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Elites That don’t Compete

The Six Nations Championship is an annual rugby competition featuring an exclusive club of European nations: England, France, Ireland, Italy, Scotland, and Wales. The Six Nations Championship is considered the “elite” rugby tournament of the Northern Hemisphere, matched only by another international “elite” tournament, simply called The Rugby Championship. The Rugby Championship is played out in another closed group, made up of Argentina, Australia, New Zealand, and South Africa, all belonging to the Southern Hemisphere. 

These are the elite rugby leagues. But what elites? Members of these championships are only playing with each other and meet lower tier teams only occasionally at the World Cup. Is it possible to be expelled from these two closed rugby championships? No. The only consequence of weak performance in the Six Nations Championship is the Wooden Spoon, awarded to the team that makes the last place. And while this is a very mild consequence, even more convenient is the punishment for a team which loses all five matches: it will be called “whitewashed”, a term that does not come with overly negative connotations.

What we see here is a phenomenon that is common in many different areas of society, namely that the members of certain “elites” are not exposed to strong competition. To the contrary, for many elites holds: once you are in, life gets cozy. Let us look at some examples.


EDUCATIONAL ELITES

If one wants to become member of the political elite in France, it is almost inevitable to have graduated from ENA, the École nationale d'administration. French Presidents Francoise Hollande, Jacques Chirac, and Valéry Giscard d'Estaing got their degrees at the ENA, as well as six French Prime Ministers and an innumerable number of ordinary ministers. Typically, between one third and one half of French cabinets have graduated from that one school. Being an énarque (the nickname given to ENA graduates) is an insurance for life, as it is almost impossible for énarques to fail in the French society. Competition? Performance pressure? No way. 

One might assume, therefore, that it is extremely difficult to obtain a degree from ENA. There must be a huge dropout rate, due to the high standards that are demanded from France’s future elite. Yet that is not exactly true. Once one is in the club, it is quite easy to stay. According to Peter Gumbel, author of the 2013 book “France’s got Talent – The Woeful Consequences of French Elitism”, the dropout rates at French elite schools are marginal, while in ordinary French universities about half of the students quit within the first year. However, it is difficult to become an ENA student – only about 6% of the applicants are admitted.

This kind of elitism causes severe problems. Should a good deal of the top positions in a society really be assigned through the admissions exams of ENA and two other similar schools? How reliably can one single admissions procedure, which people undergo when they are still very young, determine the talent and skills of people in all those dimensions that are relevant for societal and economic decision making? 

Educational pseudo-elitism is not a problem restricted to France. Students of places like Harvard, Princeton, and Yale have to make it through admissions exams and pay high tuition fees, but afterwards there won’t be much of a challenge anymore. The tuition fees, by the way, are not very painful for the students, as many banks are glad to give loans to “elite” members, which can conveniently be paid back once one has graduated (for a member of the Harvard-Yale-Princeton elite, there is no danger not to find a well-paying job).


MANAGEMENT ELITES

Also the international management elite is a cozy club. If you are the Chief Executive Officer (CEO) of a big international corporation, the worst thing that can happen to you is quite similar to the Wooden Spoon in the Six Nations Championship. If you mess up, you may lose your job, but you won’t have to reimburse the value which you have destroyed. Chances are that you will find another elite job, like Leo Apotheker, who failed as CEO of SAP and soon afterwards failed as CEO of Hewlett-Packard, or Carly Fiorina, who became presidential candidate after busting Hewlett-Packard.  

If things go well, on the other hand, you can be sure that you will get your fair share. And the standards by which your performance is measured won’t be too high: Terry Semel was CEO of Yahoo! from 2001 to 2007 and made spectacular mistakes, like rejecting the offer to buy Google for $3 billion, based on his failure to recognize the potential of that company. Despite Yahoo! growing slower than most of their competitors (like Google) and missing important opportunities (e.g. social networking), he received almost half a billion dollar as compensation throughout his 6-year tenure.  

An average CEO in the United States makes 373 times the salary of an average employee of their company. Yet even if a top manager makes a mistake that allows for indemnity, their companies won’t let them pay for it but rather effect an insurance which covers management failure. And if a CEO is dismissed for good, the salary made previously allows for a convenient life without employment.


THE DIRE CONSEQUENCES

Last week, Georgia’s rugby team lost against New Zealand, but it was in no way a clear-cut case. The fears that the Georgian team could be crushed by the elite team from New Zealand lasted only for the first five minute of the game, until Tsiklauri scored a try (“lelo”). “We’ve seen through this tournament, compared to other tournaments that I’ve played in, that the so-called ‘easy’ games aren’t easy any more”, as New Zealand captain Richie McCaw admitted after the game against Georgia. However, being part of a typical elite club, there is no risk that New Zealand has to compete more often against “second tier” teams like Georgia. Only rugby as a sport is suffering: people won’t be interested in events like the Six Nations Championship if the level of rugby falls behind what is displayed elsewhere. With such structures, it will be difficult for rugby to ever become a sports as popular as soccer.

The flaws of French educational elitism, however, are even more far-reaching, as they affect the success of the whole country. Since many years, France’s economy is falling back dramatically, but the énarque François Hollande seems largely helpless and incompetent in view of this strategic challenge. Perhaps, being good in passing an admissions exam is in the end not what really makes a wise president. France would be well-advised to assign its important offices not to people who belong to some pre-selected elite, but to those who prove their potential in ongoing competitive struggles. 

It is now widely recognized that those who managed to excel in some admissions process are not necessarily the best decision makers. Employers like Deloitte, which are exposed to huge competitive pressure and therefore, unlike the government, must find the best talents, try to avoid being biased through the elite nimbus of some applicants. Hence, they remove the information about the alma maters from the CVs when selecting personnel.  

Not unusual for a non-competing elite, it is questionable how good the French elite schools really are. In the influential 2015 Academic Ranking of World Universities, primarily based on research performance, the ENA does not show up at all. The two other outstanding French elite schools, the École normale supérieure (nicknamed “Ulm”, as it is located in the Rue d'Ulm) and the Ecole polytechnique (nicknamed “X”), are ranked on places 72 and shared 301-400, respectively. Within France, there are 2 other non-elite schools which are ranked better than Ulm, and even 15 which are ranked better than “X”. 

It is not different with the business elite. While CEOs often ask their employees to accept sharp cuts in compensation and benefits, they are personally protected trough various safety nets. Once you are the CEO of a big company, your life cannot fail anymore. When in 2008 and the following years the financial industry messed up big time, leading to terrible economic consequences for many ordinary employees around the world, those who had caused the problem did not have to pay back. Richard Fuld, the last CEO of Lehman Brothers, is still a multi-millionaire, as is James Cayne, who was CEO of Bear Stearns while it went under. Clearly, members of such elites are lacking important incentives to perform well, and so they don’t.

It is of high importance that the notion of an “elite” gets redefined. Feel-good elites, freed from any competition and not responsible for the outcome of their deeds, cause a lot of trouble in the world. Elites should be based on performance, and this performance should have to be proved continuously.

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Guest - Givi on Thursday, 22 October 2015 01:03

Dear Florian,

A very well-argued and relevant article indeed considering the recent public interest in the U.S. regarding the outrageous discrepancies between the CEO and average employee compensations.

However, I would like to play the devil's advocate here and ask you why would you discount the competitiveness variable?

The CEOs in big multinationals might not have monetary incentives to perform but what about prestige and the human nature of wanting to stay ahead of the competition?

Especially now that we see how much Carly Fiorina's poor performance at HP is negatively affecting her polls in the presidential campaign other than, of course, her preposterous policy stances.

Also, I can think of half a dozen of CEOs off the top of my head that "cannot fail" financially but in spite of that do not stop innovating and don't drive their companies off of the cliffs. I am thinking Elon Musk, Mark Parker, Larry Page, etc.

I would love to read your opinion on this!

Dear Florian, A very well-argued and relevant article indeed considering the recent public interest in the U.S. regarding the outrageous discrepancies between the CEO and average employee compensations. However, I would like to play the devil's advocate here and ask you why would you discount the competitiveness variable? The CEOs in big multinationals might not have monetary incentives to perform but what about prestige and the human nature of wanting to stay ahead of the competition? Especially now that we see how much Carly Fiorina's poor performance at HP is negatively affecting her polls in the presidential campaign other than, of course, her preposterous policy stances. Also, I can think of half a dozen of CEOs off the top of my head that "cannot fail" financially but in spite of that do not stop innovating and don't drive their companies off of the cliffs. I am thinking Elon Musk, Mark Parker, Larry Page, etc. I would love to read your opinion on this!
Eric Livny on Friday, 23 October 2015 01:30

An excellent comment, Givi! The top CEOs are fiercely competitive by their very nature. Money is certainly important for them, but only as a measure of their success. Winning is what really matters.

Also the parallel drawn between the closed rugby elite and other types of elites is rather misleading. The elite French schools, such as ENA, are cranking out a lot of ambitious young graduates every year. There is nothing to protect previous ENA cohorts against the onslaught by the younger generation, who are not less talented, not less ambitious and carry the same diplomas. Entry into the French elite schools is also fiercely competitive. Anybody endowed with any ambitions is targeting these school by going through a ridiculously challenging prep course. So, yes, if you have an ENA diploma it says something about your quality, which explain the value attached to it by the French labor market. But this does not turn ENA graduates into useless slackers.

An excellent comment, Givi! The top CEOs are fiercely competitive by their very nature. Money is certainly important for them, but only as a measure of their success. Winning is what really matters. Also the parallel drawn between the closed rugby elite and other types of elites is rather misleading. The elite French schools, such as ENA, are cranking out a lot of ambitious young graduates every year. There is nothing to protect previous ENA cohorts against the onslaught by the younger generation, who are not less talented, not less ambitious and carry the same diplomas. Entry into the French elite schools is also fiercely competitive. Anybody endowed with any ambitions is targeting these school by going through a ridiculously challenging prep course. So, yes, if you have an ENA diploma it says something about your quality, which explain the value attached to it by the French labor market. But this does not turn ENA graduates into useless slackers.
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