ANN CROTTY: Rewarding risky business
Short-termism of incentive system favours recklessness
If you think about it, given the reward system in place, it’s amazing that our supposedly super-efficient market system hasn’t generated much more value destruction. The R7bn write-down at Woolworths’ Australian venture looks like small change in the wake of the untold billions that seem to have gone up in smoke at acquisition-driven Steinhoff. Far from being shocked by last week’s news, some in the market merely shrugged and suggested Woolworths may have to take a second similar-sized hit in the not-too-distant future. But here’s the thing: the people working on these sorts of transactions are driven by one overwhelming consideration — that they will only get paid serious money if the deal is done. The funders, corporate advisers and top executives stand to score handsomely if a mega-merger is closed. If no deal is done, the advisers might not even have their costs covered, and the executives will have to get used to the idea of not leading a really big firm.
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