Bad Company

Our whole perception of what corporations mean is steeped in clichés and misconceptions. “The business of America is business,” as attributed to Calvin Coolidge was never uttered by him. More than anything, the last 30 years has been about telling stories about the place of corporations in our lives and our society. Business leaders have become celebrities, from Jack Welch to Donald Trump, celebrated for their contribution to society, for their ability to get things done, for making tough decisions. It is the very nature of corporations and those that lead them, specifically publicly traded companies, that has led us to the precipice. Find any period in history where the accumulation of wealth is celebrated above all else, where businesses provide the role models for harnessing human ambition and social upheaval soon follows. So what is it about modern business theories and the way that companies are run that is tearing our societies apart? Here are some of my thoughts.

Companies are run for profit. If doing good makes a profit, that’s great. If doing bad makes more, even better. It is only the negative impact of getting caught breaking the law or performing immoral acts that keeps corporations from doing so and even then only on condition that penalties and negative press have a greater detrimental effect than the potential profit. Business ethics exist because they are good for business not for ethics.

It is the fiduciary duty of a company’s management towards the shareholders to maximize the return on their investment. It has been the preoccupation of business theorists during the last couple of decades with this duty that have made this the central tenet of modern management theory. Keeping in mind what is best for the workers, the community or even the company itself has become secondary in comparison to this article of faith. Despite mantras aired to the contrary by marketing firms the world over on behalf of their corporate masters, the shareholders in public companies are the only real customers, not those individuals purchasing its products and services.

More and more often companies live entirely from quarter to quarter where no real investment in the long term is made out of fear of showing a short term dip in profitability. There exists a tyranny of profitability. The way modern executive compensation has changed is meant to ensure that this tyranny perseveres. Less and less compensation is the result of work done and paid through a salary while more and more it is the result of profitability delivered as expressed in stock price which is compensated for by options in those same stocks.

As there is a whole set of laws and regulations in place that ensure that the behavior of corporations is viewed as a-moral; that they are not to be judged for their behavior because they are not people (except for in the case when corporations want to influence elections when they can be considered persons as per the US supreme court according to the people vs. citizens united); that we have come to expect executives to think only of the good of his shareholders and that we celebrate those CEOs that are best at this by turning them into celebrities and social icons, we can not expect corporations to do what is good. Companies will, if allowed to, outsource labor to the lowest bidder, even if that means using child slavery. Corporations will destroy any natural resources that will guarantee a buck. Even self preservation will not prevent them from long term self destruction, because the danger is just too many fiscal quarters away.

It has not always been this way. With the proper regulation businesses have been good partners in society. It is essential however to determine ahead of time what the limits are of corporate freedom in its pursuit of profitability.  It is the headlong race to remove regulation during the last three decades that has led to the excess which allowed the 2008 financial crisis and which still allows Wall Street and Big business to post record profits while the world is in the midst of a serious recession and many countries, including the US, struggle under crushing levels of unemployment.

It is not uncommon to hear someone say, when faced by the incompetence and narrow mindedness of politicians, that what we need is more people from the business world as political leaders. Businessmen are result oriented and know how to get things done, the demagoguery goes. But is it not the fact that we have turned the business world into our role model that has made our politicians incapable of long term planning? Isn’t it because we have come to accept that our representatives talk to us in 30 second or less sound bites, commercials really, that none of them come up with anything particularly smart or sophisticated. Perhaps it is because the lobbyist are the most consistent in demanding results on a day to day basis, polling the stock exchange of political influence regularly, that has resulted in politicians across the spectrum dancing to their tune. We should not wish for businessmen to save our politics, they are already busy running it into the ground.

It is not businessmen that are missing in our politics but rather politicians. The business of government is to ensure the well-being of the governed, not make a profit. We need politicians that can resist the siren call of special interests, that are able to articulate and execute long term planning, who have conviction in their ideas and are busy pursuing them instead of obsessing about their electability. It is only when politicians are judged on the positions they take and the plans they propose rather than what they avoided saying or supporting that we will have real choices between the different ways of running our country rather than choices between different faces ruining our country.