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NFL's Model Is Better Bet Than Big Biz

By Kevin Spak,  Newser Staff

Posted May 12, 2009 11:10 AM CDT
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(Newser) – The business world’s dependence on its own form of gambling—the “expectations,” or stock market—helped fuel the current financial crisis and the dot-com crash, writes Roger Martin in the Financial Times. “Neither would have happened if our business and capital markets theories had been as robust as those used to govern the NFL.” The league, soundly, instead rewards players and coaches on their “real market” performance—wins, touchdowns, yards.

Instead, business schools teach “shareholder value theory,” which posits that a CEO’s job is to create value for shareholders. To ensure they’re motivated to do just that, executives are paid largely in stock. Thus, Martin writes, it’s like paying NFL players based on point spreads—in other words, crazy. CEOs should be judged, and paid, based on the real-market goods, profits, and losses they produce, period.

Unlike NFL players, business executives are compensated primarily on their performance in the expectations market, Martin writes. Real market performance is secondary.
"Unlike NFL players, business executives are compensated primarily on their performance in the expectations market," Martin writes. "Real market performance is secondary."   (AP Photo)
NFL players are strictly forbidden from betting on any game, including their own, Roger Martin writes. Their incentives are based on how they do on the field.
"NFL players are strictly forbidden from betting on any game, including their own," Roger Martin writes. "Their incentives are based on how they do on the field."   (AP Photo)
What do you say, am I worth $10 million?
What do you say, am I worth $10 million?   (AP Photo)
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This creates a pernicious trap. The instant expectations rise, the base for new shareholders is a price consistent with the new level. - Roger Martin

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COMMENTS
Showing 2 of 2 comments
gilgordan
May 12, 2009 8:16 AM CDT
How novel, actually rating performance in hard terms, versus theory. Value to Shareholder=Value to Largest investor not customer and employee. Make profit long term versus share value on the quarter basis. So much is wrong with the biz school today, that common sense, earning money the old fashion way, and building long term value is only used in emerging economies, How old fashion are they, most our our banker today. Dah!!!
nick
May 12, 2009 4:39 AM CDT
How simple, but oh, so true. When the corporate CEOs can't deliver the much demanded short-term profit, they may, mind you may, resort to cooking the books. And often, their hand-picked Board of Directors, conveniently, looks the other way. A possible recipe for disaster.

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