When Greed Is Thought To Be A Virtue - When More Is Never Enough
By David Grace (www.DavidGraceAuthor.com)
Nothing Exceeds Like Excess
Have you ever covered your ears when a perfectly good microphone has been placed too close to a perfectly good speaker and the room is filled with the escalating feedback squeal?
Have you ever seen a perfectly good engine whose governor has failed that just keeps running faster and faster until it blows up?
Fukushima was a perfectly good reactor until the coolant system died and then it raced out of control, feeding on itself, More, More, More, until it exploded.
All of those events — More, More, More until it all blows up — are the machine equivalents of Greed.
Human Greed
Do you remember the skit, The Autumn Years, in the Monty Python film, The Meaning of Life? An immensely fat, wealthy diner, played by John Cleese, takes a table in a posh restaurant and instructs the waiter to bring him everything on the menu.
“Separately, sir, or all mixed up?”
“Mix it all up,” Cleese orders.
Eventually Cleese eats it all and at the very end, as he’s swallowing the final bite, his body explodes spraying the restaurant with food and guts.
I’m sorry, but that skit always makes me laugh. What a marvelous example of gluttony, which is just another form of greed.
We All Know Greed Is A Sickness
If we were to stand around some anonymous Golden Corral buffet and watch people cramming gobs of green Jello and flabby chicken wings down their throats far beyond hunger or need, simply because they could, we would all probably be moved to think, if not to comment, on the deadly sin of greed, of wanting and taking and striving for More just for the sake of More, beyond the point where getting More hurts us and makes us sick and yet we continue to groan and reach for yet another giant meatball.
When More Becomes Less
There is always a cost in acquiring More. A sensible person weighs the benefits of More against the cost of More and when the price overbalances the gain they pull back their hands because at that point More has become less.
Greed Is NOT Good
The person who continues grasping for More beyond the point where the loss from taking it out weighs the gain of having it is infected with the disease of greed. He’s suffering from a mental illness of self-destructively striving for More.
Gordon Gekko’s pronouncement to the contrary, rational people know that Greed, rather than being good, is the emotional equivalent of cutting yourself.
Greed is John Cleese eating everything he can reach to the point of exploding his guts.
Greed is a high-school coach ahead 51 to 3 leaving his first-string players in the game all the way to the end for the sole purpose of running up the score to 65 to 3.
Greed is someone with two-hundred million in the bank and twenty million in income complaining that the government is spending too much money on food stamps and health insurance for losers who aren’t rich like he is.
Greed is choosing to sacrifice more than is gained just for the thrill of having More.
Greed is an already profitable company firing its American workers and sending their jobs to a foreign country just so it can have More.
Wait. What?
Corporate Greed
“No,” you say, “every business has a fiduciary obligation to its shareholders to get More. Every year, every quarter, by definition sales must be higher, profits must be greater. More, More, More.”
“If you made a hundred million in profits this year, then you need to make a hundred and ten the next. And a hundred and twenty the year after that.”
“In business,” you say, “there is never enough. In business, there is no such thing as greed. In business there is only More.”
You tell me that it doesn’t matter that the company is already profitable.
It doesn’t matter that only a third of any additional profits will actually be distributed to the shareholders.
It doesn’t matter that most of those shareholders have so much money that the dividends they do get from those additional profits will make no material difference in the quality of their lives.
You tell me that it doesn’t matter that most of those profits will simply be socked away in foreign bank accounts as part of a tax-dodge to avoid contributing to useless government programs like medical research, law enforcement, roads, bridges, education, clean water, and public health.
“Yes,” you admit, “when a human being sits at that table and jams bite after bite into his mouth until he keels over, that’s a sickness.”
“But,” you tell me, “when a corporation ships known defective parts, closes profitable American factories, increases hidden fees, triples the cost of its products and abolishes employees’ medical insurance all so that it can make a hundred and fifty million in profit instead of only a hundred an thirty million, that’s not greed.”
No, according to you, that’s just good business.
So, when the monopolist Mylan sextupled the price of the Epipen because they could, that wasn’t greed. That was just good, admirable, business practice.
You claim that the only duty an executive, a board of directors, or a company has is to get every penny of profit possible in any way possible which is either (a) not clearly illegal or (b) is illegal but is not likely be discovered. Volkswagen, this Bud’s for you.
You’re wrong. Much as the executives don’t want to admit it, corporations have duties beyond their shareholders. They have duties to their employees, their customers, their suppliers, their communities and their country.
They say they don’t. They say they have to fire those workers with living-wage jobs and replace them with twice as many minimum-wage part-time workers with no benefits (I’m talking to you, Frontier Airlines) because they have a sacred duty to get More.
The Necessity Of A Governor
Every system requires a governor to keep it from running out of control. Internal combustion engines have rev limiters. Industrial equipment is designed with automatic shutoffs. Pressure cookers have relief valves.
Humans have ethical codes, laws, police officers and jails all to keep want from escalating from need into desire then craving then lust and eventually into unrestrained greed.
But artificial entities have no conscience, no ethics, no morals anymore than a robot has them.
All the more reason that Corporations need a governor too.
The Market System
The market system is based on the idea that the lure of profit will encourage people to strive, innovate, and risk in order to produce new, better and cheaper goods and services.
Profit is not the goal of the market system. Profit is merely the carrot on the end of the stick. The carrot is on the stick only to encourage the beast to move its burden forward. Profit is a tactic not a destination.
The idea of the capitalist system is that the lure of profit will drive people into the socially useful activity of the design, construction and sale of desirable goods and services at the lowest possible prices. The idea is that different groups, all pursuing profit, will compete with each other and that the competition will increase the variety of available products while lowering their cost.
In the capitalist market system, profit is not a goal in itself. It is merely the fuel that propels the market machine toward its real goal–more, better, and cheaper goods and services.
But in our corporate world today, profit has no governor. Executives won’t admit that they have any obligation other than the pursuit of unbridled profit at any cost.
We have created a business system that is out of control, that knows no bounds, that not only feels that it has no duty not to wring every penny it can out of its customers and employees, but in fact believes that it has an affirmative obligation to do everything it can to impoverish everyone it deals with.
The system, any system, needs built-in checks and balances, but for many if not most large business organizations there are none.
Like any other machine, profit needs a governor to prevent its pursuit from racing out of control. It needs a governor to keep the desire for More from mutating into runaway greed.
A System Out Of Control
From Wikipedia — edited:
In 1859 Thomas Austin released 24 wild rabbits on his property in Victoria, Australia for hunting purposes.
At the time Austin stated, “The introduction of a few rabbits could do little harm and might provide a touch of home, in addition to a spot of hunting.”
The rabbits were extremely prolific and spread rapidly across the southern parts of the country.
In a classic example of unintended consequences, rabbits had become so prevalent that within ten years of their introduction in 1859 two million could be shot or trapped annually without having any noticeable effect on the population.
The effect of rabbits on the ecology of Australia has been devastating.
Without a built-in control system, the rabbits became a pest committing damage far in excess of their benefits.
The unchecked pursuit of profit is like the unchecked breeding of those rabbits. In reasonable measure the pursuit of profit is a benefit, but if unrestrained it does more harm than good.
There Is No Corporate Governor
Not only do we have no governor on American business’ frantic pursuit of profit, we have an executive class that believes that any such governor would be wrong, that More is not only always better but that More is morally required.
I can talk about businesses having a responsibility to their employees, their customers, their suppliers, their communities and their countries all day ling but how do you quantify that? How do you define it? How do you calculate it?How do you enforce it? Just proclaiming it as a nice-sounding principle does nothing.
A Corporate Conduct Governor
In a previous post A New Form Of Business Entity That Will Stop Companies From Behaving Badly I suggested replacing the Investor Controlled Company, whose metric is short-term profit, with a Customer Controlled Company whose metric is customer satisfaction.
There are other possible techniques to stop the pursuit of More from turning into greed.
Capping Excess Profits
Executives believe that there is no such thing as “excess profits.”
I suggest that profits beyond those necessary to fund investment, innovation and growth are, in fact, excess profits.
So, what if corporate profits were limited to some percentage of gross sales? What if corporations were required to pay any corporate profits in excess of XX% of gross sales to the government as a tax?
Where’s the incentive to fire your American workers and move your factory to Mexico, Carrier, if any additional profits thus realized are only going to have to be turned over to the government anyway?
Why skimp on safety procedures, British Petroleum, if you’re not going to be able to keep the money you save?
Why force your employees to open fraudulent bank accounts, Wells Fargo, if you’re not going to be able to keep the extra money you make from them?
If you’re having a particularly good year then in order to avoid the forfeiture of those very high profits you’re either going to have to pay your employees more or give rebates to your customers.
There is no incentive to increase “gotcha” fees, decrease product quality, cut wages, skimp on maintenance procedures or triple your prices (Mylan) if all that gets you is hitting the profit cap and having to hand over that extra money as a tax.
Negative Effects?
Is That Extra Profit Really Vital?
The executives will say that they need all that extra money. Really?
Exxon-Mobil is putting $173 MILLION dollars into a trust account for Rex Tillerson to pay him for all the stock they gave him.
When John Stumpf was forced out of Wells Fargo, the bank paid him $130 Million. When Stumpf’s former subordinate, Carrie Tolstedt, left Wells Fargo after the scandal in HER department, she was paid over $124 MILLION dollars.
Before you tell me that Exxon and Wells Fargo need to pay hundreds of millions of dollars to these people in order to get them to do a good job, let’s think about that for a second.
Before he quit, Stumpf was paid about $6 Million in base salary and cash bonuses a year or about $500,000/month exclusive of stock option bonuses.
That’s $125,000 per week in cash, but that still wasn’t enough for him to do a good job? If anyone told you, “Yes, I’ll be your CEO if you pay me $125,000 A WEEK but I won’t really give it my all, I won’t really, really work hard for a measly $125,000 a week. If you want me to really put my shoulder to the grindstone, I want tens of millions of dollars MORE” you’d tell them to go screw themselves.
I will go farther: If someone tells you that they won’t work hard for only $125,000 a week, you are a fool for hiring them in any capacity at all.
But big corporations do that every day. The list of obscene payments to executives goes on and on.
And the evidence of huge profits can be seen in other ways.
Right now American corporations have deposited over three TRILLION dollars in foreign banks in order to avoid paying U.S. income taxes. That’s about equal to the entire cost of both the Iraq and Afghanistan wars.
You can tell me all day long that big business really, really needs all those extra profits, needs them, but in light of what they’re doing with their money, I’m not persuaded in the least.
Clearly, large American corporations have money to burn.
Will An Excess Profits Cap Deter Investors?
“But,” you argue, “if profits are capped won’t that deter people from investing?”
No, of course not.
First, people primarily buy stock directly from the corporation in a public offering in the hope of capital appreciation on their later sale of the shares, not in the expectation of large corporate dividends.
If a company goes from gross sales of $50M at the time of the IPO to later gross sales of $1B its share price will drastically increase irrespective of its annual profit. Look at Amazon.
Secondly, if the cap was 20%, a 20% profit on a billion dollars in gross sales is a lot of money and would provide a hell of a lot more money per share in dividends than a 20% profit on fifty million dollars in gross sales at the time of the IPO, again driving up the price of the stock.
Thirdly, if your choice is investing in a CD that pays 2% and buying stock in a new company whose share price might increase several times over you’re still very likely to buy the stock whether or not there the law provides for an excess profits tax.
Allow Corporations To Deduct Dividends From Income Taxes
Suppose you also changed the corporate tax code to allow a corporation to deduct shareholder dividends from taxable income before calculating corporate income taxes.
You could set the corporate income tax at 25% and enact a flat tax rate on shareholder dividends at 25% so that distributing dividends to shareholders would be tax neutral.
If that were the law instead of the current double taxation system, corporations would be far more likely to distribute more dividends to shareholders which in turn would make owning stock a much more popular investment.
Don’t Kill The Profit Motive, Control It
The idea here is that while the profit motive is a powerful and valuable tool it needs a limit, a governor to keep corporate conduct in check.
We need enough profit to encourage investment, innovation and competition but not so much unrestrained profit as to fuel today’s slash-and-burn, anything-goes business environment.
“Say On Pay” Approval By A Majority Of All Outstanding Shares
A second tool to restrain corporate bad behavior for publicly-traded companies would be to require that all executive compensation plans be approved every five years by a majority of the outstanding shares, not a majority of the shares actually voting.
If that were the case many executive bonus schemes would end. Not only would the Fortune 500 companies save many billions of dollars which could be put to far better use, including paying dividends to the shareholders, the decline of bonuses would remove much of the incentive for bad corporate behavior.
Without the stock bonuses you lose a lot of the executives’ incentive to engage in activities designed to raise the short-term stock price and raise short-term profits at the expense of employees, customers, the public and long-term value.
The Value Of Public Action
Even without creating a systemic governor on corporate greed there is at least one non-legislative thing that can be done. Let’s take Carrier as an example.
Carrier terminated two-thousand American employees because it decided that it could make a bigger profit by firing them and employing Mexicans to do the same work.
Instead of promising the company tax breaks to keep about half of those jobs in the U.S., that is instead of offering Carrier a carrot, what if instead we hit them with a stick?
What if the AFL-CIO and the Teamsters and the United Auto-Workers unions had contributed enough money to finance the broadcast of twenty or thirty prime-time TV commercials along the following lines:
“Carrier is firing two thousand American workers because it thinks it can make even more money by sending their jobs to Mexico then importing the air conditioning equipment they used to make back here to be sold to U.S. citizens who do still have jobs.
Carrier is not only a profitable company, it has lots and lots of money. Two years ago its parent company, United Technologies, paid it’s outgoing CEO a retirement bonus of $172 Million dollars.
How does that work? Fire 2,000 American workers so that you can make a bigger profit by shipping their jobs abroad while paying out $172 million dollars to one man, your retiring CEO, as severance pay?
Since the only thing Carrier understands is money, we need to take it away from them. Don’t do any business with Carrier. None.
If you’re a builder, developer, contractor or home owner don’t buy any Carrier products. Get their attention the only way they understand, by taking their money away from them.
When the Carrier CEO who decided to close this plant is fired, when all these jobs are brought back to Indiana, when Carrier apologies for this conduct and promises never to do anything like this again, then and only then should you think about possibly doing business with them again.
Until then, punish Carrier by taking away the only thing it cares about–money.
If you need AC equipment remember, “Nothing Runs Like A Trane.”
Now that might have gotten Carrier’s attention.
– David Grace (www.DavidGraceAuthor.com)
