• Story alerts
  • Letter to Editor
  • Pin it

Some politicians tell us corporations are people. Yeah — greedy people. Two years ago, one poll showed that 83 percent of people — real people — believe that companies should pursue their business goals while trying to improve society and the environment.

And some persuasive studies indicate that companies might even enhance their long-term profits and prospects if they spent more money on improving the world they operate in.

But statistics show that corporations are not doing much for society or our quality of living. A Pew Research poll last year indicated that 80 percent of middle-class adults partially blamed big business for middle-class woes.

According to various studies of philanthropy, individuals make 72 percent of charitable donations and corporations a mere 5 to 6 percent. Companies give about 0.12 percent of their revenues to charity, and below 1 percent of pretax profits — less than half of the percentage they gave in the 1980s.

One study more than a decade ago showed that the poor — households making less than $20,000 a year — gave 4.6 percent of their income to charity. Those earning $50,000 to $100,000 gave 2.5 percent.

Unfortunately, companies often give to charities when they want public support for their own profit-making activities. According to the blog CorpWatch, when the city council of Washington DC passed a bill demanding that big-box retailers like Walmart pay a living wage to employees ($12.50 an hour, almost 50 percent higher than the minimum wage at the time), the company set up food banks for the poor and warned the mayor that if he didn’t veto the bill, Walmart’s charitable contributions would be jeopardized.

Enlightened self-interest is fine, but companies shouldn’t make selfish interests so obvious.

Arthur Lipper

Chief executives of large companies bring home about 330 times more than the average worker makes — up from around 50 times more 30 years ago. From 2009 to 2012, as the economy improved moderately, incomes of the richest 1 percent shot up 31 percent while incomes of the 99 percent grew by a measly 0.4 percent — less than half a percent.

Alan Greenspan

“It is clear to me that we are headed into a confrontation between classes in the U.S.,” says Arthur Lipper III of Del Mar, entrepreneur and scion of a famous Wall Street family. A few top executives are aware of a pending income and wealth inequality crisis. Even former Federal Reserve chairman Alan Greenspan fears it. But companies continue taking actions that nettle the public.

The latest is the so-called inversion. More and more companies are attempting to buy a foreign concern, then pretend they are moving their headquarters to the low-tax nation, boosting profits and executive pay. This is similar to the widespread practice of corporations parking profits in low-tax countries. Multinational companies have almost $2 trillion reposing outside the United States to dodge taxes, according to Bloomberg News.

Barack Obama

President Obama has denounced the inversion tax ploy as essentially unpatriotic. Laws passed by Congress permit it. “I don’t care if it’s legal — it’s wrong,” said Obama.

Milton Friedman

He is right. Capitalism’s woes escalated in the 1980s, when companies increasingly adopted the idea that a board of directors’ only constituency is shareholders — not employees, communities, the environment, vendors, customers. The late, great economist Milton Friedman espoused the view that a company’s only job is to maximize profits. This was one time Friedman was wrong.

Unfortunately, this greed worship (“only profits matter”) became embedded in influential court decisions and is taught in business schools. Today, too many companies focus on Wall Street’s reaction to earnings in the upcoming quarter, not on the long term. This, in turn, has led to many accounting frauds.

“There can be no question that managements are focused on pleasing investors and therefore frequently make decisions which are short-term biased,” says Lipper.

James Hamilton

“The way to get ahead is to be sure you’re trying to do the right thing morally,” says economics professor James Hamilton of the University of California San Diego. Ultimately, it’s “just good business” to treat employees and customers well, he says. “Too many MBAs these days seem to have forgotten it.”

In May of 2012, two Harvard professors and one from the London Business School published a study comparing financial results of 90 companies that by 1993 adopted environmental and social policies with 90 companies that adopted almost no such policies. The former were called “high sustainability” and the latter “low sustainability” firms.

The researchers attempted to eliminate so-called greenwashing, or espousing environmental policies for public relations and advertising purposes. (Cock an eyebrow at all those ads in which oil companies boast of their environmental commitment.)

The study noted that companies basing executive compensation on short-term, Wall Street–pleasing results may be sacrificing long-term performance.

The bottom line is that, according to this study, the high-sustainability companies outperform the low-sustainability ones in such measures as return on assets and return on shareholders’ investment. In short, doing good can lead to doing well.

However, the study quotes scholars who take the opposite view. One business researcher says that companies that try to address environmental and social issues could be “eliminated by competitors who choose not to be civic minded.”

Jim Welsh

James Welsh, San Diego County–based portfolio manager for San Francisco’s Forward Investing, tends to be skeptical of do-goodism. He looks askance at the study showing high-sustainability firms doing better than others.

“It could have been written by somebody with a liberal bent,” he says. Welsh acknowledges that a company’s pursuit of environmental and social policies could “result in people buying [the company’s] products,” and thus could be defensible.

All told, however, Welsh points out that when investment analysts study a company, they are more likely to focus on such factors as “the balance sheet, how innovative the company is, the quality of management. I would assume that taking care of other constituencies [such as the community and employees] is not in the top five” of analysts’ concerns.

Both Lipper and Hamilton feel that companies taking care of other constituencies are actually best serving the long-term interests of the shareholders.

  • Story alerts
  • Letter to Editor
  • Pin it


Psycholizard Aug. 13, 2014 @ 4:53 p.m.

Corporations depend on the honesty of top management. Years ago, when investors thought about this, unrestrained greed was not considered a qualification for leadership. Incredible as this may seem now, personal integrity was once considered important requirement for handling other peoples money. Devotion to ethics was so extreme that CEOs stayed married to mothers of their children!!! Quaint remnants of these practices, can be found in the tuxedoed shows of generosity now made in front of TV cameras, doubling as a chance to show off the trophy wife. Real ethics and a happy company lead immediately to a corporate raid of course, as we see in the Market Basket case.


Don Bauder Aug. 13, 2014 @ 8:16 p.m.

Psycholizard: Back in the 1950s and 1960s, corporate boards of directors honored several constituencies: the community, the environment, employees, customers -- and of course shareholders. Beginning in the 1980s, shareholders became the only constituency, and that mentality became embedded in the law in Delaware -- which is the same as being embedded in the law.

Business schools now teach that shareholders -- particularly inside shareholders -- are the only constituency. Is it any surprise that greed and fraud are so widespread? Best, Don Bauder


Visduh Aug. 14, 2014 @ 9:07 a.m.

Don, I keep hearing and reading that business schools are educating their MBA's to that narrow approach. While my MBA experience is very old, 40 years-plus, I recall nothing of the sort. The profs at my school at that time were always speaking of the long term and insuring long term health of the enterprise, which was just the antithesis of what I hear now. So, I'm skeptical that it is the schools that are inculcating such attitudes. I'd be more inclined to think it is the employers, i.e. top management of corporations, that is making the big push in that direction. The message would be clear: if you don't adopt this way of thinking, we will fall behind our competitors in the race, and eventually fail. I think it has arisen more through the use of MBA quantitative and analytical skills, or the misuse of the same, by cut-throat competition. However it has arisen, this total emphasis on short-term profit and "shareholder value" (code for the day-to-day stock price) is unlikely to serve anyone, including shareholders, well over the next decade or two.


Don Bauder Aug. 14, 2014 @ 10:09 a.m.

Visduh: I agree. The short-term emphasis of corporations will hurt the economy and the corporations themselves in the long run. It's already doing so. This mentality is inculcated in management employees; you either learn to put the emphasis on the short-term or you will be out the door.

I agree that 40 years ago, this was not taught in the business schools. It certainly was not taught 57-58 years ago when I was an undergraduate in business school.

But this mentality has crept into today's B schools partly because the short-term thinkers and swindlers have given so much money to B schools. Also, today's students have to learn the behavior patterns of their future employers. Actually, a B school professor who teaches long-term thinking to his or her students may be harming them. Best, Don Bauder


Visduh Aug. 14, 2014 @ 7:24 p.m.

Professors have had a way of teaching two things First is "here's how it is." Then they go on to the second way, "here's how it should be." When I was an MBA candidate, it was easy to differentiate the two, because many of the profs were saying that they didn't want to teach only how it was done right then, they wanted to prepare the students for the future and the economy as it would emerge in a decade (or two or three). There was a certain smugness on the part of those who liked to claim that they were preparing us for fifteen years down the road, and that we would be frustrated for those same fifteen years. My own experience was far more complex than that. But I think that it is possible to explain both approaches.


Don Bauder Aug. 14, 2014 @ 10:19 p.m.

Visduh: That is an excellent approach: here is how it is done and here is how it should be done. But do professors take that approach today? Maybe you know. I have heard they don't. Best, Don Bauder


ImJustABill Aug. 14, 2014 @ 7:53 p.m.

I question whether the high CEO is even in the Shareholder's best interest - let alone consumers, other employees, or society in general. Even if we assume - for arguments sake - that shareholder return is the ONLY thing a corporation should be concerned with does the high CEO pay make sense? Is the CEO you could hire for 300X average employee salary really that much better than the CEO you could hire for, let's say, 100X average employee salary?

Some studies conclude that there really isn't a strong relationship between CEO pay and company performance, http://www.businessweek.com/articles/2014-07-22/for-ceos-correlation-between-pay-and-stock-performance-is-pretty-random

I think it's gotten to the point where nobody benefits from high CEO pay except CEO's.


Don Bauder Aug. 14, 2014 @ 10:22 p.m.

ImJustABill: Several studies have shown there is little relationship between CEO pay and job performance -- whether it is measured by profits, stock market activity, whatever. There is no justification whatever for a CEO to make 300 times what the average employee makes. There is no justification for making 100 times what the average employee does. In Japan a few years ago (I haven't checked recently), the CEO made 20 times what the average employee made. Best, Don Bauder


ImJustABill Aug. 15, 2014 @ 5:11 a.m.

There are a few companies (Whole Foods and Ben/Jerry's come to mind) that have made commitments to keeping executive / average employee pay ratios to reasonable levels. But I don't see much momentum in that trend.


Don Bauder Aug. 15, 2014 @ 6:22 a.m.

ImJustABill: Yes, very few companies have vowed to keep top executive compensation down to realistic levels. Another one is Costco. American corporations are self-destructing. Boosting executive compensation to ridiculous levels while holding down worker compensation by moving jobs overseas is just one example of this death wish. Best, Don Bauder


ImJustABill Aug. 15, 2014 @ 5:21 a.m.

Japanese culture also seems to require that leaders take great responsibility and honor in their job performance. Leaders who fail resign and apologize for failing. In the U.S. leaders who fail ask for (and receive) bailouts from taxpayers.


Don Bauder Aug. 15, 2014 @ 6:29 a.m.

ImJustABill: You are absolutely correct. Japanese business leaders take full responsibility for failures, often or even usually bowing to the public, and resigning in ignominy. Grossly overpaid American top executives seldom take responsibility for their failures.

Take the case of North County's Callaway Golf a few years ago. The company pledged that executive pay would be based on performance. Suddenly, the company's performance turned dreadful. So the board changed the criterion for high executive compensation to "retention," or providing the outrageous pay so the executives would not leave. I wrote this up in the Reader. Best, Don Bauder


Visduh Aug. 16, 2014 @ 7:51 p.m.

The extreme of Japanese culture was when a disgraced leader had to atone, he did it be performing seppuku, also known as hari-kiri, a particularly gory form of suicide. THAT was accountability to the max!


Don Bauder Aug. 17, 2014 @ 8:35 a.m.

Visduh: Yes, that extreme example of personal disgrace was once fairly common. Now, a bow and decision to depart are the common methods of expressing remorse for one's failures. Best, Don Bauder


Psycholizard Aug. 16, 2014 @ 12:44 p.m.

A good law, Federal Deposit Insurance, causes some of the lax morals. Years ago, banks were built of stone, and bankers made great show of being boring and respectable, because the first sign of sleaze caused a run on the bank. Those asking for a loan were supposed to be similarly stodgy, for the same reason. Now with deposit insurance, and too big to fail, the government picks up the tab in a bankruptcy, and bankers advertise that they are players, ready to invest in rock bands and glamorous real estate gambles, while in fact they make even more risky leveraged plays in currency and stock. Old time long term planning and ethics didn't come out of business school, those old timers often didn't finish high school. Investors insisted on stodgy boring business plans. Investors once understood that high CEO pay came out their own pocket. When something like Enron happens, investors blame the crooked management, instead of their own stupidity for investing in the wacky scheme. Caveat emptor.


Don Bauder Aug. 17, 2014 @ 8:40 a.m.

Psycholizard: You are talking about moral hazard. Look at the "too big to fail" banks. When they make horrible loans, or horrible decisions (such as plunging into complex, leveraged derivatives that crater), they get bailed out. They take no responsibility. Some bank CEOs are forced out, but usually with huge platinum parachutes.

There are other examples of moral hazard in our society. By providing the safety net, we sacrifice personal and corporate responsibility. Best, Don Bauder


Sign in to comment

Win a $25 Gift Card to
The Broken Yolk Cafe

Join our newsletter list

Each newsletter subscription means another chance to win!