Reader’s Opinion | Top management remuneration models are at the end of the road

Opinion|Reader’s opinion

News stream is full of gossip about what Fortum’s management did and didn’t do around its ill-fated Uniper strategy. Managers and board members are rightly required to be held accountable.

However, it is mostly pointless to point out and blame individual managers and board members; they have gone with the flow. Of course, the CEO and the chairman of the board bear greater responsibility, and they should draw conclusions regarding their position. Especially in state-controlled companies, the credibility of the managers and the trust of the citizens are key issues when, in the end, operations are carried out with taxpayers’ money and risk.

This business crisis also shows three things. First of all, big bonuses don’t get more talented people into the state’s elite companies than anywhere else, and the management’s generous incentives can also lead the management to take disproportionate risks.

It can also be asked whether the compensation of the management of our large companies has generally become too high compared to the international level of competence of the managers. Ahti Hirvonen, the late CEO of Yhydisbank, used to underline that even in the crazy years of the late 1980s, the management of large companies was not paid much better than the prime minister.

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The circle of the Finnish economic elite is too small and the relationships too close.

Secondly, the circle of the Finnish economic elite is too small and the relationships too close, so that an individual can hardly disagree with the central policies of a certain company, or his network position in the golden club deteriorates quickly. Groupthink leading to bad or even irrational decisions also often takes over the industry, especially in crisis situations. Crisis strategies are rare or lacking.

Thirdly, the most important explanatory factor for the unfortunate policies is the lack of strategic dynamics, where the owner, the board, the executive management and other key stakeholders (in the case of Fortum, most importantly the management of Uniper and the governments of Finland and Germany) and experts do not know how to interact in a reasonable way to plan the future and prepare for surprises and changes in the operating environment .

Multivocality and a more careful reflection of alternatives would be needed, which would require a new kind of strategic culture and operating models from most of our large companies.

Henrikki Tikkanen

Doctor of Economics and Philosophy (History),

professor of business economics, Aalto University School of Economics

The reader’s opinions are speeches written by HS readers, selected and edited by the HS editorial staff. You can leave an opinion piece or familiarize yourself with the principles of writing at the address www.hs.fi/kiryotamielipidekeisuis/.