Tag Archives: corporate greed

To Benefit America and Its Future, Corporations Need a Higher Level of Ethical Behavior

Corporations doing more of what is right will mean more for corporations—and the world

Throughout the economic history of America, corporations have been the primary entity driving growth, wealth creation, employment and economic vitality. The incentive and reward for functioning in this manner has been profit. Consistent laws, protection and support from government, combined with reasonable regulations aimed at creating an “open market” and favorable tax incentives, all encouraged the formation and development of corporations.

These corporations served as an efficient vehicle that allowed those with capital to combine it with others in the hope of a return (profit) on their investment. If this corporate-concentric system had not been the cornerstone of economic development, it is likely that America would have remained a nation of tinsmiths and sodbusters; the country certainly would not have created the most dynamic economic system in the history of the world.

This has truly been a story of parallel interests.

Over the past 200 years, in exchange for the opportunity to earn a profit, corporations have employed millions of workers, stimulated innovation and creativity, provided an amazing array of goods and services, supported education and the arts, and through taxes on profits earned, they have supported a large portion of services provided by government to all citizens. It is difficult to exaggerate the positive influence corporations have had on American society and success. But corporations also owe a lot to a government that protected their ideas with patents, sought to prevent unfair competition in markets and went to war (literally and figuratively) to open international trade; the government educated millions of citizens to have the knowledge and skills needed to be reliable, productive workers. The corporations also owe much of their success to the millions of workers who invested their lives in corporations, toiling mostly in obscurity, so that the corporation may make its needed profits.

Of course, there is also a dark side. From inception, in a drive for ever-increasing profits at all costs, there has been a continuing litany of abuse, fraud and even illegal activity by corporations. At times the government was in league with corporations; looking the other way or even sanctioning monopolies, abusive trusts, maltreatment of competitors, customers and employees. At other times the government seemed to be at war with corporations; assessing confiscatory taxes, implementing stifling regulations and confusing best-practices with anti-competitive activity.

Despite the problems, the triad of corporations, government and the people have worked together in a balanced system that has, in general, equitably benefited all parties. There has always been more respect than envy for the success of corporations and the economic value they bring to society. But this attitude of admiration for corporations has begun to wane. In fact, among the general population, respect for corporations in general is at the lowest level since the Great Depression; it is so low that it is barely above the level of respect given Congress. In fact, the fuel for the continuing grassroots “Occupy” movement is ignited by a lack of trust and respect for corporations. This is not a healthy situation for either corporations or the economy.

There are a multitude of reasons for this decline in respect for corporations; not the least of which were the greedy, irresponsible actions of corporations that triggered the economic collapse of 2008, followed by corporate “bailed-outs” and mega-bankruptcies. But the overriding explanation for the crater of disrepute that corporations have slipped into can be traced back to the very reason corporations are created – to make a profit. Of course, there is nothing wrong with profits. Profits, after all, provide the grease that makes the wheels of commerce run. The problem is that the drive for profits has become an all-consuming obsession that has thrown the balance between the welfare of government, society and corporations out of balance.

The Route of all Evil?

This idea that profits are the “be-all and end-all” reason for the existence of corporations has so permeated the discussion and analysis of corporate activity to the point that all sense of balance and fairness has been lost. The only action that is considered acceptable for a corporation and its directors is one that maximizes profit. This single-minded mania to maximize profits at all costs has created an environment that fertilizes short-term decisions, irresponsible actions, shareholder lawsuits, outright fraud and illegal activities. Quarter after quarter, every public corporation is measured, rewarded or penalized based upon the level of profits produced. Even worse is that the bar for the “anticipated” profit is often set by those outside the corporation. No one ever seems to question the activity – good or bad – of a corporation reporting constantly increasing profits, but just allow those profits to slip once and all hell breaks loose. Just ask investors who were holding shares of Ford, Chevron or Starbucks this week when these companies missed the earnings targets set by “The Street.”

Sure, profits are important – indeed necessary – but if this attitude that profits are all that matters continues unabated, then society, the economy, effective government and – believe it or not – most of all, corporations will suffer possibly irreparable damage. What is needed to prevent this potential catastrophe is to reestablish parallel interests in a way that rebalances the interests of corporations, society and government. Fortunately, there is a new concept taking shape that has the potential to achieve this objective.

An article in The Wall Street Journal on Jan. 19 (“With New Law, Profits Take Back Seat”) outlined a new idea called the “benefit corporation” that is gaining acceptance in a number of states. The idea of these “benefit corporation” laws passed in seven states so far (including New York and California) is to provide immunity to corporations and directors to make decisions that may benefit corporations, society and the environment, even though these actions may not maximize short-term profits.

Hundreds of corporations have begun to adopt this alternative business model and for the right reasons. As WSJ reported, Patagonia Inc. an outdoor-apparel company with over $500 million in revenues in 2011 has adopted this model and quoted its CEO Casey Sheahan as saying, “We’re trying to preserve for the long-term the way our company is run.” He pointed out that traditional corporate structures don’t encourage boards of for-profit companies to sacrifice shareholder value for a public good; even though such action may ultimately be in the best long term interests of the company.

The benefit corporate concept does not seek to downgrade the importance or value of profits, but it does offer corporate executives and the board of directors protection and incentive to consider that there are other activities of a corporation – social and environmental – that can be just as important as profits to increasing the ultimate value of the corporation. This idea in essence raises the bar of ethical performance to the level of not just doing the right things that are required to be done, but to a higher level of stewardship: doing the right things that are not required to be done. That is true ethical leadership.

And the Moral of the Story …

If the American society and economy are to remain vibrant and if America is to continue its global leadership, then corporations must continue to be supported, encouraged and respected as the vehicle to achieve these objectives. However, for corporations to play this role, they once again must be mindful of the balanced parallel interests between society, government and profits that must be in place for all to be successful. Failure to understand and accept this concept not only will damage America, but in the end will do even more damage to the profits of corporations. The way to avoid this from happening is for corporations to accept the real philosophy of broad-based ethical leadership so that they can once again be seen as a benefit for all. It is as Charles Wilson said “What is good for the country is good for General Motors—and vice versa.”

Is it Time to Get Government off the Back of Business and Let Business be Business?

First we should decide just who is on whose back.

For those who pay attention to the visceral cacophony that passes for political debate in America, it’s no wonder that they view “corporations” as either the divine creators of all economic vitality or as organizations led by godless men who are being seduced and programmed by the devil.

Those on the political right offer the simplistic idea that the way to reduce unemployment and get the economy rolling again is to “get government off the backs of business and allow business to do what it does best.” Those on the political right see government regulation and taxation of corporations as sinister plots that clog the engines of economic growth. Their plaintive plea, offered ad nauseam, is that all would be well with the economy if only we would “reduce corporate taxes and eliminate regulations.”

On the other hand, there are those on the political left who hold to a one-dimensional view that corporations are by nature innately evil. They believe that the greedy and self-serving actions of corporations are the actual cause of the current economic problems. Their solution is to tax corporations in order to make them “pay their fair share,” and to closely regulate them to prevent their naturally recurring nefarious actions.

Neither Fish nor Fowl

The truth is that corporations are a little bit of both and we should be glad that this is true.

There is no denying that corporations have been at the center of economic development in this country. Yet, despite the contributions that corporations make to the economy and employment, they have proven again and again that — left to their own devices — they will take self-serving actions that are detrimental to all but a few.

The problem is that both the left and the right misstate and mislead everyone as to the true long-term relationship between government and corporations. It has always has been cozy and codependent, and that is not all bad. Throughout the entire history of our country, the government and corporations have always been in accord more often than in conflict. Corporations and government may not share the same objectives, but they serve each others’ purpose and are used by the other to achieve their own objectives.

The objective of government is not to make a profit, but to seek a robust, full-employment economy so that those in government can be re-elected. The overriding objective of corporations is not to contribute to the growth of the economy or create jobs, but to make as much profit as possible so those running corporations can receive the biggest salaries and most lucrative bonuses possible. This dichotomy of goals leads to corresponding dilemmas: Given the choice of a balanced budget or deficit spending in an effort to stimulate the economy and create jobs for people, what choice will (or should) the government make? Given the choice of making a profit or keeping more people employed, what choice will the corporation make?

In the past few years, the government has been piling up huge deficits trying to keep people employed. At the same time, corporations have been piling up huge profits, while laying-off thousands of workers. It is this conundrum that has created the serendipity of association between the government and corporations that has historically been central to the country’s economic growth and vitality.

Corporations have never been inclinated or had the resources necesssary to take the independent and risky actions necessary to build the country and the economy. They have always depended upon the government to provide protection, tax incentives and outright subsidies in order to enhance their profits. With the predisposition and resources but not the talent or temperament, the government has almost always depended upon corporations to take the actions that grow the economy and create jobs.

Neither the left or right want to admit it, but the economic success of our country resulted from the government and corporations riding on the backs of each other.

In the late 18th century, when the American government sought to create a manufacturing base and expand non-farm employment opportunities, it did so by imposing stiff tariffs on textiles imported from Great Britain, purchasing the land, funding the construction of factories and subsidizing the entire textile industry.

This was not an exception but rather a start of a two-century backscratching partnership between the government and corporations. Just a few examples of which included:

  • Building a transcontinental rail system by offering free land and outright grants to the embryonic railroad corporations. The rail companies made millions in profits and the government got the economy stimulated and thousands of jobs created.
  • In the 1960s, under the guise of landing a man on the moon, the government virtually created the aerospace industry. With the formation of NASA, the government pumped hundreds of billions of dollars into the nascent aerospace industry that stimulated the economy, created tens of thousands of jobs and earned hundreds of millions in profits for corporations.
  • More recently, when inefficiency and pure bad management pushed the auto industry to the brink of failure, the government pumped billions of dollars into these corporations. The companies readily accepted the government money to save their companies while the government was motivated to save jobs. And, as most of these government-corporate arrangements have in the past, the effort seemed to work. Using government money the companies have returned to profitability and for the government 90,000 new jobs have been created by the auto industry in the past two years and the jobs of 1.7 million workers were saved.

It is not something we like to admit, but the majority of wars and military incursions undertaken by our government in the past 200 years were motivated by the desire of our government to create or protect the economic opportunities of corporations.

There is More to the Government-Corporate Partnership than Simply Government Largesse

The entire federal tax code is loaded with ambiguities (some call them “loopholes”) that benefit corporations. Those on the right like to claim that the corporate tax rate in America is “the highest in the industrial world.” They would be right if the corporations actually paid that tax rate! But, like so much babble we hear from the politicos, it is just  bluster, smoke and mirrors. That corporations are overtaxed is more a myth than Big Foot, the Bermuda Triangle and the Loch Ness Monster combined. The reality is that as a percentage of total government revenues, corporations are paying less now than they did 20 years ago.

It is estimated that the current tax system provides corporations with $1.4 trillion dollars in tax breaks—not even counting the billions and billions of foreign profits that are not taxed at all. In fact, many of the very largest corporations, earning billions of dollars in profits, actually receive tax-credits or refunds. For example: In 2010, according to the Institute for Policy Studies, Dow Chemical earned $2.3 billion and reported a tax-credit of $576 million; Prudential earned $3.2 billion and had a tax-credit of $722 million and Bank of New York earned $2.5 billion in profit with an additional $670 million in tax-credits. Wouldn’t it be nice if the individual tax system worked like that?

Get the Government Off the Back of Business

Those politicians on the right love to repeat over and over again that all our financial problems would be solved if only the government would reduce or even eliminate regulations on business so business can do what they do best. And, what is it that corporations do best?

The single, solidarity objective of corporations is to make as much money as possible; in any way possible. In many corporate cultures the end does justify the means. Left to their own devices, corporations have proved over and over again that any benefit to society, consumers or employees is incidental, accidental and secondary to the interests of making a profit. Even the shareholders who have risked their capital to finance the corporation come after the executives have skimmed off huge compensation packages.

If the government had failed to regulate the behavior of corporations we could still be seeing 12-year-old children as factory workers, below subsistence pay scales, food that was not safe to eat and autos that are unsafe at any speed. We all suffered when government bought (or was sold) the idea that the economy and jobs would grow if only the regulations on banks and investment firms were repealed, so that they could “do what they do best.”

Of course, there are also examples of frenzied regulators run amok. Just as those running corporations can be mesmerized by greed, so too can government workers be hypnotized by power. Too often regulators have confused protecting the consumer with parenting the consumer. The objective of regulation should be to create a level playing field, not actually play on it.

And the moral of the story …

The truth of the matter is that America has grown strong and powerful based in good part on a symbiotic relationship between government and corporations. It has truly been a “you scratch my back and I will scratch your back” relationship. Government has achieved its objectives by riding on the back of corporations. Corporations have achieved its objectives by riding on the back of government. The system will continue to work, so long as this parallel balance is maintained with government and corporations having each others’ backs.

So the next time some cheap politician tells you the answer is to get government off the backs of business, you can agree; so long as the corporations are willing to give up all the protection, tax breaks, subsidies and incentives the government provides so they can make a profit.

In Business, Greed is Everybody’s Problem and Entrepreneurism is the Antidote

We’ve been hearing a lot about corporate greed these days and it’s being blamed for every economic ill imaginable: the credit crunch, the housing recession, the falling dollar, the price of gasoline, soaring health care costs and $4 loaves of bread. Businesses, the critics claim, are riddled with chief executives that create abundance for themselves and poverty for a naïve buying public.

I was reminded of that again when I read an interesting article written by my old friend Neal St. Anthony, a business columnist for the Minneapolis StarTribune. His column, “Investor Greed Hits Home for Bear, Families,” delivers a few well-placed jabs at greed; specifically the sort he sees in the collapse of Bear Stearns.

St. Anthony writes that Wall Street is driven by greed and fear. “What we’re witnessing,” says St. Anthony, “is the disastrous collision of greed, fear and ignorance at the intersection of Wall Street and Main Street.” And he rightfully notes that when businesses go bad—everybody suffers.

St. Anthony doesn’t, however, name names but CNBC does. In fact, the cable network has carried the “greed” theme to an entire program series called American Greed (Wednesdays, 9 p.m. EDT). Dennis Kozlowski, the former CEO of Tyco, was skewered on a recent program. He’s the exec that fleeced millions from his company and now sits behind bars in a New York prison doing 8 to 25 years and cleaning toilets for a living.

The message of this and other series programs is clear: greedy leaders wreak havoc on business, the economy and the U.S. public. And that picture, I think, is only partly right, and it completely misses the point that the antidote for most corporate sins is a generous dose of entrepreneurism.

In my book, Cheat To Win, I noted that “Critics may cite Enron, World-Com, Tyco, Adelphia and any number of rogue companies as examples of pure entrepreneurialism run amok, but I disagree. Rather, these are examples of out-of-control, bloated bureaucratic organizations with cultures that both tolerate and foster lack of accountability, unadulterated greed and fraud at many levels.” Continue reading