[June 28, 2016] For some of my older readers who were watching the news in the early 1970s, they may remember the uproar Americans had over the high CEO salaries at the time. To put a damper on the practice the U.S. Securities and Exchange Commission1 required public disclosure of those salaries. One of the unintended consequences, however, was those CEO salaries increased threefold between 1976 and 1993; resulting in the opposite effect.2
The regulation actually caused the increase because other CEOs now knew what others were making and demanded more. The law of unintended consequences says that once a decision is made, regardless of its intent or origin, there will always be something happen that is unanticipated or unintended.
“The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended.” – Library of Economics and Liberty
Like our example above, Brexit, the recent vote for Britain to exit the European Union, has spun off a number of unintended consequences. Not surprisingly, the consequence of Brexit has not been restricted to Britain or the EU but has affected other nations. Here are a few of those unintended consequences:
- A European Superstate was unveiled, pushed by Germany and France.3
- It is believed that illegal immigrants want to quickly surge into Britain (they have better welfare benefits) in anticipation of UK establishing greater barriers to all forms of immigration.4
- Major political parties in Britain are attempting to block Brexit from happening.5
- At least eight countries want to hold referendums to exit the EU.6
- Cash hoarding as British government bond yields fall into negative territory.7
- Reported spike in ‘hate crimes’ across the Britain.8
Economically, it was predicted that the English Pound would take a beating and that is exactly what has happened. Other predictable results will continue to occur but it is the unexpected ones that can really hurt. For example, Poland which is a closely ally of Britain, has its leadership looking closely at how immigration will affect their country and may consider its own exit from the EU.
Leadership however means being able to predict those consequences and to put in place mechanisms that will help reduce risks.
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- See more information on CEO compensation and SEC regulations at: https://en.wikipedia.org/wiki/Executive_compensation_in_the_United_States