There’s an interesting article at Crooked Timber about Hiring and Firing and the relationships between owners, managers, and workers. To me, the most interesting part was this:

managers, if they are to get workers to deliver their full effort, need to be able to make credible commitments to them that their efforts will be rewarded over the longer term. Itâ??s thus a good idea to keep a strict separation between management and owners. Efforts to make the interests of stockholders and managers coincide with each other are going to weaken managementâ??s ability to credibly commit to workers

This claim is supposedly backed up by game theory:

Another condition for the achievement of cooperative equilibria in a repeated game is the mutual expectation that the relationship will go on long enough to justify the investment in cooperation.

Unfortunately, there’s another bit of game theory involved here: the Stag Hunt. It certainly would be nice if companies operated the way Miller suggests, but as long as a significant number of companies do not it’s just a dream. Owners who want the best managers will lure them with promises of massive stock options etc. which bind them more to owners than to workers, expecting that their other advantages will outweigh any disadvantage in worker loyalty. Meanwhile, companies that believe in keeping managers closer to workers will be stuck (for the most part) with the non-elite managers and will be at a competitive disadvantage. The state represented by Miller’s proposal would not be stable, and would almost inevitably devolve into something much like what we have now. One way to change the relationship between owners, managers and workers would be for workers to unite and work within the market by refusing to work at places where managers were too “complicit” with owners. Besides the fact that such unionization creates its own share of problems, it’s not very practical in the modern world where most people’s jobs can be moved elsewhere (e.g. overseas) with relative ease. Another way for such a thing to happen would be for government to mandate a certain relationship, and even I don’t think such a mandate would be a good thing overall. There are certain cases (e.g. Costco) where the overall separation between all three groups is smaller and the owners can draw from the relatively small pool of managers who truly believe in doing what’s right as well as what’s profitable, but I don’t think the “managers closer to workers” approach could ever become the dominant paradigm.