Graduate students made the very top in 19.9 years, college graduates in22.9 years, college dropouts in 24.5 years, high school graduates in 27.9 years,high school dropouts in 30.6 years and grade school products in 31 years. 25
So, the more schooling the successful entrants have (or the moreaffluent early circumstances) the quicker they make it to the top. At any rate, neithereducation nor in-group standing retard one in his ascent.
In beginning occupations, 43 per cent started as clerks and salesmen,24 per cent as professionals, only 14 per cent as skilled or unskilled laborers."Few at any point in their careers were entrepreneurs in the sense of owningor establishing their own businesses. Also, while there have been a number of casesof men moving from top-level military positions into key positions of late, theseform only a minor proportion of the total business elite." 26 Somuch for Mills's switchovers from the military to the corporate circuits.
The Horatio Alger hero, as Warner notes, is not very much in evidence.
"Careers are built largely on formal education, acquisitionof management skills in the white-collar hierarchy, and movement through the far-flungsystems of technicians and lower-level management personnel into top management.Traces of the legendary patterns remain, and spectacular examples of the type exist;they tend to be unique." 27
Upward mobility toward the elite corporate level, Warner found, wasespecially marked in the area of marriage because most business leaders in all categoriesmarried above or below their levels of origin. Those of laborer origin married mostfrequently at their level of origin, 42 per cent; big-business people married nextmost frequently at their level of origin, 35 per cent. Professionals and white-collarpeople, exogamous at 77 and 81 per cent respectively, married most frequently outsidetheir levels of origin, but nearly 20 per cent in both these cases married into thebig-business class, took to wife a tycoon's daughter.
When a man marries above or below level of origin--and most of allcategories did--there is upward social mobility toward corporate elite status involvedin marriage for the man or the woman. As the leaders all have elite status, it mattersnot how they got it, although women born below the elite obviously got there onlythrough marriage. A woman is either in the elite to begin with, marries into it ormarries a man who drags her along into it. 28
People who make it to the top or are born into the top are mobilein non-social ways. They are, first, geographically mobile, easily moving aroundthe country from place to place. They are functionally mobile, readily adapting toa considerable range of jobs in which Warner detects much special educational stimulus;they are adaptable men. Those in the birth elite, however, tend to be less conspicuouslygeographical gadabouts.
External signs of steadiness and "stability" were mostnoticeable in the birth elite. The others, at least early in their careers, weremore akin to rolling stones, willing to switch jobs and locations.
The number of men in the same firm as their fathers, compared withsons of the elite who achieve high position in other business organizations, is relativelysmall. There can be no doubt that each group of men was advantaged by being bornto high estate. Only a few were directly aided by extra privileges and financialassistance; but the immediate factor of being born to families accorded high rankby the community provides such fortunate men with social and economic advantages,such as being in the higher levels of prestige where the powerful are, going to the"right" preparatory schools, having the right social relations and clubsand fraternities in college, and going with and courting young women of their ownsocial set, knowing what to do and not to do (while the parvenu by trial and erroris struggling to learn that there are such ways). They get a head start in life thatcan be overcome only by hard work, grim determination, and watchfulness of personneloffices, or the eager quest of great corporations for young men of promise. The birthelite are advantaged because their families learn "superior" values, goals,and standards by living in the subculture of an upper class. Their earliest adaptationsfrom infancy on--nursing, weaning, cleanliness, likes and dislikes, admiration ordislike of intimate figures about them, later childhood goals and ambitions--areset within the learning maze of a "Superior" family. 29
It may be hypothesized that there are far more heart attacks amongthe nonelite upward strivers than in the birth elite: the Horatio Alger boys whonever made it, dropped dead on the ten-yard line. I have found no studies of fatalillness in the candidates for success on the corporate ladder that compare the rateof such illness for groups of different social origin. One may surmise, however,that the man who makes it from laborer to retirement as chairman of the board hasan exceptionally strong constitution. The road ahead somehow seems less rough withScarsdale, Yale and Skull and Bones as take-off points.
Life around the Executive Suite
Life in the corporations, and in and around the executive suite,has been as closely studied as other phases of the executive terrain and has oftenbeen portrayed in best-selling novels and popular films. William Whyte's The OrganizationMan is one of the better known of the more mordant studies of the corporate bureaucracyand its foibles, and there are others. But for an impressionistic study of the headquartersoffice of the large finpolity there is nothing to excel Alan Harrington'sLife in the Crystal Palace, written by one of its Harvardian denizens. Grimlyforbidding to the Socialist, Communist and more generalized radical, the organizationalgenerating point of human exploitation and debasement, the corporation on the insideis indeed nothing so much as a crystal palace, a place of shining light, elevatedattitude and sweet benignity. "I think that our company resembles nothing somuch as a private socialist system," says Harrington. 30
The whole of his book is a banteringly persuasive, penetrating embroideryon this theme.
What Marx suggested socialism might be like after it took over anirrational capitalism from a handful of selfish owners one finds here--at the headquartersof the giant corporation. Here the byword is: From each according to his capacitywithout any great pressure, to each according to his needs in an ascending hierarchyof greater and greater privileges, boons and opportunities. Harsh voices are neverheard in the Crystal Palace, nobody is ever bawled out, nobody is ever fired no matterhow much he deserves it, everything is cushioned--benefits all around for everybodyfrom day of employment until death.
"A mighty fortress is our Palace; I will not want for anything.I may live my days without humiliation. I will not be fired. It nourishes my self-respect.I am led along the paths of righteousness for my own good. I am protected from tyrants.It guards me against tension and fragmentation of myself. It anoints me with benefits.Though we pass through bard times, I will be preserved. These strong walls will surelyembrace all the days of my life, if I remain a corporation man forever." 31
And all this applies down to the lowliest clerk and office boy ofthe Crystal Palace, each of whom has in hand his plan of sure benefits until retirementand beyond. Everything is bland, bland, bland . . . and genteel, subdued.
But "As for the young man who has not gone to college, he isvirtually untouchable so far as a middle-level job with a corporation is concerned.If Henry Ford were reincarnated he could never land a job at the Crystal Palace.In fact, on the technical side, an applicant will have quite a bit of selling todo if he can't produce a graduate school degree." 32
"I suspect," says Harrington, "that most jobs in acorporation and elsewhere can be mastered in a few months, or at any rate in a yearor two. What cannot be learned that quickly is the corporation minuet--the respectfuldance with the right partners. The watchful corporation man gradually finds out whois important and who is not; what is acceptable and what is not; what type of projectwill advance his fortunes and what is not worth bothering about. The secrets of gaugingand responding to the power of others--superimposed on a normal intelligence--willmove him slowly upward." 33
In the upshot Harrington found paradise boring. The hardest taskwas standing quietly on the escalator as it quietly swept one upwards toward thequiet stratosphere of quiet corporate power.
There was one cardinal sin at the Crystal Palace, Harrington found,and it could get one into serious difficulty. This was to be without the capacityfor belief in the absurd, at least for believing in believing. Not to be a true believerof some acceptable sort stamped one as dangerous. As Harrington saw it, the hierarchyof acceptable beliefs from highest to lowest was as follows:
1. Belief in the product. "The highest and most satisfying formof commercial belief is the conviction that the product I am working for is essential,or at least helpful, to mankind. If I can't have that, I should be able to assume,at any rate, that our product is the best of its kind on the market. Lacking that,let me have faith that it is not positively the worst of its kind. Take even thataway, and please assure me that it is not poisonous. Without such assurance, I willhave to justify my job in another way." The product, in short, is making theworld a better place, at least not worse.
2. Belief in making money. "Money . . . measures the lengthand strength of my manhood. It is the skin of the dangerous leopard, the bacon fromthe wily pig that I bring home because I am strong, and know my way around the forest.. . . The possession of money makes men more masculine and women more feminine. Cashenlarges the soul. Money creates beauty where there was none before. It is positivelyerotic and can buy gaiety. When I have money I am a much nicer person, tolerant,kind and understanding, and I forgive the sins of others. . . ." Moneymakersare great people, the greatest.
3. Belief in getting ahead. Attainment of status is the end in viewhere. You are what people think of you.
4. Belief in being a "pro" in doing a job professionallywell whether one likes the job or not.
5. Belief in sheer process. "I believe in production."
6. Belief in the company, whatever one's lack of belief in any ofthe foregoing. Not at the very least to believe in the company disqualifies one entirely.
For if I am lost in the split-level values of modern business, theHigh Corporation will serve as my High Church. Like the church, my Crystal Palaceremoves the burden of belief from me. It removes my need for decision. I have foundmy rock. I only believe in the company.
Like the church, our company is good and wise. In the context ofbusiness enterprise, it is the inheritor and vessel of a mighty tradition. Our companyhas achieved high ethics and kindness, and cares for me, and will see me throughto sixty-five, and send me checks after that. Church and Palace alike are sanctuariesin the jungle of unbridled competition. At the head of the church is God. On thetop floor of the Crystal Palace . . . it doesn't matter, since I will never arrivethere. 34
The Big Money
The plush fortunes, few excepted, belong almost entirely to originalowners of properties, mainly in the form of corporations, or their descendants. Leadingexecutives, no matter how much they are paid, rarely put together overarching estates.
The way one becomes ultra-rich on the corporate circuit is to gainan early ownership participation in a rapidly developing company (preferably unnoticed)in a new field, precisely as in the nineteenth century. The trick is to see the newfield opening up or to open it up. Most nonowner executives, as we have seen, makeit to the top at about forty-five years of age, with only some twenty years to gobefore mandatory retirement. Even if they were able to put aside as much as $1 milliona year out of cash salary, stock options and participation in undistributed profitsthis would guarantee only $20 million prior to retirement, not a pauper's portionby any means but still not up in the imperial range of the General Motors executivesbetween 1920 and 1960 nor in the range of the $90-million estate left by Arthur ViningDavis of Alcoa.
In order to get into the really top money an executive must havetaken his top position very early, which means that except in the case of an hereditaryowner it must certainly have been a small or smallish little-known company when hetook his position. Thereafter his fortunes became those of the burgeoning company;as a member of the inner family he becomes rich enough to arouse widespread envy.
Not many big new companies have emerged since 1920. Running downthe Fortune list of the first hundred industrials we find International BusinessMachines, North American Aviation, Boeing, Radio Corporation, General Telephone,General Dynamics, Sperry Rand, United Aircraft, Allied Chemical, Minnesota Miningand Manufacturing, McDonnell Aircraft, Olin Mathieson, Textron, Celanese, LittonIndustries, Douglas Aircraft, Reynolds Metals, Grumman Aircraft and United Merchantsand Manufacturers. Even some of these embrace, through mergers, properties extantbefore 1920; most of them, however, are representative of new technology, mainlyaviation, electronics and chemicals, and have been well served by war. Some startedout rather big. It is in companies such as these that early executives who remainfor many years turn up with estates that are large but seldom within hailing distanceof the big established fortunes multiply distributed among many family members. Inthis collection no fortunes have been produced to compare with the stupendous accumulationsof Henry Ford and the General Motors crowd.
A rather fruitless running debate takes place desultorily betweenthose who assert that the American economy is so developed that nobody can any longerscrape together a big fortune and those who claim there are as many opportunitiesfor fortune-builders as ever. That there are lush opportunities cannot be denied.But that, in view of the great increase in population and the solidly establishedtitles of hereditary wealth, the opportunities are nearly so many as once was thecase is extremely doubtful. Concentration alone limits opportunities for financialdevilment by newcomers.
While new technology does lift new men to positions of wealth, itshould not be forgotten that old wealth-holders are usually careful to see that theyare participants in the new technology. Thus, while the development of Polaroid madenewcomer Dr. Edwin H. Land a very wealthy man--one of the few really wealthy inventors--hewas in partnership with Harriman and Warburg money.
Corporation executives are the most highly consistently paid peoplein the American economy. If salary is a symbol of worth, as commonly supposed, theyare the most worthwhile people in American society. In general, pay for administeringlarge properties or organizations exceeds all other types of recurrent pay. The payof top executives even in nonprofit organizations, such as foundations and nationaltrade unions, also tends to be high, in the range at least of $50,000 to $100,000.
The most systematically, subtly and thoroughly trained people inthe country, it will be generally agreed, are the scientists. Yet the median annualsalary of 223,854 registered scientists in 1964 was only $11,000 a year, about theexpense account of a middle-level salesman. 35
The highest median for highly experienced scientists was for thosein the age range 50-54, where the figure was $13,400. Scientists employed in industryand business had a median salary of $12,000. In the management or administrationof research and development scientists had a, median of $15,500. The median for theupper tenth of income receivers" among scientists was $18,000; for the lowertenth, $7,100. 36
The median for scientists in education, trainers of new scientists,was $9,600; in the federal government, $11,000; in other government, $9,000; in themilitary, $7,800; in nonprofit organizations, $12,000; and among the self-employed,$15,000. Scientists with a medical degree had a median of $15,500 compared with $12,000for the holders of the Ph.D. 37
The highest pay as of 1965 reported for any pure scientist in theUnited States was $45,000 annually paid to Dr. C. N. Yang, Nobel physicist of theUniversity of the State of New York. The highest salary reported for a non-scientistworking scholar was $30,000 assigned to Dr. Arthur Schlesinger, Jr., historian formerlyof Harvard and more recently with the City University of New York. 38
When Dr. Albert Einstein, one of the most fundamentally creativebrains of modern times, just before World War II accepted an invitation to join theInstitute for Advanced Study at Princeton, New Jersey, he was asked by Dr. AbrahamFlexner, the director, to name his price. Einstein, writing that he was "flameand fire" for the position, suggested $3,000 a year. Flexner quietly set thepay at $16,000. 39
The salary of Dr. Yang would be considered barely adequate by anymiddle-range corporate executive. It would be a small "gift" for any legislator.It would hardly buy the gowns for one year for any one of scores of nubile heiresseswho would probably have difficulty threading a needle. Einstein's salary, even bypre-World War II standards, was that of a very lower-rung man.
If we take Dr. Yang's salary of $45,000 as an index of maximum sophisticatedearning ability, it is clear as crystal that 75 per cent or more of the salariesof top corporation officials is paid for nonability factors--mainly loyalty. Thesalaries of scientists, academic and nonacademic, range far higher than those ofcollege professors in general or even most college presidents, as shown in annualreports on salaries by the American Association of University Professors. Many professorsas of 1967, even at what are taken as "good" schools, were paid down inthe range of $7,000 and less. Most of the schools' teaching staff is paid far lower.
Professionals in general are paid on a similar low level. The mosthighly paid professionals are dentists, physicians, surgeons, lawyers and judges,and their median earnings in 1959 were somewhat about $10,000 annually, accordingto Statistical Abstract, 1964, page 229. The medians for other professionalswere far lower--$4,020 for clergymen, $4,653 for musicians and music teachers, $7,207for college presidents, professors and instructors, $5,827 for secondary school teachers,etc. Engineers, so vital to an industrial system, had a median of $8,361.
The reader should be reminded that the median indicates that halfare paid below these levels.
Leaving aside the factor of scientific creativity, the man in sciencemust have precise, detailed knowledge of thousands of minute and of all-envelopingaspects of his field, within which he must be able to reason subtly, usually mathematically,and he must maintain over long periods of time steadiness of purpose even thoughresults are meager. He is rarely buoyed up by the great "breakthroughs"alluded to so facilely by journalists. Nor can these when they occur be patentedand capitalized.
Neither in input of thought, effort, preparation or concentrationis the work of any corporation executive remotely comparable. Indeed, on the basisof "inside" or friendly accounts the intellectual attainments of corporationexecutives appear to be slight. Fortune finds they do not do much reading,are weak in intellectual powers. 40 Others wonder how many of them havefunctional reading ability at all because so many seem poorly informed, constantlyneed assistance from public relations men (usually ex-journalists).
There is a great concentration of brains in a corporation. But itshows itself, not in the top executives as a rule, but in the lower-paid lawyers,engineers, scientists, market analysts and public relations men. These specialistsusually work up the script for the trusted top men. When some of the executives decideto "go it alone" in public expressions of their conventional wisdom, onegets derisive reverberations, as in the case of Charles E. Wilson's what's-good-for-GeneralMotors homily to Congress. Speaking out on his own, the top corporation man oftensounds like a goof, a super-Babbitt, and the lower professionals in his company writheuncomfortably. Indeed, in some companies the professional staff is under standinginstructions to keep the top man so "boxed in" and isolated that he cannotput his foot in his mouth in public, cannot deliver himself of dazzling shafts ofcracker-barrel wisdom.
It is sometimes argued that it is the vast concentrated responsibilitiesof the top corporate men that make them worth their pay; responsibilities of scientistsand teachers, although not denied, are held to be more diffuse, less immediatelydecisive. Top military officers, however, certainly have organizational responsibilitiesthat transcend those of any corporate officials. Their moment-to-moment decisionsinvolve far more men, equipment, money and organizational niceties as well as thevery safety of the nation. This is especially so in time of war.
Yet the Chief of Staff as of 1966 drew a maximum base pay of $2,140a month or $25,680 per year. The men serving as Chairman of the Joint Chiefs of Staff,Chief of Staff of the Army, Chief of Naval Operations, Chief of Staff of the AirForce or Commandant of the Marine Corps receive basic pay for the grade of $2,019.30per month regardless of cumulative years of service. A Chief of Staff or Chief ofNaval Operations also draws $4,000 per year in personal money allowance. A four-stargeneral or an admiral gets $2,000 a year in money allowance and a maximum annualsalary of $17,796. Corporately speaking, all this is taxable chicken feed.
When we ascend to the ineffable level of the Commander in Chief himself,the president of the United States, we find the salary is $100,000 a year and fullytaxable. There is also a taxable expense allowance of $50,000 for officially connectedduties and a nontaxable annual travel allowance of $40,000. Living quarters are alsoprovided and an alert president can latch on to many free rides and free lunches.There now goes with the job a lifetime pension of $25,000 a year, $10,000 annuallyfor presidential widows and up $50,000 a year (plus free mailing privileges) forthe office help of ex-presidents. The maximum time a man may enjoy this comparativelymodest salary and expense account is ten years.
Owing to the tax bite the in-pocket effectiveness of both the salaryand the nontravel expense account is reduced by more than 50 per cent. For a, presidentlike Lyndon B. Johnson, who was thriftily able to build up from hard-pan povertyan estate of some $13 million or more on his salary as a congressman, there was noparticular problem involved. And for a big inheritor like President John F. Kennedythere was no problem.
This office carries with it vast responsibilities. Yet there is probablyno president or chairman of any one of 750 or more of the largest corporations whois not paid far more. So much for responsibilities and the emoluments therefor.
The corporate executive, as I said, is no wizard. He is paid as heis because he is in a position to do much harm to big property holders. There isa further nuance that should perhaps be noticed. A big stockholder, everything elseapart, wants his chief executives to feel identified as closely as possible withhim. Hence he sees to it that their take-home pay is as close to $1 million a yearas possible. He knows their expense account is phoney because he probably set itup himself and knows there is no such legitimate expense involved. It is all readilyexplainable as serving to keep up appearances.
The executives at various times must entertain foreign notables,public officials or other wealthy men. It would hardly do for them to entertain inmeager surroundings. The residences of the top executives should say at a glance:The Super-Cosmos Corporation is an extremely rich and powerful entity, to be treatedrespectfully. Again, big executives must make political campaign-fund contributions.
No implication is here intended that executives, considering allcircumstances, should really be paid less. They are paid by people who seldom overpay,who pay only what they feel they must pay in every situation. All I intend to sayis that, despite all the ballyhoo about esoteric executive skill to cover up whatthe pay is really for, the executives are not paragons, are not superior people--superiorto scientists, high military officers and pubpols--to the degree that theircompensation might suggest. They are basically politicians, with all the popularconnotations of the term. They are paid as they are to guarantee proper performanceby people who are anxious about that performance.
The comparatively astronomic pay of corporate executives as stand-inoverseers of large properties and manipulators of large numbers of employees, consumersand common citizens is shown in still another perspective when compared with thecompensation, before taxes, of the entire American labor force. Here the pay of atleast some scientists begins to look pretty good, although at least half the scientistsare paid on the level of the lower labor force.
The following chart-profile of family income in the United Statesfrom 1947 to 1964 in 1964 dollars is taken from Current Population Reports: ConsumerIncome of the United States Department of Commerce, issued September 24, 1965.
About 20 per cent of families as of 1964 had incomes above $10,000a year. While only 10 per cent of individual incomes exceeded $10,000, with only1 per cent exceeding $25,000, substantial family participation in plus-$10,000 incomestems from the fact that some persons hold two jobs, some families have two or morewage earners and many families in this bracket own property. Nevertheless, 80 percent of the families shown on this chart had incomes below $10,000, mostly from wages,no matter how many earners they had. From somewhat more than a quarter in the income-groupunder $3,000 in 1947 the families in this range by 1964 were slightly less than 20per cent in dollars of 1964 value.
The United States is usually alluded to in the corporate press asa country of large incomes, high wages. And so it is in comparison with nonindustrialcountries where incomes are very low. But in relation to the incomes of corporateexecutives and the owners of large inherited properties, and to American tax- paddedprice levels, Americans draw coolie pay. A few weeks out of a job and most of themare stony broke, on the relief rolls.
The careful reader should not suppose that the reference to "cooliepay" is hyperbolic.
Per capita "real" income from all sources in the UnitedStates in the first quarter of 1966--that is, income after personal taxes and interms of the dollar stabilized at 1958 prices--was at an annual rate of $2,260, upfrom $1,900 in the first quarter of 1960 and from $1,831 in 1958. In terms of the1966 dollar the rate was $2,490, showing an inflation of $230 or about 10 per centover the "real" rate. 41
These figures, of course, are averages, applicable to every man,woman and child. In order to have the latest figure applicable to members of hisfamily, a married man with three children in 1966 would have required an income of$12,450, after taxes, in current dollars, which would yield a "real" incomeof $11,300 in 1958 dollars. If such was his income, though, he would have been wellup among the upper 10 per cent of income receivers.
Owing to the very great incomes received by 1 per cent and less ofthe population, mostly from investments, the actual participation of some 90 percent of the population in "real" income takes place at levels ranging farbelow the stated average of $2,260 per person.
Single persons who received from $2,490 and upward in 1966 aftertaxes were, of course, at or above the average. But a married man with a nonworkingwife would have had to receive twice this much to be at the average and would need$2,490 of income in current dollars, always after personal taxes, for each of hischildren in order for them all to be at the average. Few persons participate at the"average" level!
This bedrock figure computed by the government, moreover, does notallow for the substantial taxes incorporated in prices.
In order to show the splendor of American workers' incomes it isoften shown how much longer one must work in Russia for a loaf of bread, a pair ofshoes, a bottle of milk, etc. What is shown is true specifically, but misleading.For some costs in Russia, such as of available housing, are less. Again, many servicesare provided at no direct cost. In Russia and throughout Europe, no college tuitionis charged and a variety of services, costly in the United States, are provided atlow cost.
The median figure on real income would necessarily be much lowerthan this average, for the lower half necessarily includes many with zero income--thepublicly institutionalized sick and delinquent. There are also the low-paid seasonalagricultural workers, the unemployed and the only occasionally employed.
Total income in the United States is, of course, great--the greatestin the world. But popular participation in this vast income ranges from zero to verylittle for substantially more than half of the populace. Most literate people, however,believe just the opposite is true, a tribute to the power of propaganda and statisticalmanipulation.
In the 1930's large sectors of the population suffered from deflation.In the 1950's and 1960's large sectors are suffering from inflation as well as elevatedtaxes. In terms of income most people are being "whipsawed."
What inflation over the long term has done to income is shown ina 1966 study by the conservative National Industrial Conference Board. Accordingto this study, a man with a wife and two children today must receive $13,324 annuallyto buy the same amount of goods he could get for $5,000 in 1939. The man who received$10,000 in 1939 must now receive $27,288 to match that year's buying power and theman who received $100,000 in 1939 must now get $307,734 to have the equivalent buyingpower. The Conference Board concluded that a very large part of the fivefold risein per-capita income has been eroded by taxes and price inflation. 42
The family-income chart, too, is misleading if it is taken as a guideto absolute income. For these figures are stated before taxes. It should always beremembered that as labor productivity has risen through the application of technology,as real wages have risen, there has gradually been shifted onto the labor force,especially since 1940, the high income taxes originally designed for large incomereceivers, as well as new sales taxes. In Chapter Nine we saw some (a small part)of the ways in which taxes for the warfare-welfare state have been largely shiftedonto the working population, scientists and professionals of all kinds included.We also saw to what extent large receivers of income, salaried and investment, havemanaged to place themselves like Bourbon favorites in the tax-exempt class.
Bolstering Executive Egos
Yet, despite high pay, all is not well along the corporate chainof command. Owing to tensions, stress and, no doubt, the failure to extract a senseof meaning out of repetitious, essentially routine tasks such as the manufactureand distribution of soap, many executive egos are in constant danger of collapsing,and they need to be reinforced by heroic corporate measures. Obtaining little egosupport from any solid achievement, they need constant emergency support.
According to Dr. Robert Turfboer, psychiatrist with the Yale UniversitySchool of Medicine and consultant to several large corporations, "an executivemust have emotional security like anyone else. Evidences of eminence, far beyondfinancial reward, help give him that sense of security. The president of a companycan be as fearful of failure as the office boy or assistant sales manager is of beingfired."
Sagging executive egos are bolstered in two ways apart from money,says Dr. Turfboer: by special privileges and by special status symbols (althoughthere are grave dangers in the utilization of the wrong status symbols).
Special privileges are of the following order: a $10,000 sauna inthe executive suite of a new mid-Manhattan building for the sole benefit of the presidentand a few other top-echelon wizards; an $8,000 billiard room in the executive suiteof another large corporation; in the Chase Manhattan Bank building $510,000 worthof fine art for private executive offices and executive reception rooms and, in general,office massage tables, office barber chairs, executive dining rooms, telephonic companyautomobiles (so that the great man need never be out of touch for an instant withGHQ), private executive planes, ultra-modern office furniture and plenty of serviceflunkies. There is, too, the expense account.
"Just as a king needs a crown for people to know he is a king,so an executive often needs the first-class symbols for his position as well as hisself-esteem," says Dr. Turfboer.
How status symbols and special privileges are to be apportioned withinthe executive group is a problem; it is solved in accordance with an executive'sputative importance. His importance is judged according to a criterion laid downby Dr. Elliott Jaques, British psychiatrist, who says, "The level of employmentwork can be measured in terms of the time span of discretion authorized and expectedwithout review of that discretion by a superior." Otherwise put, the more aman can be trusted to be on his own the more important he is. Thus, the corporationpresident need not report to his board for six months--very important. All who haveto report to somebody once a month, once a week, once or more a day are obviouslyprogressively less important. People under constant surveillance are of no hierarchicimportance at all.
"Status symbols, therefore says Dr. Turfboer, "should beassigned or permitted according to a man's 'time span of discretion.'" The morediscretion, the more costly the symbol. A company limousine costing $50 an hour shouldnot, it is evident, be assigned to an office boy--or even to a junior vice president.Such a gadget can only be for Mr. Big himself.
Dr. Turfboer then goes into some subtle points of higher corporatology:how to distinguish at a glance among the guardians of big property. In the hierarchyof the average establishment, the third or lowest grade of vice president may bedistinguished by Venetian office blinds and absence of carpeting. The second echelongenerally merits wall-to-wall carpeting (at $14 a yard) and draperies or curtainsto the sill. For top executives, there are floor-to-ceiling draperies and carpetingat $17 a yard. As Vance Packard has pointed out, a mahogany desk outranks walnut,walnut outranks oak or metal. The man entitled to carpeting is likely to displaya water carafe, which long ago displaced the brass spittoon as a symbol of flag rank.At one broadcasting company, only secretaries of executives above a certain specificlevel of advancement are entitled to electric typewriters.
What really determines the cost and number of status symbols is "thenumber of people an executive affects and the intensity with which he affects them,"the doctor assures us.
But there are dangers in flaunting status symbols around indiscriminately,the doctor warns. "I refer to flashy office furniture and gold faucets, teakcountertops, and Picassos in executive washrooms. The nonintellectual who displaysbooks with fancy leather bindings, or the executive who hangs collectible art butdoes not appreciate what he has, may be marked as a fraud. A too-gadgety bar (exceptbehind a sliding panel) should not be accepted as a proper status symbol. . . .
"The wrong kind of authoritative emblems can have negative consequences.In subordinates, they may inspire envy or ridicule. While an executive may make himselfoften inaccessible to subordinates as a symbol of his importance rationalized byhis need for privacy, needless exclusiveness can arouse antagonism within his organization."
Symbols are assigned or self-selected, and in both cases there aregrave dangers. A minor executive, for example, may acquire a desk set exactly likethe one used by the chairman of the board, which "may be permissible, but itmay also turn out to be poor strategy." Will the chairman, one wonders, feelburned up?
As to assignment of symbols, Dr. Turfboer cites the sad case of amarketing executive given a much larger and more palatial office; yet the man hadthe effrontery to say he felt uncomfortable in his new deluxe surroundings. "Evidently,"says Dr. Turfboer, "his self-esteem had not had a chance to rise to the levelof the symbol bestowed on him."
Offhand, a strictly part-time curbstone psychologist would assumethat the man had very little self-esteem to begin with if it depended on anythingso contrived as an office and its furbishings. 43
All is not well, as it is readily seen, along the corporate chainof executive command. Many of the men have doubts--about their worth, their importance,the value of their presence, their identities in the scheme of things, perhaps evenabout their potency. They need to be bolstered in a world of basic achievers, suchas scientists.
Another study, however, finds top executives to be "Basicallysound, above-average in effective intelligence. These men deal best with practicalor tangible data in relation to problem-solving situations. They are as a group onlyfair conceptual thinkers. They do not do too well in dealing with theoretical, abstractor conceptual thoughts or ideas."
As students they had above-average grades and were in the upper 25per cent of their class at college, although not all were college graduates.
Most of them had engaged in some form of commercial venture beforeage fifteen and they are "Generally not socially aggressive. None were 'bigmen on campus' although some held fraternity offices. However, they were as a groupsomewhat lacking in the degree to which they participated in traditional studentactivities."
Most of them married late, had children, and their wives played littlenoticeable role in their business affairs.
One fact applied to all: None came from poverty-stricken backgrounds.In other words, none was a poor boy who "made good."
These findings were made by Dr. Louis F. Hackemann, president ofHackemann & Associates, an international management consulting company with headquartersin San Francisco. 44
Professor Mabel Newcomer, near the conclusion of a study based upona very large number of cases--882--of top executive officers, says:
"Although he [the typical executive of 1950] has specializedtraining, he has never practiced independently, nor has he at any time run a businessof his own as his father did. He is a business administrator--a bureaucrat--withlittle job experience outside his own corporation. His investments in 'his' companyare nominal, in terms of potential control--less than 0.1 per cent of the total stockoutstanding. He is a Republican in politics; he attends the Episcopalian church,if he attends church at all; and he served the federal government in an advisorycapacity during the war. He was, in 1950, sixty-one years of age, and he will probablybe seventy when he retires." 45
Of note here, direct verification in a study of the top executivesthemselves of what has been indicated before, is that the corporate executive isnot ordinarily much of an owner. He is a hired man, the tool of big owners, neverthe servant of myriad small stockholders as in the fable of "People's Capitalism."
Professor Newcomer makes the important point that corporations rarelycomb the field looking for what would objectively be considered the best or mostcapable man for the top job. Why, in other words, do they "promote from withinso frequently? And why do they promote so late? The reasons appear to be first, thatthe talent within the company is better known, and to that extent safer [notabene--F. L.], than outside talent. Also, there is always a feeling that one'sown company is different and that intimate knowledge of its problems is importantfrom the start. The president or chairman is likely to select his successor in advanceand to groom him personally for the job. And loyalty to the company is stressed.Moreover, there is a sense of obligation to the officers with whom the chief hasworked, and a conviction--which is doubtless justified--that morale will be higherand the chance of retaining able executives greater, if they are aware that the topoffices will be filled from within." 46
To attempt anything like a complete survey of the executive and hissphere would be impossible short of encyclopedic format. Under the rubric Managementthe central reference room of the New York Public Library indexes nearly 4,000 volumes;under Executives, nearly 400. There is, too, some score of periodicals devotedto the topic.
So it is clear that the subject of management is a large one in apostulated democratic society where the individual is pretty much supposed to managehimself. Americans, in fact, are under constant political and economic managementmanipulation.
While many of the works on management are serious analytical anddescriptive studies, the executive mystique, tending to show the superlative worthof the executive and his technique as such, occupies much attention. Management ofproperty itself, it turns out, is an arcane science, worthy of graduate study inthe universities.
For those who want a compressed view of the field there might berecommended the Reading Course in Executive Technique, published in eightvolumes with many authors by Funk and Wagnalls Company, New York, 1948. The volumesare given a lengthy introduction, "Modern Executive Techniques," by theeditor, Carl Heyel, who is president of Executive Techniques, Inc.
The books in this course are titled: Systematic Solution of ManagementProblems (how to think, operations control, management controls, manual of organization,use of statistics, charting the course); Human Relations (employee morale,employee suggestion systems, supervising women, hints on psychology, human relationsin industry); Personnel and Industrial Relations; Creative Training Programs;Manufacturing Control; Distribution; Financial Control and GeneralOffice Management; and Public Relations. Thus armed, the aspiring executivecan take over with confidence.
Management, it turns out, consists of a melange of many things, asmattering from many disciplines that turns into an ad hoc empiricism resemblinga pseudo-science.
Much of the literature in management can be reduced to cautionaryinjunctions, applicable generally or in various specific situations to "Alwaysdo this," "Never do that," "Usually do this," "Usuallydo that," "Be very careful in doing this," etc. Concrete situationsare cited from experience, sometimes careful observational studies such as thoseof Elton Mayo on how most easily to get maximum output from a work force. Takingall the injunctions together one is given what some writers term a "philosophyof management." Troublemakers, so much sand in the gears, are especially unwantedand the place to spot them is at the personnel office, where the latest in psychologicaltesting is put to use. Potential nonbelievers, doubters, scoffers, misfits and personswith "negative attitudes" generally must be weeded out lest they contaminatea basically sound work force and impede the smooth flow of profits.
Critics from time to time commiserate with the bureaucratic aspirantin the Leninist countries who must, before he arrives at the top, read the metaphysicalworks of Marx, Engels, Lenin, Stalin and many lesser dialecticians. The Americanexecutive, however, to judge by the tomes he must read, is much worse off. For mostof these writings are at best stodgy, usually turgid. And beckoning the Americanis no future society of shining mirages but, at most, an office with wall-to-wallcarpeting, a gold key to the executive washroom and membership in a country club.
Not only are there special periodicals devoted to the executive andhis sphere, but magazines of more general appeal do not overlook him. Fortunerarely lets a month slip by without at least one article on executives, of whicha few since 1950 have been: "The Case of Charles Luckman," "The NineHundred," "Boards of Directors," "Do Stock Options Pay?""How Hard Do Executives Work?" "Can Executives Be Taught to Think?""How Executives Get Jobs," "Is There an Executive Face?" "TheExecutive Bonus," "Are Executives Paid Enough?" "How ExecutivesInvest Their Money,"' "How Top Executives Live," "The ExecutiveCrack-Up," "How Much Is an Executive Worth?" "Young Executivein Manhattan," "Executive Qualities," "Life in Bloomfield Hills,""The Pirates of Management," "Those American Managers Don't ImpressEurope, "Executive Compensation: The New Wave," "How to Pay Executives,"etc.
In "Those American Managers Don't Impress Europe" (Fortune,December, 1964) we were given a story of disillusion. American companies enteringthe European market, either by merger or establishing new plants, necessarily sentalong American executives. Keyed by all the hoop-la from the American corporate pressabout high-powered, lynx-eyed American executives, Europeans proceeded to pay veryclose attention. Now, they apparently thought, they were going to see the very soulof American puissance in action. Alas, it was once again the story of mighty Caseyat the bat. For the American wizards were found to be very so-so, nothing remarkable.After watching them Europeans felt reassured.
It might be argued that the Americans did not send their first teamto play in a strictly bush league, and this was probably true. To see the varsityall-stars in action the backward Europeans will have to come to the United States.Once they glimpse the Picassos in the executive washroom they will know they arein the very uterus of the big time, at the altar of the executive mystique. Now theywill see how big, really big, decisions are made . . .