Geoff Colvin, the author and senior editor for Fortune magazine, hit the mark when he wrote that in business, the most difficult choices are never between right and wrong. Those are the easiest ones (unless your name is Garth Drabinsky and an obvious foul, such as creating bogus financial statements to coax millions of dollars out of investors, seems right because ... well, because you're a crook. Goodbye, Garth).
For most executives, the toughest decisions are between right and right - the moments when, as Mr. Colvin put it, "both options seem correct for different reasons, yet one must be chosen and one rejected." Inevitably, the choice comes down to who pays, who suffers, who shoulders the burden. This week provided some spectacular examples of the kind of dilemmas we'll see as businesses grapple with life after the crash:
Shareholders come first, but which ones?
When Wall Street "got drunk," to use the phrase of the great wordsmith George W. Bush, Bay Street barely got tipsy in the massive expansion of credit from 2003 to 2007. That's why no large Canadian bank or insurance company has cut its dividend - until Manulife Financial sliced its payout in half on Thursday, which some investors view as the worst corporate decision since New Coke.
The divvy cut saves $800-million a year; that's the equivalent of raising billions of dollars in fresh equity for Manulife, the health of which has been in question ever since last fall's equity collapse. Cutting the dividend hurts shareholders who rely on a quarterly cheque. New chief executive officer Don Guloien and the board had other options. They could have sold millions more new shares, for example. But that would have harmed a whole other class of investors, the ones who are in it for long-term capital growth and don't care about dividends.
Manulife chose the interests of the 35-year-old pension manager over the 65-year-old retired shareholder. Was that the right choice? You decide. But you can be certain Mr. Guloien and the directors weighed the importance of each camp before making the call. If a Canadian bank found itself in a similar dilemma, I suspect the board would make a different decision - partly because the income-seeking retail investor is a bigger constituency for the Big Five than it is for Manulife.
The $100-million man
Should corporations honour the contracts they've signed with their most talented employees? Easy question, right? Of course they should.
But what if that employee's contract says he is owed a bonus of $100-million (U.S.)? And what if the employer's name is Citigroup, which is alive today only because Washington has poured about $45-billion - $600 from every U.S. household of four - into it? A man named Andrew Hall, who heads a commodities trading firm owned by Citi, says he is owed that much as a part of his deal with the bank.
It isn't Mr. Hall's fault that Citi became a ward of the state. He's an oil guy. He didn't invent the adjustable-rate mortgage. He didn't make the decision to keep "dancing," as former CEO Chuck Prince memorably and foolishly said, as the credit party spun out of control. If Citi doesn't carry on Mr. Hall's sweet deal, chances are that another institution - did someone say Goldman Sachs? - will.
Without Mr. Hall, Citigroup earns less. Yet his bonus threatens to make a farce of the Obama administration's promise to limit excessive pay at financial firms that haven't repaid their bailout money. It's right to uphold contracts. It's also right not to poke your largest shareholder - or the President of the United States - in the eye. Should he get the money?
Clunkers and closed plants
Here are two words you didn't think you'd see in 2009: auto shortage. But so many auto assembly plants have been shut down for so long this year, and the U.S. government's "cash-for-clunkers" program has worked so well, that the lots are starting to empty. Chrysler, for example, says its inventories are down to 40 days' supply, and dealers are running out of popular models.
We'll leave aside the question of whether it's good policy to use the public purse to encourage people with too much debt to spend money they don't have on cars they probably don't need. As far as the U.S. Congress is concerned, the subsidies of up to $4,500 are a success because they've got the factories restarted.
Now pretend you're the head of GM or Chrysler, or President Obama's auto czar. You know that no rust belt senator will object to firing up auto production and bringing back more workers, and that you could make a defensible case for doing so.
But you also know, deep down, the clunkers program has probably just pulled forward auto sales that were going to happen a few years from now, and that sales will eventually dip again. And you also know that overproduction is how the industry got into this mess to begin with, and that big mistakes that lead to operating losses will put the government's multibillion-dollar investment at risk. Who matters more? The 45-year-old auto worker who's desperate to be recalled? Or the taxpayer?
It's good sport for politicians and others to find scapegoats for the recession, and who did wrong. But it's these real-world business dilemmas - the battle between right and right - that shape the recovery.