What not to say: Corporate greed

With our present financial uncertainty, pundits and commentators are pulling out one of their stalwart phrases:  Corporate greed.  This expression is used to vilify the lawful behaviors that companies use when seeking to maximize revenue, profit, competitive advantage, or growth.  In particular this phrase accompanies criticisms of companies when the commentator feels that the company in question should take its foot off the gas.  Recent news items such as high oil prices and the lending bubble have provoked frequent evocation of this idea.

It’s an effective catch phrase, but unfortunately it’s also a simple minded and ridiculous way to look at the world, and blaming our troubles on “greedy corporations” only serves to distract us from the real mechanisms that result in our economy and business behaving the way they do.

To illustrate, let’s look for the source of this alleged corporate greed.  Corporations aren’t life forms with brains and intelligence.  Rather, they’re collections of individuals seeking to serve their own best interests.  These individuals are the employees of the company, and all they’re trying to do is do their jobs the best way they know how.  If you’re a customer service representative, your job is to give the customers the best service you can.  If you’re a sales professional, your job is to sell your product.  If you’re a P&L manager, your job is to profitably grow your business line.

Surely we don’t blame any of these people for corporate greed.  They’re just working stiffs who are getting their paychecks so they can cover the mortgage and buy shoes for the kids and maybe take a nice vacation every year.  Therefore the problem must be with greedy senior managers.

But the senior managers are also just working stiffs.  Granted they make more, but they, too, depend on job performance for income and self esteem, and they have managers and MBO targets to which they also are beholden.  So they’re not the source of corporate greed.  Must be the officers of the company, the board of directors, and the CEO.

Shoot, but that doesn’t work either.  Corporate officers and directors have a fiduciary responsibility to maximize the business.  If they don’t do so, they stand to be fired as well.  Furthermore, in public corporations there actually is a legal requirement for the company’s officers to serve the best interest of the shareholders, lest they be individually named in shareholder suits.  Their own personal wealth and homes and retirement can be in jeopardy if they fail to maximize business performance.

So the problem must be the shareholders. Those greedy, greedy shareholders.  Always insisting on owning stocks with increasing share prices.  Always asking their mutual funds to improve in value.  Ruthlessly divesting anything that fails to grow.  How selfish can you be?

So the next time you’re driving past your community fire station, stop in and explain to the firemen that their greedy pension fund is the source of our troubles.  Tell the teachers at your children’s school that they’re ruining our society.  Tell your neighbors and your parents and yourself.  All these greedy people, selfishly expecting their investments to pay off.

Or we can grow up and look at our financial and social problems like mature adults.  We live in a capitalist economy.  One of the cornerstones of this approach is that if businesses and individuals seek to maximize their own good then society as a whole will benefit.  We also set ground rules in the form of laws and regulations to make sure the system as a whole runs the way we prefer.

If we don’t like the results we’re getting, we have to change those ground rules.  Financial institutions who honor their contracts with their senior officers by paying them the salaries and bonuses to which they’re entitled are not to blame.  Oil companies that charge the going rate for a barrel and post big profits are not to blame.  These corporations’ behaviors are driven by large numbers of individuals that are doing what they must, based on the demands of your retirement account.

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