Should Business Leaders be Public Leaders?

Meg Whitman, the Republican candidate for governor of California, recently gave an interview, where she said, “…[W]hat I want to convince voters of is I am the very best person to fix the economy in California… I am a businessperson. I am not actually a politician. I am a businessperson. I have created jobs, I have met budgets, I have done, figured out how to do more with less, and that is actually a really important thing for the state right now.”

With the nomination of Whitman, fellow Californian Carly Fiorina , and professional wrestling executive Linda McMahon on Connecticut to November’s ballot, it has to be asked whether the experience these businesswomen gained by running private companies provides them with experience to be a public sector leader. It seems it is assumed by the public at large that the experience a candidate gains by being an executive at a private or public for-profit company provides a candidate with the necessary experience to run a government. Are the outcomes that for-profit companies value the same outcomes that we want our public leaders to implement in our governments, whether it be local, state, or federal?

To look at this, we need to look at what the things that executives are rewarded for in the private sector. For-profit companies are, by definition, profit maximizing entities. Private companies, companies that are not publically traded, exist to maximize the return of that company’s owners and investors. Publically traded for-profit companies exist to maximize the return to their share holders. This return is gained through a company’s profit, the excess of the company’s revenue to its costs. Profit is collected in one of two ways, either by reducing the company’s costs or by increasing the revenue. Private companies gain revenue by providing various goods or services to the marketplace, and the market decides which products succeed or fail.

Public organizations, on the other hand, are governments and nonprofits. They exist to provide services for the common good. They provide services and support for those that cannot afford the services or services for the public good. They maintain roads, police our streets, and educate our children. They provide the common infrastructure that is needed for a market economy to exist, and they ensure that no established laws are broken.

The key differentiator is profit. For-profit executives are expected to do more with less and have a surplus left over, regardless of the public good. Public executives are not expected to generate a profit; they are expected to increase the quality of life of their constituents. For-profit executives have a limited number of stakeholders: either their owners or their shareholders. Public executives count every man, woman, and child as their stakeholders.

Candidates who claim to have the experience for a public sector job, whether they are running for mayor, legislator, governor, Congress, or president, because of their prior work at for-profit companies are really telling us that they know how to “control” spending and “give government back to the people.” Whatever this rhetoric means in practice, we need to be careful that they are not still working to provide profits to the stakeholders they served while running those for-profit companies. Serving the bottom line and serving human beings result in two very different outcomes. We need to be sure that our leaders are serving our best interest, not theirs.