The National Securities Market Commission (CNMV) is proposing a reform of the unified code that will govern the boards of directors of listed companies. This is partly in response to the bonuses awarded to certain executives who do not appear to have behaved in a professional or ethically correct manner. A regulatory reaction was to be expected at core topic : If "the system" does not work well, we add restrictions to avoid similar situations in the future. It is not that simple. All regulation ends up being too specific. For example, one of the proposed changes reads: "The variable components (of remuneration) must be linked to predetermined and measurable performance criteria, and can be reclaimed by companies if (the director) does not meet the performance criteria".

Let's be clear. In business management, predetermined and measurable criteria that are both objectively "good" for business do not exist. Can we define the performance objectives of a business through a series of measures so that we can then know whether or not manager has done what it should or should not by simply comparing its values with preset ones? No. It is impossible: "Performance" is a multidimensional concept and some of its dimensions are not measurable. If all of them were, the corresponding activities could be outsourced with contracts that are as detailed as possible and there would be no need to consider variable remuneration such as the one that caused the problem in the first place. Nor would there even be a need for business, taking these contracts to the extreme.

The solution does not lie in regulations. The foundation of free business is subjectivity. If it were not so, the USSR would have been a success. We will have to resort to honest subjectivity. Use some indicators (not measures) of performance, and establish a context in which to discuss not only results, but the process and intent of decisions. Also, ensure that trust flourishes in such a context. And avoid having a relentless external regulator meddling in the task of measuring "performance" against an inflexible, predefined yardstick. That's the way things are with human beings involved. Fortunately.