He constantly uses the words "new" and "today," so that the
situation
as it stands is evidently something freshly perceived by Mills.
Lundberg - The-Rich-and-the-Super-Rich-by-Ferdinand-Lundberg
None of these shapes policy and few ever will.
They are cogs of the order of middle-range Soviet commissars and lower bureaucrats.
The system is indeed very much like the Soviet's, which was modeled after it.
Corporations generally are run by the executive vice president (or vice presidents), the president usually supervising and intervening directly only when 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 consultation on 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 business the president is a complete autocrat. Such being the case he usually acts with great restraint, like a jet pilot who knows that the slightest touch on the rudder may cause 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 mostly routine affairs. Top officers are directors, and one may ascertain who is and who is not in top management by noticing whether he is or is not a director as well as an officer, a point in elementary corporatology.
The chairman, president and executive vice presidents are invariably directors; the vice presidents sometimes are. In Ford and Standard Oil of New Jersey some vice presidents are; in General Motors at present only executive vice presidents are.
Apart from company officers, directors usually consist of officers of other friendly companies or friendly banks, of lawyers, sometimes foundation officers and college presidents, former officers and large stockholders (sometimes themselves former officers). Directors who actively question or suggest are usually owners or representatives of large blocks of stock or senior obligations. In most cases the outside members are passive, merely listening and taking note of what is reported by 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, directors are usually cogs in widespread interlocks, a phenomenon abhorrent down through the years to many congressmen. Congressmen who dislike this practice of interlocking directors--that is, a few directors from a cluster of key companies spread around among a large number of satellite companies--would like it forbidden on the ground that it signals central moneybund or "Wall Street" control. They would prefer that a man be a director of only one company at a time, thereby bringing in many "unsound" outsiders.
My own objection to forbidding interlocking directors is that it would be ineffective in breaking the true interlock, which exists by prior dispensation in a small ownership coterie through blood relationships, intermarriages, private school associations and club memberships. We must not forget that the entire corporate situation 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 never more than 10 per cent even infinitesimally involved except as rank-and-file employees and 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 believe some basic change had taken place, it would be grossly deceptive.
Those who oppose interlocking directorates, if they were seriously consistent in their recommendation, should call for the outlawing of intermarriage, hereditary trust funds, common schooling and common metropolitan club membership among 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 officers of the company, directors are seldom vital to the conduct of affairs--serve mostly as window dressing. There is a school of corporate thought that contends directors should direct; but this is a minority view. Directors generally do not direct unless they are also big stockholders or officers; as outsiders they usually don't know enough about the specific situation. Even the notion that some bring to bear an indispensable broad-gauged public point of view, valuable in preserving the corporate image as a benign entity, won't hold water because efficient public relations departments tend to this simple detail. A few directors, in fact, are invited on boards solely because they are witty or eccentrically knowledgeable fellows, thus tending to perk up otherwise dull meetings of essentially stodgy men.
In crises directors may be collectively called up to tap their general business experience. Some internal dispute over fundamental policy may be submitted to them, in which case they function as a board of judges. If they cannot resolve the dispute it will be resolved at the next meeting of stockholders, where the big shareholders will assert themselves. But such an occurrence is rare because among the directors it is known who speaks for large stockholdings. It is known where the ultimate power lies.
Despite all the devotion to voting in corporations, the process is hardly democratic because the vote, in any showdown, is by shares of stock, not by individuals. All the thousands of rag-tag stockholders in the Ford Motor Company could not outvote the Ford family. The situation is absolutely or effectively the same in every company, which means that a very large and paramountly vital part of internal American affairs is
under essentially autocratic rule, as in Russia. At variance 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, the point of view of the managing officers prevails at board meetings. Organizational trouble appears only if a very large stockholder, or someone speaking for large blocks of stock, seriously opposes the management.
While newspapers report from time to time on internal struggles for company control, such reports rarely involve the biggest companies. Control is seldom an issue in the big smoothly running enterprise. Whenever it is, the issue is quickly resolved, either by internal vote or by court decision.
The Executive Mystique
Corporation officers are of interest in this inquiry mainly because they are the front- line deputies of the rich and the super-rich when they are not themselves of the rich. They are the watchdogs and overseers (usually hired) of great wealth. As such, their earned take-home pay is rivaled only by that of persons in the sports and entertainment worlds who become tremendous box office attractions--home-run hitters, knock-out punchers or seducers-seductresses of the screen. Because only a handful of these fireflies maintain their box office charisma for any considerable time, as a group they are not in the income class of the executives, who even in retirement continue to be handsomely rewarded. Entertainers and athletes in general are paid little.
Just what is it that makes an upper corporation executive worth his pay, 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 makes and influences. " 1
It is made evident that the decisions for which he is rewarded so handsomely 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 winning ones. Or so it is argued.
One cannot deny that the top executives are decision makers. But this observation is not very profound because, paradoxically, not to make any decision is a decision. We are all, as it happens, decision makers. But we are not--most of us--money-making decision makers.
The kind of decision making the big executive engages in, according to theory, is as follows:
He makes one big decision (or a series of decisions) that vastly improves the relative position of his company, reflected in earnings; that slightly improves or holds steady the relative position of his company among rivals; that in any general economic decline leads his company to lose ground less rapidly than others; 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 and the 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. Because if one is paying for decision making, as the big stockholders are supposed to be doing, one surely does not want to pay for losing decisions. And yet, highly paid executives often make momentous losing decisions, sometimes all together, sometimes in industry groups and sometimes in single companies.
In the early 1930's, the leading corporate executives all made a collectively losing decision. They decided to maintain their economic positions amid sudden price declines through cost-cutting, mainly by wholesale discharges of unprotected workers, the rank- and-file patriots. The theory was that as demand for goods was restimulated at lower price levels, business would pick up at more normalized levels than 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 process of wholesale layoffs workers exhausted their meager savings and credit.
When prices reached low levels they continued to fall to still lower levels, except where they were "administered. " Much less business was done because many people had no money. The economy began stagnating, the Communists gloated because Marx had predicted capitalism would lose the ability to govern in one of these slumps. The Great Depression was on, produced by master minds who instead of living up to their reputation as entrepreneurs had become, turtle-like, solely interested in preserving working capital.
Ironically, surrounding conditions from a business point of view were perfect. There was no government interference with business. There had been twelve years of uninterrupted lax Republican rule under figurehead presidents. Taxes under Treasury Secretary Andrew Mellon had been brought to very low levels. Tariff walls against odious foreign goods were at record high levels. Big Business ruled the roost more fully than it did later under Lyndon B. Johnson.
If it were a fact that executives are paid as decision makers they would all have been fired. For they had all, acting according to crowd psychology as they usually do, made a general losing decision, reflected in steady corporate deficits. There never was a major winning decision in this situation in the sense of one company moving ahead of others. No corporate master mind showed himself, for the simple reason that there were no corporate master minds. The emperors were all stark naked. In national self-defense the government moved, slowly, to intervene with its own programs, amid witless cries from the corporate press of "creeping socialism. "
One often sees the same sort of collective losing decision making in an entire industry, as in the railroad industry since World War I. Suddenly faced with new competition-- from pipelines, trucks, buses and airplanes--the railroad industry down through the decades, instead of adjusting services to meet new conditions, instead of participating by one avenue or the other in new forms of transport, decided to curtail services. The industry decided, forsooth, to go out of business on the installment plan.
Where one company clearly falls behind all others in the same industry through 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 and he is, unless he is a big stockholder, usually dropped. This was the case with respect to Charles Luckman, president of Lever Brothers after World War II and widely touted as a "wonder boy. " The rest of the industry stole a march on him in the introduction of detergents in place of soap powders, and Lever Brothers underwent setbacks in the market until it tardily took up detergents. Luckman was fired.
But when Ford Motor Company lost a reported $250 million on its hapless Edsel model in the 1950's, Henry Ford II did not walk the plank. He, along with other stockholders, simply took it in the pocketbook. He could not be fired because be was 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 position at the head of Montgomery Ward and Company after World War II and decided to retrench in expectation of a resumption of the depression. Ward's arch-rival, Sears, Roebuck and Company, decided to expand in expectation of an inflationary boom, and soon passed on to astronomic heights of latter-day success. Here we have a case of a losing and a winning decision, both made by experienced managements, one rather inflexible. To argue that Avery was a poor executive because he made a less advantageous decision is 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 overlooked that corporate decisions are usually made collectively, more recently on the basis of a vast mass of information assembled and digested by computers. After careful sifting by low-paid technicians--statisticians, economists, mathematicians, psychologists and even at times anthropologists--a set of alternatives is laid before the executive board. If the correct data have been fed to the computers these mechanisms may themselves have 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 routine and marginal.
John F. Kennedy, it is reported, faced divided counsels among his advisers on the religious issue in 1960. Some said he should avoid it, some said he should stress it, others felt he should touch on it, but lightly. The problem was put to a computer into which a mass of data was fed on the characteristics of the 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 him to lose. So it was presumably the right decision-made by a computer. The masterly decision in this case was evidently to turn to the computer.
Corporation officials often face issues that arise from a set of losing decisions of long- or short-term nature. And they know they are losers. What they often do then is to make no decision, ride with the tide in the hope that something of a saving nature will turn up. They are not, then, paid primarily to make dramatic "right" decisions, although they participate in corporate serendipity and will be penalized for obviously bizarre judgments, now increasingly eliminated by expert 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 line of policy. They do indeed have alternative policies, sometimes all in effect in different areas at the same time. They play both ends against the middle and the middle against both ends.
There is much else, which need not detain us, to show there is little in 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 give executives in a long chain of command down to the newest junior executive and foreman a sense of worth in essentially boring jobs. It also provides an impressive rationale for the payment of grotesque salaries. For as decision makers, most company chairmen and presidents could not fight their way out of a paper bag, as is repeatedly shown when they are dragged into full public view and subjected to searching questioning under subpoena. Then they almost invariably wilt, show themselves as very ordinary men.
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 resides in a varying combination of qualities. The big factor that enters into their selection and compensation is that they are custodian-trustees and overseers of vastly valuable properties. As they are agents of
often absentee large owners, and are sometimes caught in tight situations where one decision is as bad as another or is a Hobson's choice, their pay is in part an inducement to guarantee loyalty at the beginning of a chain of command. Below the top, loyalty can be enforced by sanctions. But the initiator in the chain of command has a wider sphere of action.
Owing to their strategic position at the head of complex properties the top executives are in excellent positions for self-enrichment. They bold the combination to the office safe, know many inner company secrets. They are exactly in the positions of Rockefeller and Carnegie with their early enterprises, except that 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 themselves to 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 of lower positions throughout the company, their compensation is mainly, a shield against the temptation of helping themselves at the company's expense. Such temptations are guarded against in many technical ways, as by outside audits and analyses, but the basic way is to make it always evident that a sure and comparatively high earned income awaits the man who avoids the dark risks of high adventure at the company's expense.
That astronomic executive compensation has nothing whatever to do with decision making or competitive wizardry is proved by the fact that executive compensation in the noncompetitive electric utility industry is as high as, often higher than, in straining, striving industrial companies. Copious figures on the compensation drawn by executives in these utility sinecures, which could easily be filled by bright collegians, are presented for twenty pages by Senator Lee Metcalf of Montana in his Overcharge (David McKay Company, N. Y. , 1967), a study of fancy financial capers by the entire contemporary electric utility industry.
There is even more to the need for high compensation. As the company wants the top executive's undivided attention, it wants him to feel free of all the nagging worries that beset other men. As far as these problems can be met by money--big life insurance, schooling for the children, residence in soothing surroundings, a contented wife--they are met in the compensation awarded. Problems that cannot be solved by money, such as problematic wives, will cause a likely prospect to be passed over because the company cannot afford to have its affairs in the hands of a brooding man. Much has been made of the fact that an alcoholic or socially withdrawn wife will cause a man to lose the nod of advancement. But anything at all bizarre or worrisome about 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 certainly jeopardize his chance. Indeed, any member of the family far out of control and thus the object of worry to the man will count heavily against his selection for a top position.
Hence the high salaries, elaborate fringe benefits and deference in the corporate press to ostensibly brilliant decision makers.
The hired top corporation man, then, as distinguished from the hereditary owner- 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 allowing him to swallow his catch. He dutifully brings the fish back to the boat. Now and again (paydays) the strap is loosened and he is allowed to swallow a fish. The bird is a percentage participant in the process, which was established by and for others. 2
It is part of the corporation mystique that the corporation executive is inherently a powerful person--that he freely and autonomously extemporizes. But if such ability
were either extensive or crucial it would be easy to shift top officials out 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, railroads or steamships. The wizard decision makers would then be able to make decisions that would move the lagging enterprise far above the traditional rate of return for the industry.
This is not done. Executives are not attracted from booming industries to lagging ones, from whaling and pearling to sponge fishing. When an industry hits the skids all the enterprises in it go down, some perhaps faster and further than others. No amount of experienced executive decision making in a single company is able to arrest the process.
There is in fact no consistent relationship between high executive pay 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 Bethlehem Steel, although paying no dividends and running at deficits, paid Eugene P. Grace as 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 high executive 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 directors forced his resignation on the ground that his salary scale was "grotesque and ridiculous. " He also had a special expense account. The annual earnings of the company were those of General Motors for a single day. So exercised did the British become that acidulous editorials were written and questions were asked in Parliament. 3
The chief executives of the big companies, in addition to directing internal affairs, also represent the company vis-a-vis the world, government, labor unions and the general public. Their role is, basically, that of politicians and diplomats. 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 factors of major owners, small stockholders, government officials, labor leaders, banks and customers. Some are where they are because they are married to a daughter of the chief stockholder or the daughter of the banker that holds the company's notes. They may, 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 Navy in 1943 to become vice president of Ford Motor (executive vice president the next year) because he was considered a wizard decision maker. He had failed to graduate with his class of 1940 at Yale, couldn't make the grade. Nor, years before, was his father Edsel at age twenty-six made a vice president because of any then evident great decision-making ability. Henry Ford, when he appointed Edsel, told newspapermen it showed what a remarkable country the United States was that so young a man could achieve such a high post so early. On this score Bourbon France was a far more remarkable country, for Louis XIV became king at age five.
The Power Elite according to Mills
That the top corporation executive is a person of commanding power in his own right is part of the executive mystique and is uncritically incorporated into his theory of the power elite by C. Wright Mills, the American sociologist. As originally argued by the Italian sociologist, Vilfredo Pareto, in every branch of human activity people can be given an index number on a scale. To those with the largest 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 themselves over large areas of affairs. Those able to assert their wills, thus affecting many others, perhaps even against their wills, are said to have power. And, paraphrasing Pareto, Mills said that those with the most such power are to be regarded as a Power Elite. Where Mills becomes original, or quasi-original, is in his description of what purports to be the more recent American power elite.
He constantly uses the words "new" and "today," so that the situation as it stands is evidently something freshly perceived by Mills.
Although the corporate rich or big owners belong to the elite of Mills, be says their role has been reduced in phases--first by big politicians as in the New Deal and more recently by generals, admirals and corporate officials of the Warfare State. 4 The big rich are being phased out or down and are being replaced by executive types, either military or civilian. If Mills is correct, the message of these pages is somewhat passe? .
The inner core of the power elite consists, first, of those who interchange commanding 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 federal commission; the corporation executive whose company was one of the two or three leading war materiel producers who is now Secretary of Defense; the wartime general who dons civilian clothes to sit on the political directorate and then becomes a member of the board of directors of a leading economic corporation. . . .
The inner core of the power elite also includes men of the higher legal and financial type from the great law factories and investment firms, who are almost professional go- betweens of economic, political and military affairs, and who thus act to unify the power elite. The corporation lawyer and the investment banker perform the functions of the "go-between" effectively and powerfully. . . .
The outermost fringes of the power elite--which change more than its 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 decision that is to be ascribed to the power elite. Each member, in the decisions he does make, takes the others seriously into account. They not only make decisions in the several major areas of war and peace; they are the men who, in decisions in which they take no direct part, are taken into decisive account by those who are directly in charge.
On the fringes and below them, somewhat to the side of the lower echelons, the power elite fades off into the middle levels of power, into the rank and file of Congress, the pressure groups that are not vested in the power elite itself, as well as a multiplicity of regional and state and local interests. If all the men on the middle levels are not among those who count, they sometimes must be taken into account, handled, cajoled, broken or raised to higher circles. 5
There has in fact been accomplished a Managerial Revolution, Mills implies. Power in the United States has insensibly shifted from the owners to the managers, from property to technical function (Berle-Means, James Burnham, J. K. Galbraith). Here be echoes a long line of modem writers increasingly emboldened in what they assert. 6
According to Mills, within the new managerial grouping, power is in 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. If money once talked, now it only whispers in the halls of power, hushed by the presence of 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 big cold-war military
establishment and the infusion of corporations with hundreds of retired officers (who were really available because 13. 5 million men were mobilized for World War II), the military establishment has become an independent political segment, Mills contends. War and peace are dictated, not in Wall Street as socialists and populists used to claim, not in Congress and the White House as formal constitutionalists believe, not in the populace as naive democrats believe, but in the Pentagon. The Joint Chiefs of Staff, professionals, have the determining voice in this matter and Rockefellers, Mellons, Du Ponts et al. must just tag along.
Although the situation as projected by Mills creates a complicated and dramatic picture, one must object to it on compelling grounds. Mills has raised what are clearly subordinate advisers and technicians into his elite of power. Many of 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. The point 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. They do not have a wide range of power in their own right, as do Communist leaders, but derive it. They are but the representatives of power, held in reserve by others. Yet Mills claims that "the higher agents" of the economic, political and military domains "now often have a noticeable degree of autonomy" and "that only in the often intricate ways of coalition do they make up and carry through the most important decisions. " 7 He asserts in effect that if the Pentagon says "No" to Wall Street and the White House there ensues at least an internal power 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 joint Chiefs have been flatly, pointedly and publicly overruled amid cries of anguish from friends of the bomber program in Congress. The present weakness of manned airpower has been dramatically shown in Vietnam, where American plane losses against a minor foe have been staggering.
A salient fact about any elite is that it is not only a classifiable entity but it really has what it is supposed to have. The elite heavyweight punchers can really outpunch other men. All the orchestral conductors in the world, in meeting duly 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"; but one could not meaningfully say, "Bernstein is not an elite conductor. "
And this is particularly so of anyone in a power elite. If someone can 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 are indeed no more than advisers and technicians. They were hired and can be fired, hold their positions only during satisfactory conduct. This is not to say that while in office they are not powerful. But their power is derived power, not their own, not autonomous.
All of Mills's military officers, first, are subject to retirement under pre-existing rules. Moreover they can all be retired early. None of them can say, "I don't believe I shall retire just yet. " Furthermore, none of them made the rules.
Again, each can be ordered to change his command, his driving will thwarted. In a salient case President Truman relieved General Douglas MacArthur of the Far Eastern command. MacArthur did not want to be relieved. But when all the chips were down, he was powerless. The same goes for the Joint Chiefs. In speaking of the autonomous power of the American military, Mills sounds as though he were speaking of the German and French officer corps of an earlier day, when a faction of landed (propertied) army families actually had deputies sitting in the legislature. The General Staff was a legislative force, could unseat ministers. The United States has no such independent politically ensconced officer corps and it is misleading to imply it. In the United States, generals (even loud talkers like Curtis E. Le May and George Patton) can be moved around like pieces on a chessboard.
Corporation officials, similarly, are retired on schedule and are always dismissible at the behest of the large blocks of stock. While they may be powerful, it is not their own power on behalf of which they speak. It is derived power.
In all of Mills's collection of power-elite people, only the big owners (the finpols) and the upper pubpols cannot be dismissed. Here and 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, collectively have ultimate power in the area of interpreting the laws; they can void statutes, can precipitate an inner nationwide power crisis (as with the school desegregation and state legislative redistricting decisions). The president has full executive power, but only for a limited term; all appointed national officials are subject to 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 inner rank or on constituencies they have attracted outside their home states. Those in office for many terms from noncompetitive electoral districts come, on the basis of deals and understandings with each other, to constitute a powerful inner directorate. In combination this directorate can easily frustrate newcomers. They are the "old boys" in the school, know where all the jam pots are hidden. They are the "power elite" in each, house. Collectively, they "run" Congress. State governors, legislators and judges are clearly second-rank figures: they may be secure, but in very limited areas.
The upper hierarchy of the Catholic Church, too, owing to its psychic hold on many voting church members, should be considered pretty much as high-ranking pubpols, 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 conception of the power elite are Secretary of State Dean Rusk and former Secretary of Defense Robert McNamara, respectively derived from the Rockefeller and Ford stables. These men meet all the Millsian criteria and I wouldn't suggest that they should be regarded as ciphers. It is, however, noteworthy that each significantly changed his tune if not his entire public personality in the transition from service under President John F. Kennedy to service under President Lyndon B. Johnson. Each, indeed, changed from ostensibly reasonable and moderate men to fire-eating hawks, from cosmopolitan men to provincial men. In each case, it is obvious, their public script was supplied by the president, who held the power of dismissal over both. Each, no doubt powerful as a go- between, was powerful only as an underling.
J. William Fulbright, Richard B. Russell, John C. Stennis and others of 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 Mills and others refer to, although there have been changes--mostly in the way of more intense concentration of
wealth with some greater preemption of roles by pubpols. Pubpols and finpols have both enhanced their powers, not with respect to each other but with respect to the public. One of the hundreds of external evidences of this is the shift of the major tax burden to the lower labor force. But these changes have not been basic changes that have altered the structuring of power in the United States.
What is the case is that American society has grown very large and complex and requires a more complex hierarchy of managers and officials with delegated powers. But to ascribe autonomous, initiating power to this hierarchy, as though it or any member of it below the very top could initiate or veto policy, is to befog the picture. The decisive power is at the very top, as was shown by the futile outcry of almost the entire intellectual and academic community against President Johnson's ruinous Vietnam policy. This policy was given the endorsement of leading pubpols and of big owners and corporation officials. And this was, for those with a stomach for it, a demonstration of power.
Let us look at a few recent big decisions of history and ask ourselves what 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 far as 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 on the pros and cons? Only President Truman figured in the decision to do it. The dropping of 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 President Kennedy: Invade Cuba, bomb it, blockade it, go to the United Nations, consult foreign governments, 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 Millsian power-elite decision (Pentagon and CIA) which the president doubtfully accepted, with a crucial modification (withdrawal of air support) that in effect scuttled the whole thing.
When it came to committing American military power openly in Vietnam in 1965 the whole idea, as far as the record shows, arose in the mind of President Johnson, who appeared to believe he could pull off an easy coup, a grandstand play that would show him a political wizard. As far as the record shows, no combined group such as Mills talks about recommended any such action, and the president in the campaign of 1964 had explicitly opposed militant action as recommended by Barry Goldwater. Key Democrats of the inner Senate Establishment, such as, Richard B. Russell of Georgia and John C. Stennis of Mississippi (elite of the elite as far as inner political power is concerned), were opposed to the procedure. Yet the president, and the president alone, gave the fateful signal that put the United States on the course toward blundering and 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 suppression of the Hungarian uprising of 1956, stripped from the United States all pretensions to humane superiority over what is described on every hand as a sinister totalitarian power.
In all of Mills's collection of alleged power elite people only the big owners (what I have called the finpols) and the upper pubpols cannot be questioned, and they never were in question. While the big owners can be proceeded against with much hue and cry, investigated, chivvied, demagogically denounced or even fined, they cannot be knocked out short of revolutionary change; for their position is woven into the very warp and woof of the legal system. The upper pubpols can at most be gradually undermined in a series of electoral defeats. Even in defeat the pubpols often still have much power, like mortally wounded pythons.
This being ineluctably so, the situation is precisely where it was before Mills introduced his dazzling army of underlings. Necessary instruments of it, they are not members of the power elite although in the ruling class; they are its fringes, at most its dispensable advisers. Whatever power they have is by appointment unless 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 and a few others hold elite rank on both counts.
Members of the topmost elite are not answerable to anyone for what they 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 leaving churches; the finpols can take the churches or leave them alone, as they usually do. Nelson A. Rockefeller no doubt diminished his standing as a pubpol by his 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 pubpol could 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 swing elections; his checks are as good as those written by a puritan. A known sybaritic pubpol could not make it. The finpol, in short, has a surer and more generalized power base: money.
Finpols spend much of their time abroad, often maintain foreign residences--palazzos, ranches, plantations, haciendas, latifundias and even resort hotels. Pubpols must remain close to the home soil, with an occasional junket abroad on "fact-finding" trips. They can't even be seen at Las Vegas.
Finpols, with no dilution of their essential power, can also lead la dolce vita fully orchestrated, with a full entourage of Corybantic girls. Tendencies in this direction have been moderated of late amid tightening world tensions, as a slight concession to public sensibilities. But jollification continues here and there--in Rome, Marrakech, Monaco, Rio and St. Moritz--behind closed doors.
Best of all, the finpol cannot be toppled by elections. If one party loses out he has many pubpol friends in the other party. As long as the factories are running he is right in the swim. Reforms come and go; trimming in 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 and other details mentioned earlier does not mean that his book is without merit: Mills wrote as a moralist and a political analyst rather than as a sociologist. As a sociologist he was unable to make contact with readily available data, he did not have the underlying facts. Yet Mills, despite much shuffling with ranks and cadres of underlings, always and 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 with money, 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 is that their very standards are pecuniary. In a society in which the money-maker has had no serious rival for repute and honor, the word "practical" comes to mean useful for private gain, and "common sense," the sense to get ahead financially. The pursuit of the moneyed life is the commanding value, in relation to which the influence of other values has declined, so men easily become morally ruthless in the pursuit of easy money and fast estate- building.
A great deal of American corruption--although not all of it--is simply a part of the old effort to get rich and then become richer. But today the context in which the old drive must operate has changed. When both economic and political institutions were small and scattered--as in the simpler models of classical economics and Jeffersonian democracy--no man had it in his power to bestow or to receive great favors. But when political institutions and economic opportunities are at once concentrated and 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 ascertaining how much stock he owns directly, so one can tell little about the true compensation of a top corporation executive by ascertaining what his salary is. It is pointless to mention specific formal salaries. There was a time when a corporation executive kept all of his generous salary. But with the introduction of the graduated income tax, cash income was eroded.
The tax laws seriously undermined the objective of purchasing the loyalty of worry- free essentially pecuniary men, and ways had to be found to make up the difference. Cash bonuses would not do because these required that the corporation expend (as the laws stood up to 1964) $100,000 for every additional $10,000 that found its way into the executive's pocket.
The two thoroughly sound ways that were found to avoid this contre-temps turned out to be cut-rate stock options, a concealed untaxed gift, and lavish expense accounts. These latter have more recently been delicately trimmed, but the stock-option plan is flourishing as never before. 9
The effect of the stock-option plan on executive take-home pay, assuming a doubling in value of the stock spread annually over a decade, was as follows in one company under the law as it stood in 1961: 10
Total Cash
Compensation
$240,000
150,000
95,000
65,000
45,000
30,000
Estimated
after-Tax
Income on
Cash
$72,000
59,000
46,000
37,000
29,000
21,000
Capital Gain
after Taxes
on Options
per Year
$144,000
79,000
43,000
26,000
14,000
5,400
After-Tax Income
Plus Capital Gain
as Percentage
of Cash
Compensation
90
92
93
97
96
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 ordinary income 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 account money, applied to some extent to entertainment and diversion and otherwise simply pocketed, or to other perquisites in the way of retirement funds and investment tips handed around among insiders on the top corporate level.
Depending on the extent of the stock-option plan and the nature of the company, this new wrinkle turned out to be the new royal road to riches in some companies. In pioneering General Motors, as we have noticed, it converted a long string of successive top executives into multi-millionaires: Raskob, Sloan, Knudsen, Mott, et al.
Stock options dilute the equities of stockholders--that is, outstanding stock is insensibly reduced in book value as blocks of stock are parceled out at cut rates. Until limitations were imposed outright, stock bonuses were popular, and in 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.
Corporations generally are run by the executive vice president (or vice presidents), the president usually supervising and intervening directly only when 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 consultation on 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 business the president is a complete autocrat. Such being the case he usually acts with great restraint, like a jet pilot who knows that the slightest touch on the rudder may cause 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 mostly routine affairs. Top officers are directors, and one may ascertain who is and who is not in top management by noticing whether he is or is not a director as well as an officer, a point in elementary corporatology.
The chairman, president and executive vice presidents are invariably directors; the vice presidents sometimes are. In Ford and Standard Oil of New Jersey some vice presidents are; in General Motors at present only executive vice presidents are.
Apart from company officers, directors usually consist of officers of other friendly companies or friendly banks, of lawyers, sometimes foundation officers and college presidents, former officers and large stockholders (sometimes themselves former officers). Directors who actively question or suggest are usually owners or representatives of large blocks of stock or senior obligations. In most cases the outside members are passive, merely listening and taking note of what is reported by 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, directors are usually cogs in widespread interlocks, a phenomenon abhorrent down through the years to many congressmen. Congressmen who dislike this practice of interlocking directors--that is, a few directors from a cluster of key companies spread around among a large number of satellite companies--would like it forbidden on the ground that it signals central moneybund or "Wall Street" control. They would prefer that a man be a director of only one company at a time, thereby bringing in many "unsound" outsiders.
My own objection to forbidding interlocking directors is that it would be ineffective in breaking the true interlock, which exists by prior dispensation in a small ownership coterie through blood relationships, intermarriages, private school associations and club memberships. We must not forget that the entire corporate situation 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 never more than 10 per cent even infinitesimally involved except as rank-and-file employees and 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 believe some basic change had taken place, it would be grossly deceptive.
Those who oppose interlocking directorates, if they were seriously consistent in their recommendation, should call for the outlawing of intermarriage, hereditary trust funds, common schooling and common metropolitan club membership among 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 officers of the company, directors are seldom vital to the conduct of affairs--serve mostly as window dressing. There is a school of corporate thought that contends directors should direct; but this is a minority view. Directors generally do not direct unless they are also big stockholders or officers; as outsiders they usually don't know enough about the specific situation. Even the notion that some bring to bear an indispensable broad-gauged public point of view, valuable in preserving the corporate image as a benign entity, won't hold water because efficient public relations departments tend to this simple detail. A few directors, in fact, are invited on boards solely because they are witty or eccentrically knowledgeable fellows, thus tending to perk up otherwise dull meetings of essentially stodgy men.
In crises directors may be collectively called up to tap their general business experience. Some internal dispute over fundamental policy may be submitted to them, in which case they function as a board of judges. If they cannot resolve the dispute it will be resolved at the next meeting of stockholders, where the big shareholders will assert themselves. But such an occurrence is rare because among the directors it is known who speaks for large stockholdings. It is known where the ultimate power lies.
Despite all the devotion to voting in corporations, the process is hardly democratic because the vote, in any showdown, is by shares of stock, not by individuals. All the thousands of rag-tag stockholders in the Ford Motor Company could not outvote the Ford family. The situation is absolutely or effectively the same in every company, which means that a very large and paramountly vital part of internal American affairs is
under essentially autocratic rule, as in Russia. At variance 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, the point of view of the managing officers prevails at board meetings. Organizational trouble appears only if a very large stockholder, or someone speaking for large blocks of stock, seriously opposes the management.
While newspapers report from time to time on internal struggles for company control, such reports rarely involve the biggest companies. Control is seldom an issue in the big smoothly running enterprise. Whenever it is, the issue is quickly resolved, either by internal vote or by court decision.
The Executive Mystique
Corporation officers are of interest in this inquiry mainly because they are the front- line deputies of the rich and the super-rich when they are not themselves of the rich. They are the watchdogs and overseers (usually hired) of great wealth. As such, their earned take-home pay is rivaled only by that of persons in the sports and entertainment worlds who become tremendous box office attractions--home-run hitters, knock-out punchers or seducers-seductresses of the screen. Because only a handful of these fireflies maintain their box office charisma for any considerable time, as a group they are not in the income class of the executives, who even in retirement continue to be handsomely rewarded. Entertainers and athletes in general are paid little.
Just what is it that makes an upper corporation executive worth his pay, 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 makes and influences. " 1
It is made evident that the decisions for which he is rewarded so handsomely 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 winning ones. Or so it is argued.
One cannot deny that the top executives are decision makers. But this observation is not very profound because, paradoxically, not to make any decision is a decision. We are all, as it happens, decision makers. But we are not--most of us--money-making decision makers.
The kind of decision making the big executive engages in, according to theory, is as follows:
He makes one big decision (or a series of decisions) that vastly improves the relative position of his company, reflected in earnings; that slightly improves or holds steady the relative position of his company among rivals; that in any general economic decline leads his company to lose ground less rapidly than others; 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 and the 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. Because if one is paying for decision making, as the big stockholders are supposed to be doing, one surely does not want to pay for losing decisions. And yet, highly paid executives often make momentous losing decisions, sometimes all together, sometimes in industry groups and sometimes in single companies.
In the early 1930's, the leading corporate executives all made a collectively losing decision. They decided to maintain their economic positions amid sudden price declines through cost-cutting, mainly by wholesale discharges of unprotected workers, the rank- and-file patriots. The theory was that as demand for goods was restimulated at lower price levels, business would pick up at more normalized levels than 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 process of wholesale layoffs workers exhausted their meager savings and credit.
When prices reached low levels they continued to fall to still lower levels, except where they were "administered. " Much less business was done because many people had no money. The economy began stagnating, the Communists gloated because Marx had predicted capitalism would lose the ability to govern in one of these slumps. The Great Depression was on, produced by master minds who instead of living up to their reputation as entrepreneurs had become, turtle-like, solely interested in preserving working capital.
Ironically, surrounding conditions from a business point of view were perfect. There was no government interference with business. There had been twelve years of uninterrupted lax Republican rule under figurehead presidents. Taxes under Treasury Secretary Andrew Mellon had been brought to very low levels. Tariff walls against odious foreign goods were at record high levels. Big Business ruled the roost more fully than it did later under Lyndon B. Johnson.
If it were a fact that executives are paid as decision makers they would all have been fired. For they had all, acting according to crowd psychology as they usually do, made a general losing decision, reflected in steady corporate deficits. There never was a major winning decision in this situation in the sense of one company moving ahead of others. No corporate master mind showed himself, for the simple reason that there were no corporate master minds. The emperors were all stark naked. In national self-defense the government moved, slowly, to intervene with its own programs, amid witless cries from the corporate press of "creeping socialism. "
One often sees the same sort of collective losing decision making in an entire industry, as in the railroad industry since World War I. Suddenly faced with new competition-- from pipelines, trucks, buses and airplanes--the railroad industry down through the decades, instead of adjusting services to meet new conditions, instead of participating by one avenue or the other in new forms of transport, decided to curtail services. The industry decided, forsooth, to go out of business on the installment plan.
Where one company clearly falls behind all others in the same industry through 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 and he is, unless he is a big stockholder, usually dropped. This was the case with respect to Charles Luckman, president of Lever Brothers after World War II and widely touted as a "wonder boy. " The rest of the industry stole a march on him in the introduction of detergents in place of soap powders, and Lever Brothers underwent setbacks in the market until it tardily took up detergents. Luckman was fired.
But when Ford Motor Company lost a reported $250 million on its hapless Edsel model in the 1950's, Henry Ford II did not walk the plank. He, along with other stockholders, simply took it in the pocketbook. He could not be fired because be was 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 position at the head of Montgomery Ward and Company after World War II and decided to retrench in expectation of a resumption of the depression. Ward's arch-rival, Sears, Roebuck and Company, decided to expand in expectation of an inflationary boom, and soon passed on to astronomic heights of latter-day success. Here we have a case of a losing and a winning decision, both made by experienced managements, one rather inflexible. To argue that Avery was a poor executive because he made a less advantageous decision is 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 overlooked that corporate decisions are usually made collectively, more recently on the basis of a vast mass of information assembled and digested by computers. After careful sifting by low-paid technicians--statisticians, economists, mathematicians, psychologists and even at times anthropologists--a set of alternatives is laid before the executive board. If the correct data have been fed to the computers these mechanisms may themselves have 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 routine and marginal.
John F. Kennedy, it is reported, faced divided counsels among his advisers on the religious issue in 1960. Some said he should avoid it, some said he should stress it, others felt he should touch on it, but lightly. The problem was put to a computer into which a mass of data was fed on the characteristics of the 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 him to lose. So it was presumably the right decision-made by a computer. The masterly decision in this case was evidently to turn to the computer.
Corporation officials often face issues that arise from a set of losing decisions of long- or short-term nature. And they know they are losers. What they often do then is to make no decision, ride with the tide in the hope that something of a saving nature will turn up. They are not, then, paid primarily to make dramatic "right" decisions, although they participate in corporate serendipity and will be penalized for obviously bizarre judgments, now increasingly eliminated by expert 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 line of policy. They do indeed have alternative policies, sometimes all in effect in different areas at the same time. They play both ends against the middle and the middle against both ends.
There is much else, which need not detain us, to show there is little in 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 give executives in a long chain of command down to the newest junior executive and foreman a sense of worth in essentially boring jobs. It also provides an impressive rationale for the payment of grotesque salaries. For as decision makers, most company chairmen and presidents could not fight their way out of a paper bag, as is repeatedly shown when they are dragged into full public view and subjected to searching questioning under subpoena. Then they almost invariably wilt, show themselves as very ordinary men.
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 resides in a varying combination of qualities. The big factor that enters into their selection and compensation is that they are custodian-trustees and overseers of vastly valuable properties. As they are agents of
often absentee large owners, and are sometimes caught in tight situations where one decision is as bad as another or is a Hobson's choice, their pay is in part an inducement to guarantee loyalty at the beginning of a chain of command. Below the top, loyalty can be enforced by sanctions. But the initiator in the chain of command has a wider sphere of action.
Owing to their strategic position at the head of complex properties the top executives are in excellent positions for self-enrichment. They bold the combination to the office safe, know many inner company secrets. They are exactly in the positions of Rockefeller and Carnegie with their early enterprises, except that 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 themselves to 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 of lower positions throughout the company, their compensation is mainly, a shield against the temptation of helping themselves at the company's expense. Such temptations are guarded against in many technical ways, as by outside audits and analyses, but the basic way is to make it always evident that a sure and comparatively high earned income awaits the man who avoids the dark risks of high adventure at the company's expense.
That astronomic executive compensation has nothing whatever to do with decision making or competitive wizardry is proved by the fact that executive compensation in the noncompetitive electric utility industry is as high as, often higher than, in straining, striving industrial companies. Copious figures on the compensation drawn by executives in these utility sinecures, which could easily be filled by bright collegians, are presented for twenty pages by Senator Lee Metcalf of Montana in his Overcharge (David McKay Company, N. Y. , 1967), a study of fancy financial capers by the entire contemporary electric utility industry.
There is even more to the need for high compensation. As the company wants the top executive's undivided attention, it wants him to feel free of all the nagging worries that beset other men. As far as these problems can be met by money--big life insurance, schooling for the children, residence in soothing surroundings, a contented wife--they are met in the compensation awarded. Problems that cannot be solved by money, such as problematic wives, will cause a likely prospect to be passed over because the company cannot afford to have its affairs in the hands of a brooding man. Much has been made of the fact that an alcoholic or socially withdrawn wife will cause a man to lose the nod of advancement. But anything at all bizarre or worrisome about 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 certainly jeopardize his chance. Indeed, any member of the family far out of control and thus the object of worry to the man will count heavily against his selection for a top position.
Hence the high salaries, elaborate fringe benefits and deference in the corporate press to ostensibly brilliant decision makers.
The hired top corporation man, then, as distinguished from the hereditary owner- 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 allowing him to swallow his catch. He dutifully brings the fish back to the boat. Now and again (paydays) the strap is loosened and he is allowed to swallow a fish. The bird is a percentage participant in the process, which was established by and for others. 2
It is part of the corporation mystique that the corporation executive is inherently a powerful person--that he freely and autonomously extemporizes. But if such ability
were either extensive or crucial it would be easy to shift top officials out 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, railroads or steamships. The wizard decision makers would then be able to make decisions that would move the lagging enterprise far above the traditional rate of return for the industry.
This is not done. Executives are not attracted from booming industries to lagging ones, from whaling and pearling to sponge fishing. When an industry hits the skids all the enterprises in it go down, some perhaps faster and further than others. No amount of experienced executive decision making in a single company is able to arrest the process.
There is in fact no consistent relationship between high executive pay 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 Bethlehem Steel, although paying no dividends and running at deficits, paid Eugene P. Grace as 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 high executive 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 directors forced his resignation on the ground that his salary scale was "grotesque and ridiculous. " He also had a special expense account. The annual earnings of the company were those of General Motors for a single day. So exercised did the British become that acidulous editorials were written and questions were asked in Parliament. 3
The chief executives of the big companies, in addition to directing internal affairs, also represent the company vis-a-vis the world, government, labor unions and the general public. Their role is, basically, that of politicians and diplomats. 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 factors of major owners, small stockholders, government officials, labor leaders, banks and customers. Some are where they are because they are married to a daughter of the chief stockholder or the daughter of the banker that holds the company's notes. They may, 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 Navy in 1943 to become vice president of Ford Motor (executive vice president the next year) because he was considered a wizard decision maker. He had failed to graduate with his class of 1940 at Yale, couldn't make the grade. Nor, years before, was his father Edsel at age twenty-six made a vice president because of any then evident great decision-making ability. Henry Ford, when he appointed Edsel, told newspapermen it showed what a remarkable country the United States was that so young a man could achieve such a high post so early. On this score Bourbon France was a far more remarkable country, for Louis XIV became king at age five.
The Power Elite according to Mills
That the top corporation executive is a person of commanding power in his own right is part of the executive mystique and is uncritically incorporated into his theory of the power elite by C. Wright Mills, the American sociologist. As originally argued by the Italian sociologist, Vilfredo Pareto, in every branch of human activity people can be given an index number on a scale. To those with the largest 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 themselves over large areas of affairs. Those able to assert their wills, thus affecting many others, perhaps even against their wills, are said to have power. And, paraphrasing Pareto, Mills said that those with the most such power are to be regarded as a Power Elite. Where Mills becomes original, or quasi-original, is in his description of what purports to be the more recent American power elite.
He constantly uses the words "new" and "today," so that the situation as it stands is evidently something freshly perceived by Mills.
Although the corporate rich or big owners belong to the elite of Mills, be says their role has been reduced in phases--first by big politicians as in the New Deal and more recently by generals, admirals and corporate officials of the Warfare State. 4 The big rich are being phased out or down and are being replaced by executive types, either military or civilian. If Mills is correct, the message of these pages is somewhat passe? .
The inner core of the power elite consists, first, of those who interchange commanding 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 federal commission; the corporation executive whose company was one of the two or three leading war materiel producers who is now Secretary of Defense; the wartime general who dons civilian clothes to sit on the political directorate and then becomes a member of the board of directors of a leading economic corporation. . . .
The inner core of the power elite also includes men of the higher legal and financial type from the great law factories and investment firms, who are almost professional go- betweens of economic, political and military affairs, and who thus act to unify the power elite. The corporation lawyer and the investment banker perform the functions of the "go-between" effectively and powerfully. . . .
The outermost fringes of the power elite--which change more than its 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 decision that is to be ascribed to the power elite. Each member, in the decisions he does make, takes the others seriously into account. They not only make decisions in the several major areas of war and peace; they are the men who, in decisions in which they take no direct part, are taken into decisive account by those who are directly in charge.
On the fringes and below them, somewhat to the side of the lower echelons, the power elite fades off into the middle levels of power, into the rank and file of Congress, the pressure groups that are not vested in the power elite itself, as well as a multiplicity of regional and state and local interests. If all the men on the middle levels are not among those who count, they sometimes must be taken into account, handled, cajoled, broken or raised to higher circles. 5
There has in fact been accomplished a Managerial Revolution, Mills implies. Power in the United States has insensibly shifted from the owners to the managers, from property to technical function (Berle-Means, James Burnham, J. K. Galbraith). Here be echoes a long line of modem writers increasingly emboldened in what they assert. 6
According to Mills, within the new managerial grouping, power is in 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. If money once talked, now it only whispers in the halls of power, hushed by the presence of 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 big cold-war military
establishment and the infusion of corporations with hundreds of retired officers (who were really available because 13. 5 million men were mobilized for World War II), the military establishment has become an independent political segment, Mills contends. War and peace are dictated, not in Wall Street as socialists and populists used to claim, not in Congress and the White House as formal constitutionalists believe, not in the populace as naive democrats believe, but in the Pentagon. The Joint Chiefs of Staff, professionals, have the determining voice in this matter and Rockefellers, Mellons, Du Ponts et al. must just tag along.
Although the situation as projected by Mills creates a complicated and dramatic picture, one must object to it on compelling grounds. Mills has raised what are clearly subordinate advisers and technicians into his elite of power. Many of 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. The point 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. They do not have a wide range of power in their own right, as do Communist leaders, but derive it. They are but the representatives of power, held in reserve by others. Yet Mills claims that "the higher agents" of the economic, political and military domains "now often have a noticeable degree of autonomy" and "that only in the often intricate ways of coalition do they make up and carry through the most important decisions. " 7 He asserts in effect that if the Pentagon says "No" to Wall Street and the White House there ensues at least an internal power 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 joint Chiefs have been flatly, pointedly and publicly overruled amid cries of anguish from friends of the bomber program in Congress. The present weakness of manned airpower has been dramatically shown in Vietnam, where American plane losses against a minor foe have been staggering.
A salient fact about any elite is that it is not only a classifiable entity but it really has what it is supposed to have. The elite heavyweight punchers can really outpunch other men. All the orchestral conductors in the world, in meeting duly 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"; but one could not meaningfully say, "Bernstein is not an elite conductor. "
And this is particularly so of anyone in a power elite. If someone can 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 are indeed no more than advisers and technicians. They were hired and can be fired, hold their positions only during satisfactory conduct. This is not to say that while in office they are not powerful. But their power is derived power, not their own, not autonomous.
All of Mills's military officers, first, are subject to retirement under pre-existing rules. Moreover they can all be retired early. None of them can say, "I don't believe I shall retire just yet. " Furthermore, none of them made the rules.
Again, each can be ordered to change his command, his driving will thwarted. In a salient case President Truman relieved General Douglas MacArthur of the Far Eastern command. MacArthur did not want to be relieved. But when all the chips were down, he was powerless. The same goes for the Joint Chiefs. In speaking of the autonomous power of the American military, Mills sounds as though he were speaking of the German and French officer corps of an earlier day, when a faction of landed (propertied) army families actually had deputies sitting in the legislature. The General Staff was a legislative force, could unseat ministers. The United States has no such independent politically ensconced officer corps and it is misleading to imply it. In the United States, generals (even loud talkers like Curtis E. Le May and George Patton) can be moved around like pieces on a chessboard.
Corporation officials, similarly, are retired on schedule and are always dismissible at the behest of the large blocks of stock. While they may be powerful, it is not their own power on behalf of which they speak. It is derived power.
In all of Mills's collection of power-elite people, only the big owners (the finpols) and the upper pubpols cannot be dismissed. Here and 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, collectively have ultimate power in the area of interpreting the laws; they can void statutes, can precipitate an inner nationwide power crisis (as with the school desegregation and state legislative redistricting decisions). The president has full executive power, but only for a limited term; all appointed national officials are subject to 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 inner rank or on constituencies they have attracted outside their home states. Those in office for many terms from noncompetitive electoral districts come, on the basis of deals and understandings with each other, to constitute a powerful inner directorate. In combination this directorate can easily frustrate newcomers. They are the "old boys" in the school, know where all the jam pots are hidden. They are the "power elite" in each, house. Collectively, they "run" Congress. State governors, legislators and judges are clearly second-rank figures: they may be secure, but in very limited areas.
The upper hierarchy of the Catholic Church, too, owing to its psychic hold on many voting church members, should be considered pretty much as high-ranking pubpols, 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 conception of the power elite are Secretary of State Dean Rusk and former Secretary of Defense Robert McNamara, respectively derived from the Rockefeller and Ford stables. These men meet all the Millsian criteria and I wouldn't suggest that they should be regarded as ciphers. It is, however, noteworthy that each significantly changed his tune if not his entire public personality in the transition from service under President John F. Kennedy to service under President Lyndon B. Johnson. Each, indeed, changed from ostensibly reasonable and moderate men to fire-eating hawks, from cosmopolitan men to provincial men. In each case, it is obvious, their public script was supplied by the president, who held the power of dismissal over both. Each, no doubt powerful as a go- between, was powerful only as an underling.
J. William Fulbright, Richard B. Russell, John C. Stennis and others of 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 Mills and others refer to, although there have been changes--mostly in the way of more intense concentration of
wealth with some greater preemption of roles by pubpols. Pubpols and finpols have both enhanced their powers, not with respect to each other but with respect to the public. One of the hundreds of external evidences of this is the shift of the major tax burden to the lower labor force. But these changes have not been basic changes that have altered the structuring of power in the United States.
What is the case is that American society has grown very large and complex and requires a more complex hierarchy of managers and officials with delegated powers. But to ascribe autonomous, initiating power to this hierarchy, as though it or any member of it below the very top could initiate or veto policy, is to befog the picture. The decisive power is at the very top, as was shown by the futile outcry of almost the entire intellectual and academic community against President Johnson's ruinous Vietnam policy. This policy was given the endorsement of leading pubpols and of big owners and corporation officials. And this was, for those with a stomach for it, a demonstration of power.
Let us look at a few recent big decisions of history and ask ourselves what 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 far as 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 on the pros and cons? Only President Truman figured in the decision to do it. The dropping of 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 President Kennedy: Invade Cuba, bomb it, blockade it, go to the United Nations, consult foreign governments, 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 Millsian power-elite decision (Pentagon and CIA) which the president doubtfully accepted, with a crucial modification (withdrawal of air support) that in effect scuttled the whole thing.
When it came to committing American military power openly in Vietnam in 1965 the whole idea, as far as the record shows, arose in the mind of President Johnson, who appeared to believe he could pull off an easy coup, a grandstand play that would show him a political wizard. As far as the record shows, no combined group such as Mills talks about recommended any such action, and the president in the campaign of 1964 had explicitly opposed militant action as recommended by Barry Goldwater. Key Democrats of the inner Senate Establishment, such as, Richard B. Russell of Georgia and John C. Stennis of Mississippi (elite of the elite as far as inner political power is concerned), were opposed to the procedure. Yet the president, and the president alone, gave the fateful signal that put the United States on the course toward blundering and 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 suppression of the Hungarian uprising of 1956, stripped from the United States all pretensions to humane superiority over what is described on every hand as a sinister totalitarian power.
In all of Mills's collection of alleged power elite people only the big owners (what I have called the finpols) and the upper pubpols cannot be questioned, and they never were in question. While the big owners can be proceeded against with much hue and cry, investigated, chivvied, demagogically denounced or even fined, they cannot be knocked out short of revolutionary change; for their position is woven into the very warp and woof of the legal system. The upper pubpols can at most be gradually undermined in a series of electoral defeats. Even in defeat the pubpols often still have much power, like mortally wounded pythons.
This being ineluctably so, the situation is precisely where it was before Mills introduced his dazzling army of underlings. Necessary instruments of it, they are not members of the power elite although in the ruling class; they are its fringes, at most its dispensable advisers. Whatever power they have is by appointment unless 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 and a few others hold elite rank on both counts.
Members of the topmost elite are not answerable to anyone for what they 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 leaving churches; the finpols can take the churches or leave them alone, as they usually do. Nelson A. Rockefeller no doubt diminished his standing as a pubpol by his 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 pubpol could 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 swing elections; his checks are as good as those written by a puritan. A known sybaritic pubpol could not make it. The finpol, in short, has a surer and more generalized power base: money.
Finpols spend much of their time abroad, often maintain foreign residences--palazzos, ranches, plantations, haciendas, latifundias and even resort hotels. Pubpols must remain close to the home soil, with an occasional junket abroad on "fact-finding" trips. They can't even be seen at Las Vegas.
Finpols, with no dilution of their essential power, can also lead la dolce vita fully orchestrated, with a full entourage of Corybantic girls. Tendencies in this direction have been moderated of late amid tightening world tensions, as a slight concession to public sensibilities. But jollification continues here and there--in Rome, Marrakech, Monaco, Rio and St. Moritz--behind closed doors.
Best of all, the finpol cannot be toppled by elections. If one party loses out he has many pubpol friends in the other party. As long as the factories are running he is right in the swim. Reforms come and go; trimming in 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 and other details mentioned earlier does not mean that his book is without merit: Mills wrote as a moralist and a political analyst rather than as a sociologist. As a sociologist he was unable to make contact with readily available data, he did not have the underlying facts. Yet Mills, despite much shuffling with ranks and cadres of underlings, always and 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 with money, 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 is that their very standards are pecuniary. In a society in which the money-maker has had no serious rival for repute and honor, the word "practical" comes to mean useful for private gain, and "common sense," the sense to get ahead financially. The pursuit of the moneyed life is the commanding value, in relation to which the influence of other values has declined, so men easily become morally ruthless in the pursuit of easy money and fast estate- building.
A great deal of American corruption--although not all of it--is simply a part of the old effort to get rich and then become richer. But today the context in which the old drive must operate has changed. When both economic and political institutions were small and scattered--as in the simpler models of classical economics and Jeffersonian democracy--no man had it in his power to bestow or to receive great favors. But when political institutions and economic opportunities are at once concentrated and 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 ascertaining how much stock he owns directly, so one can tell little about the true compensation of a top corporation executive by ascertaining what his salary is. It is pointless to mention specific formal salaries. There was a time when a corporation executive kept all of his generous salary. But with the introduction of the graduated income tax, cash income was eroded.
The tax laws seriously undermined the objective of purchasing the loyalty of worry- free essentially pecuniary men, and ways had to be found to make up the difference. Cash bonuses would not do because these required that the corporation expend (as the laws stood up to 1964) $100,000 for every additional $10,000 that found its way into the executive's pocket.
The two thoroughly sound ways that were found to avoid this contre-temps turned out to be cut-rate stock options, a concealed untaxed gift, and lavish expense accounts. These latter have more recently been delicately trimmed, but the stock-option plan is flourishing as never before. 9
The effect of the stock-option plan on executive take-home pay, assuming a doubling in value of the stock spread annually over a decade, was as follows in one company under the law as it stood in 1961: 10
Total Cash
Compensation
$240,000
150,000
95,000
65,000
45,000
30,000
Estimated
after-Tax
Income on
Cash
$72,000
59,000
46,000
37,000
29,000
21,000
Capital Gain
after Taxes
on Options
per Year
$144,000
79,000
43,000
26,000
14,000
5,400
After-Tax Income
Plus Capital Gain
as Percentage
of Cash
Compensation
90
92
93
97
96
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 ordinary income 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 account money, applied to some extent to entertainment and diversion and otherwise simply pocketed, or to other perquisites in the way of retirement funds and investment tips handed around among insiders on the top corporate level.
Depending on the extent of the stock-option plan and the nature of the company, this new wrinkle turned out to be the new royal road to riches in some companies. In pioneering General Motors, as we have noticed, it converted a long string of successive top executives into multi-millionaires: Raskob, Sloan, Knudsen, Mott, et al.
Stock options dilute the equities of stockholders--that is, outstanding stock is insensibly reduced in book value as blocks of stock are parceled out at cut rates. Until limitations were imposed outright, stock bonuses were popular, and in 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.
