ADVERTISEMENT
Capitalism is like playing poker - legality is the rulebook, but morality is the bluffThe case of Elon Musk's pay deal underscores the concept of shareholder capitalist democracy, where shareholders wield the power to make decisions that shape the direction of the company.
Srinath Sridharan
Last Updated IST
<div class="paragraphs"><p>Billionaire Elon Musk.</p></div>

Billionaire Elon Musk.

Credit: Reuters File Photo

Capitalist regulations govern the idea and compliance of legality, not morality, drawing a clear line between what is permissible and what is just.

ADVERTISEMENT

The recent astronomical compensation package awarded to Elon Musk by Tesla has sparked a heated debate on the intersection of legality and morality in corporate governance in global capitalism. Musk has showcased a blueprint for capitalists, highlighting the limited impact of corporate regulators on executive compensation.

By securing this pay package with full compliance, he has proven that the mechanisms designed to oversee executive pay can be maneuvered, leaving the question of what constitutes ‘fair’ compensation largely unresolved by regulatory authorities.

This controversy highlights a fundamental truth: morality and legality are distinct concepts that operate on entirely different planes. Expecting regulatory frameworks to enforce moral standards is a fallacy that only serves to distract from the real issues at hand.

In the case of Musk's pay deal, Tesla's shareholders approved a compensation plan that could potentially reward the CEO with over $56 billion if certain performance targets are met. Legally, this deal adheres to the principles of shareholder capitalism, where the primary objective is to maximise shareholder value. However, the morality of such an exorbitant compensation package, especially in an era marked by growing income inequality and social unrest, is highly questionable.

What constitutes fair compensation, and who has the authority to determine it? In a system driven by shareholder decisions, Musk has emerged victorious, fair, and secure, deciding his compensation package through legitimate channels and widespread approval. Yet, this raises deeper questions about the equity and ethics of such rewards. Are shareholders the ultimate arbiters of fairness, given their vested interests in financial returns? Or should broader societal considerations play a role in defining what is just?

The stark divide between what is legal and what is moral in this context cannot be overstated. Legal systems around the world are designed to ensure that businesses operate within a set of rules that maintain order and promote economic growth. These regulations are necessary to prevent fraud, protect consumers, and ensure fair competition. However, they are not equipped to enforce moral standards, which are inherently subjective, and vary widely across different cultures and societies.

To expect regulatory bodies to enforce morality is to misunderstand the purpose and limitations of legal frameworks. Morality is a personal and societal construct, often influenced by cultural, religious, and individual beliefs. Legal systems, on the other hand, are designed to be objective, impartial, and universally applicable within their jurisdictions. Attempting to infuse moral judgments into legal regulations would not only be impractical but could also lead to inconsistency and unfairness.

The case of Musk's pay deal underscores the concept of shareholder capitalist democracy, where shareholders wield the power to make decisions that shape the direction of the company. In this system, the legality of Musk's compensation is unquestionable — it was approved by the majority of shareholders who believe that his leadership and vision will drive the company's success and, consequently, their returns.

If we rely on regulators to bring about moral upgrades, we will find ourselves stuck in a quagmire of unresolvable debates and stagnant progress. Regulatory bodies are not moral arbiters; they are enforcers of law. To move forward, we must recognise that morality and legality are not two sides of the same coin — they are entirely different currencies. The real challenge lies in finding a balance where businesses can thrive legally while also striving to meet the moral expectations of society.

The fallout from this episode is likely to reverberate across the corporate landscape, fuelling calls for regulatory reforms aimed at curbing excessive executive compensation and enhancing transparency in corporate governance practices. Additionally, it may galvanise investor activism, prompting shareholders to demand greater accountability and ethical leadership from the companies in which they invest. Moreover, the public outcry over Musk’s pay deal is poised to reshape public perceptions of corporate behaviour, leading to heightened scrutiny of executive compensation practices, and a renewed emphasis on corporate social responsibility.

American capitalism, while preaching prosperity and opportunity to the world, often reveals its true nature: a system that lionises wealth creators, regardless of the moral or societal costs incurred. The aftermath of the Global Financial Crisis exposed a stark reality: those responsible for breaking the world's financial backbone with greed were not held accountable. Instead, they were hailed as heroes and rewarded handsomely by their entities. In this landscape, the pursuit of profit often eclipses principles of fairness and accountability, casting doubt on the integrity of a system that prioritises wealth over justice.

Navigating capitalism is like playing poker — legality is the rulebook, but morality is the bluff. While regulatory frameworks are essential for maintaining order and fairness in the business world, they are not designed to enforce moral standards. Instead, it is up to society, including consumers, employees, and investors, to hold businesses accountable to higher moral standards.

(Srinath Sridharan is a policy researcher and corporate adviser.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.

ADVERTISEMENT
(Published 18 June 2024, 11:44 IST)