Too bad to fail

Sometimes losing propositions turn out to be winners, depsite the worst-laid plans

Failure. People are always saying bad things about it. But it has its upside. These days it’s all Canucks fans have to cheer about. Since making the playoffs stopped being a thing around here, the only option left was to join Team Tank and start hoping for the highest possible draft pick. No wonder Vancouver was awarded the National Hockey League Draft in 2019—it’s our Stanley Cup.

The NHL draft has always been a reward for failure. Although the league instituted a lottery in an attempt to fudge the direct connection between the degree of sucking and the ultimate reward, the benefits of losing are still real. It’s the Springtime for Hitler of the sports world.

Mel Brooks created perhaps the ultimate paean to failure with The Producers, a movie and later a stage musical about an attempt to turn an unscrupulous profit by creating a flop Broadway production starring a singing, dancing fuehrer. But are there business examples outside of film and sports?

In 2010 the U.S. Securities and Exchange Commission charged Goldman Sachs Group Inc. with putting on its own song-and-dance routine. Before the subprime mortgage crisis of 2008, the firm had been selling investment products that, like Brooks’ fictional musical, were designed to fail—betting against them even as it pitched the products to eager suckers. Goldman Sachs confessed to the scheme, but since this wasn’t the movies, nobody from the company ended up wearing orange jumpsuits.

Failure is sometimes rewarded for reasons that have nothing to do with nefarious schemes or accidental successes. Some people just belly-flop into a pool of cash.

In 2012, British Columbia Ferry Services Inc. drew a lot of public heat for paying large salaries to successive CEOs even as ridership dropped precipitously. In a CBC report that year, BC Ferries chair Donald Hayes seemed to make a case that failure might be a reason for higher compensation: “It’s at these times you really need the strong leadership and the strong skill set,” Hayes said, “to make sure that the impact of the economic circumstances that surround us are minimized on the company.”

So in good times you get more money as a reward; in bad times you receive more as an incentive. Nice work if you can get it.

In 2016, billionaire investor Christopher Hohn took a different view. At a time when Volkswagen was rocked by damaging allegations about falsified diesel emissions, Hohn argued that executive compensation was partly to blame. According to Forbes magazine, he sent a letter to the Volkswagen board reading in part: “We believe that excessive top management compensation...has encouraged aggressive management behavior, contributing to the diesel scandal... Over the past five years the company has been held back by underperforming and overpaid management.”

In other words, when you’re rich you don’t even need all that champagne you can easily afford. You’re already drunk on wealth and power.

And while you may not be able to buy happiness, you can apparently buy failure. A 2016 study, “Performance for pay? The relation between CEO incentive compensation and future stock performance,” from the University of Utah, Purdue University and the University of Cambridge, found that “high-paid overconfident CEOs destroy firm value through over-investment, and that these effects are stronger at firms with weaker governance.” Better pay equals worse results. Canucks fans call this the Loui Eriksson Principle.

If failure does indeed bring increased rewards, a wag might suggest that Canucks president Trevor Linden and general manager Jim Benning should have handsome paydays coming. But patient fans know that pro hockey, while big business, isn’t subject to the same economic principles. Drafts are investment opportunities. Losing more games boosts your capital. But yields must arrive someday. When it comes to the NHL draft, perpetual winning marks you as a total loser. The real Springtime for Vancouver will have to be produced on the ice.