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.