Market Street meets Wall Street

By Marcela Gonzales

The corporate bailouts, American International Group bonuses and widening gaps between executive wages and average worker pay have sparked heated discussions across the country. On Tuesday, this debate came to Santa Clara.

The Markkula Center for Applied Ethics' Ethics at Noon event, "AIG Bonuses, Contractual Obligations and Executive Compensation: Are there ethical standards for pay?" filled every chair in one of the library's media rooms with students and faculty. People soon crowded into the back of the room and flanked the walls.

The panelists included Kirk Hanson, executive director of the Markkula Center and professor, Stephen Diamond, labor union advisor and law professor and Robert Finocchio, corporate director and management professor.

Information about the growing disparity between CEO wages and average worker wages emerged throughout the lecture.

In 1991, corporate executives earned 140 times as much as the average-paid employee. In 2003, the ratio rose 500 to 1, said Diamond.

Junior Cantie Nguyen went to the event wondering what justified these salary proportions.

"After this event, a high salary does seem justified," said the finance and English double major. "But to that extent, I still don't see why anyone would need $40 million. It's something to think about."

Thinking about this issue is exactly what David DeCosse, director of campus ethics programs at the Markkula Center, asks of students.

"A recession like this gets at the assumptions we've had for a long time about what people make and ought to make," he said. "I think those assumptions are being challenged and will be challenged for years to come."

Looking at ethical implications is becoming more imperative in today's economy.

The millions of dollars in walk-away pay for executives of collapsed companies like Enron and Global Crossing only fuels the public outrage, said Diamond.

Hanson mentioned that CEO pay is not directly linked with performance.

According to Hanson, the $44.4 million in bonuses that Fannie Mae executives were to receive, and the $165 million in bonuses that AIG earmarked for its executives demonstrate this quality.

Considering how the stock market affects executive pay also brings in another perspective on the issue.

Nguyen thought about things another way after hearing this discussion.

"Although it's been obvious, I had never focused on just how much the market determines CEO pay," she said.

A self-proclaimed free-market libertarian, Finocchio, spoke about what he believed to be the unethical nature of government takeovers.

The overlooked bankruptcy system would be an alternative to corporate bailouts, Finocchio argued.

He said that outrage over the AIG bonuses was in part due to the public's feeling that the government bailed out Wall Street "cronies."

This differed from Hanson's earlier suggested solutions, which included requiring method and performance disclosure, implementing pay limits and government ownership.

During the question and answer portion of the event, laughter trickled across the packed room as Finocchio shared some of his experiences as a member of Santa Clara's Board of Trustees.

"It's always good to have a CEO that takes a vow of poverty," he said with a smile.

This Ethics at Noon was the first to be streamed live over the internet, and the topic comes at an appropriate time, DeCosse said.

"I think this is an important issue for our community because many of our students are graduating into the world, often with an expectation of what they should be earning," DeCosse said. "I think that world is changing."

Contact Marcela Gonzales at m3gonzales@scu.edu.