Tuesday, December 23, 2014

Accountability is for little people continued -- more thoughts on the Sony hack

I'm not quite sure what to call it, but most business reporting suffers from the journalistic equivalent of regulatory capture. There are exceptions of course – I can think of lots of sharp, independent writers covering this beat – but the vast majority of what you read in the business section reflects the viewpoint and very often the spin of the companies being covered.

This "journalistic capture" becomes particularly apparent when companies have massive screw ups. You get lots of stories about how various disasters were unforeseeable and/or unavoidable. The part about the highly paid C-level executives being grossly incompetent has a way of being buried.

The last post covered an almost comic level of incompetence in Sony's IT department. That is probably the bigger part of the hacking story, but there were other questionable decisions that led up to this fiasco, starting with the decision to greenlight the Interview in the first place.

Mark Evanier, who has been around the industry for decades, has a very good post on the subject. His treatment of the freedom of speech issues is extremely sharp, but it is his discussion of the movie itself that is relevant to this post.
Thursday night at the screening I attended, there was what we call an Industry Crowd, meaning the entertainment industry. I heard much talk about the whole matter and I kept hearing — this is the rumor mill speaking now — that everyone at Sony thought the film was awful and that they were just hoping to get it into theaters and make some bucks before reviews and word of mouth killed it. It's common knowledge the film's release was delayed from last August because Sony demanded changes.

I'm not suggesting that good films deserve to be defended and bad ones don't. But before the hacking and threats, Sony had the right to decide the film was a lox that wasn't worth releasing. Some execs at Sony felt that way; that the film shouldn't be released…or maybe wasn't worth the problems it might cause. (No one in the film business is dense enough to think a movie about assassinating a foreign leader couldn't possibly get anyone upset.) And they had the right to make that decision. I'm suggesting they still have that right.
Evanier is almost certainly correct here, but, from a business standpoint, was making this film a good idea in the first place?

Let's be clear, this decision was never about art or making a statement. We're not talking about Dr. Strangelove; at best we're talking about a Hope and Crosby "Road to" picture with gross-out gags . The only considerations were financial and the only political element was the studio politics involved in telling a couple of big, spoiled stars that they couldn't make a vanity project. From Sony's point of view, the Interview was probably a bad idea for a movie and was likely to create all sorts of problems (keep in mind, this is a Japanese company which makes concern about North Korea a bit more immediate). It appears that the main argument for making the movie was that it kept the stars happy and the studio didn't have to make Green Hornet II.*

As I said before, none of this in any way diminishes the severity of the criminal acts involved, but there's blame enough to cover both malicious and the negligent. In theory, we shouldn't have to worry about the latter because the market for top level executives is supposed to be efficient -- we are told that companies get what they pay for when they pay the big bucks.

With that in mind, take a look at this graph from Fusion.

 (The metric used is “market posture,” which measures each level of employee pay compared to the market median for that level.) According to the chart, SPE pays its level 10 employees 113.1% of the median, but only pays its level 1 employees 92.2% of the median.

Assuming level 10 is the top of the scale, it is difficult to see how that above average pay has translated into above average executive performance.

* The Green Hornet probably did turn a profit (between the massive marketing budget and the peculiarities of Hollywood bookkeeping, it's difficult to say for certain), but the box office was not great and the reaction to the film effectively killed the anticipated franchise.


  1. "In theory, we shouldn't have to worry about the latter because the market for top level executives is supposed to be efficient -- we are told that companies get what they pay for when they pay the big bucks."

    Oh, please. It's pretty clear that essentially nobody is worth the kind of money that C-level's at major companies get paid today. And it's not even a market, let alone an efficient one. It's just collusion: the boards are all incestuously related and dominated by executives. In reality, they're a gang of rentiers naming each others' salaries at the expense of everyone else.

    1. Even with all of the qualifiers ("theory," "supposed," "told"), there may have been a touch of sarcasm in my voice there.