It is in the design of these contracts that boards have often failed to hire responsible talent, and in oversight of the talent once hired.
The doctor repairs a body of a particular person, the lawyer works (whether or not pro bono) for a particular client, and the engineer designs, test or maintains a particular device.
... and the professor educates his students.
None of them creates new fundamental knowledge.
The list of new fundamental knowledge coming from outside the university system is long and distinguished. This is by no means to say that the university does not play an important and significant role, but much science, resulting in much literature and new patents, originates outside of the faculty research arena.
And to clarify, I have not accused you directly of being a cheerleader of CEOs. I am guilty of the implication indirectly, and owe you an apology for that.
It is in the design of these contracts that boards have often failed to hire responsible talent, and in oversight of the talent once hired.
There is no question that boards fail. It is not surprising that their failures are more frequent and sizable at times such as we live in; that is, after and during fast-paced changes of the 1990s.
What I tried to suggest is that it is not necessarily malice or greed that leads to failure: we really do not know what optimal contract looks like even in very simple circumstances. Moreover, we do not fully know what constitutes performance --- in fact, I am not sure whether the measure of performance exists.
This is not a new question at all. The literature on strategic management struggled with just that, how to measure performance, at least since mid-1980; that is, from the very beginning of that discipline. How can you induce proper performance if you do not even know what it is?
Suppose you do know that performance is: you hire me as a walk around your shop at night. You are not there to see me do that, and out interests diverge: you value security of the shop, and I value leisure. This situation, as you probably know, is referred to as moral hazard. How do you design a contract to make it in my interest to do what you want? Clearly, your inducements will be costly. But how much specifically should you pay. Except for a few toy cases, we do not know.
Suppose instead that you are unable to observe, or deduce, one of my intrinsic qualities rather than my actions --- creativity, for instance. Why should I exert myself? How will you know when I failed due to my laziness if you do not know exactly how capable I am? This situation is referred to as adverse selection (inheritance from the insurance industry where it was first encountered). It is even harder to deal with than moral hazard. But in real life, you deal with both simultaneously, and practically no work has been undertaken in that direction. Nobody knows how much is enough to pay for this or that inducement.
As if this was not enough, in creative fields most contracts are incomplete: they do not even specify all possible contingencies. Further, CEOs vary also by asset-specificity --- how transferable their skills are to another industry. Furthermore, start thinking about relative merits within the management team, without which individual compensation cannot be determined either. It's a mess: I have not even named all relevant issues, let alone how to deal with them.
The boards are just a resource, much like the CEOs, coal, electricity, and everything else an organization consumes. The owners hire this limited resource just as they hire programmers and night watchmen: to do their best within the scope specified by the contract, for a specified remuneration. Just like programmers and engineers, they try and do many things right, and they also fail sometimes. In the latter cases, the failures negatively affect a great number of people. But so do doctors: they try but cannot always save a life. In the case of doctors, because there is hard science under what they do, we can even detect and judge a mistake. We cannot do that with management: if there was a message I was trying to convey to you, it is that most failures are not mistakes (and certainly not malice or egotism): we do not know what is right to say that someone was wrong.
As I mentioned earlier, it is in the research function that the new knowledge is created and it is in this capacity that an academic served the larger community.
Most of the research done in industry --- and that includes fields such as biomedics --- is applied. In particular, patents are issued for just such developments. Had the caulculus been invented today, nobody would even think of applyig for, or issuing, a patent. The same is true for quantum mechanics or relativity theory. Or contract theory, for that matter.
In times past, much of the funfamental research was done outside of the universities. Scientists and philosophers often had benebolent protectors with means to support them. I am afraid, these times have past (sigh).
I too have to sign off for the night. Have a good one.