Shame as a public policy tool

Today I’m reading Grounded: Frank Lorenzo and the Destruction of Eastern Airlines, an on-the-ground account written in 1990 by reporter Aaron Bernstein about the events surrounding Lorenzo’s ill-fated ownership of Eastern in the ’80s. (FYI: Bernstein takes a clear pro-labor angle that should be noted.) In his discussion of military man, former astronaut, and Eastern CEO Frank Borman’s actions preceding the sale, many of those whom Bernstein interviews thought that Borman was too proud to let his airline go into bankruptcy or sell it to corporate suitor Frank Lorenzo. “Borman had no desire to sell the company,” writes Bernstein. “Failure would be a bitter end to what had been a successful climb to the top of the corporate ladder.” But Borman ends up running to Lorenzo instead of buckling to union pressure.

Lorenzo seemed to have no such scruples, which led him to sell off most of Eastern’s most profitable assets, wage a demoralizing battle with the airline’s unions, leading to a disastrous strike and eventual shutdown in 1991. Lorenzo dragged capitalism through the mud, wrote William F. Buckley at the time, but “[t]here is no way a law could be written, to the effect that chief executives ought not to profiteer from the distress of companies they manage.” What remedy is left? “Some general manifestation of disdain for the abusers of capitalism is appropriate,” Buckley writes. That is to say, we should shame corporate officers who behave this way. Shame once might have been an effective tool for penalizing actually corrupt businessmen — which Lorenzo was not — but in the airline world, passengers seem not to care about honorable behavior by executives as long as they get a cheap flight. Rare is the instance in which an executive resigns in disgrace, as American Airlines’ Donald Carty did in 2003 during an attempt to extract concessions from flight attendants while offering top executives cash bonuses. (Carty did not leave the industry; he is currently chairman of Virgin America.)

I’ve written before about the decreasing stigma of bankruptcy. If the law is too heavy a cudgel to ensure upright behavior by airline bosses, and if bankruptcy judges see fit to allow airlines to shred contracts under what Herb Kelleher calls the “health spa” of Chapter 11, then we will have no choice but to shame the executives into doing the right thing. Does the American public have the moral stamina?