The Demonization of Corporations

[pellegrino]

If this is your big concern, then will you just as quickly and emphatically denounce every other interest that has unfairly influenced the political and regulatory process? Labor spends big money to influence elections, or you going to call that unfair? How about the money that environmental activists throw into lawsuits designed to use the courts to legislate their interests?

I don't know that this is a great example to use, as for a long, long time the environment was severely abused by corporations with no thought for the damage they were inflicting. Ask anyone that lived near a refining plant, or down stream from a paper mill. Sure, there have been environmentalists who have co-opted certain political processes to their advantage, but corporate exploitation has been around much longer than the environmentalist movement has. In fact, the birth of the environmentalist movement is essentially a reaction to the ways in which corporations have exploited the environment with no thought to the collateral damage.

This is the problem I have with 99% of corporations. Their sole purpose is to make money for their stock-holders. Doing the right thing with regards to the environment or their employees is fine and dandy so long as they're able to make a profit, but the only time they will consistently do the right thing is when they're held to it by threat of punishment (sometimes not even then) or when there is a buck in it for them.

[creekster]

This is the problem I have with 99% of corporations. Their sole purpose is to make money for their stock-holders. Doing the right thing with regards to the environment or their employees is fine and dandy so long as they're able to make a profit, but the only time they will consistently do the right thing is when they're held to it by threat of punishment (sometimes not even then) or when there is a buck in it for them.

Is this unique? I am unaware of many sole proprietorships that dont have this as their porimary and usually overriding prupose.

[Moliere]

I don't know that this is a great example to use, as for a long, long time the environment was severely abused by corporations with no thought for the damage they were inflicting. Ask anyone that lived near a refining plant, or down stream from a paper mill. Sure, there have been environmentalists who have co-opted certain political processes to their advantage, but corporate exploitation has been around much longer than the environmentalist movement has. In fact, the birth of the environmentalist movement is essentially a reaction to the ways in which corporations have exploited the environment with no thought to the collateral damage.

This is the problem I have with 99% of corporations. Their sole purpose is to make money for their stock-holders. Doing the right thing with regards to the environment or their employees is fine and dandy so long as they're able to make a profit, but the only time they will consistently do the right thing is when they're held to it by threat of punishment (sometimes not even then) or when there is a buck in it for them.

Is this unique? I am unaware of many sole proprietorships that dont have this as their porimary and usually overriding prupose.

I agree with the Creekmeister, this is an industrialism issue, not a corporation issue. People have raped and pillaged the land for centuries, it's just easier to do with advances in technology. Governments are just as good at destroying habitats without the threat of corporations.

[lambdacoug]

Corporations catch a lot of heat from both the right and left these days. For years, they have been held up by the left as a symbol of greed and worker oppression. The right-wing populists have also joined the anti-corporate bandwagon with a louder voice, railing against corporations as institutions of corruption that are out to kill every small business in their path (read, WalMart). Even workers and mid-level managers hate them for their seeming inefficiencies and trickle-down profit sharing.

Maybe I'm brainwashed by the business school Kool-Aid, but I don't get it. Corporate structure has been one of the greatest contributors to American wealth and prosperity since the beginning of the industrial age. It provides the ability to pool capital and share profits, realize incredible economies of scale, and creates competition that ensures efficiency. All of these things make goods and services cheaper, and at the same time allow people to share in the prosperity of the business through shareholder participation.

Sure, there are problems with corporations. Any time an organization becomes large, exasperating inefficiencies will result, but they are generally offset by economies of scale and other comparative advantages that large entities have. And, yes, these economies of scale will allow them to compete on price with smaller businesses, and ultimately win. But the real winner in this war is the consumer, whose dollar goes farther than it otherwise would. Corporations are motivated by money, and they make the most by selling to the consumer for the least.

Some people oppose corporations simply because they are motivated by profit. What is the alternative? Wealth is maximized in society as a whole when goods and services are the least expensive. If not motivated by profit, what will motivate a business to provide inexpensive goods and services? Nothing, at least that's my opinion.

I'm not saying there shouldn't be competition, or that corporations should be able to unfairly crush competition. Certainly, anti-trust legislation is key in ensuring fair competition which ultimately benefits consumers. But I think the competition killing reputation of large corporations is ultimately earned from us consumers. We decide who wins and loses, and we usually decide with our checkbook.

That highlighted bit is a straw man. There may be a few people that think this way but it is not the motivation of the left. There is nothing wrong with seeking profit. None of my very left wing friends think corporations are bad because they seek a profit. There is a lot more to the whole thing than just profit. Corporate personhood, dwindling competition, concentration of wealth into fewer hands, abuses of corporations at the expense of consumers, meddling in politics, monopolies (MS, municipal telco monopolies, etc), etc... It is a multifaceted problem, and it can't be boiled down to just what some would have you believe.

For the record, I'm an independent and don't think either party, nor conservative nor liberals get it right.

[creekster]

I agree with the Creekmeister, this is an industrialism issue, not a corporation issue. People have raped and pillaged the land for centuries, it's just easier to do with advances in technology. Governments are just as good at destroying habitats without the threat of corporations.

Indeed. The latter point is clear to anyone considering a vacation on the shores of the Aral sea.

[cowboy]

As to the second point, I care because I own stock in companies (not El Paso) and when someone gets $95 million for simply leaving a company when it's acquired, that's a big chunk of money that could be invested. Does Foshee deserve that amount of money? I don't think so and I'm glad I don't own El Paso stock and not just because of the executive pay issue.

What do you think motivates companies to pay executives like they do? This is a marketplace, and there are plenty of people who would love to have a job that rakes in millions every year. I have a hard time believing that boards will pay $90 million for a job they can get done for $900k. Bonus packages are included to encourage CEO's to add value, and when they add value, they get a commission. We pay huge commissions all the time without batting an eye. Realtors make thousands of dollars for sometimes doing more than showing a home twice and including it on their website.

Whether CEO's earn their pay or not is for the boards to decide, and I suspect the market is efficient. I doubt that compensation can be more fairly distributed by any other system while still encouraging CEO's to maximize profits for the company.

[cowboy]

Realtors are way overpaid for their MLS monopoly. I sold my last home by listing it on MLS via realtor for $400. THAT is what a realtor is worth. If a seller is not batting their eyes on a 6% commission to a realtor, that's poor business judgment.

Then why doesn't everyone do what you did and run realtors out of business? Why don't realtors start selling homes for 2% instead of 6%?

[falafel]

Then why doesn't everyone do what you did and run realtors out of business? Why don't realtors start selling homes for 2% instead of 6%?

Maybe I'm wrong, but I think lots of realtors have come down from the 6% commission in the last few years. Last time I sold a house, I think we paid 4%.

[lambdacoug]

Then why doesn't everyone do what you did and run realtors out of business? Why don't realtors start selling homes for 2% instead of 6%?

Lots of reasons. It seems to me that you are justifying realtors, just because everyone does it. That's an appeal to popularity and a really poor justification for doing anything.

[pellegrino]

Is this unique? I am unaware of many sole proprietorships that dont have this as their porimary and usually overriding prupose.

I debated ending that paragraph with "That's just the nature of corporations." Meaning that if you have to have them (and I do think they bring a net positive to society) then you have to understand that they have one function, to bring in profit. The trick is making their overriding purpose of profit to match up with doing what is right, either for society or for their workers.

[wuapinmon]

What do you think motivates companies to pay executives like they do? This is a marketplace, and there are plenty of people who would love to have a job that rakes in millions every year. I have a hard time believing that boards will pay $90 million for a job they can get done for $900k. Bonus packages are included to encourage CEO's to add value, and when they add value, they get a commission. We pay huge commissions all the time without batting an eye. Realtors make thousands of dollars for sometimes doing more than showing a home twice and including it on their website.

Whether CEO's earn their pay or not is for the boards to decide, and I suspect the market is efficient. I doubt that compensation can be more fairly distributed by any other system while still encouraging CEO's to maximize profits for the company.

I think cronyism can come into play with these board appointments. I often wonder how-in-the-hell some people can be on so many boards and do their jobs effectively. I also think that granting large stock options to CEOs encourages risky behavior.

[myboynoah]

I think cronyism can come into play with these board appointments. I often wonder how-in-the-hell some people can be on so many boards and do their jobs effectively. I also think that granting large stock options to CEOs encourages risky behavior.

Or encourage them to increase shareholder wealth, which is their fiduciary duty.

[wuapinmon]

Or encourage them to increase shareholder wealth, which is their fiduciary duty.

I agree that it's a fine line, but stocks granted on top of a huge salary seem, to me, to encourage riskier behavior than someone who built the company from the ground up with their own money. If I'm investing in a company, I'd prefer a CEO with real sweat equity. I used to own shares in NNUT, a Macadamia growing operation in Hawaii. Dennis Simonis, the President and CEO pays himself a salary of $304k, equal to quarterly net income. The company used to be worth twice what it is, used to be a NASDAQ stock, and used to pay a healthy dividend. Over the last decade, that has all gone away, and I don't feel like Mr. Simonis has positioned the company to deal with the increase in production overseas.

I do not feel that his salary is justified when the company continues to struggle to make a profit, so I sold the shares I owned after almost a decade of owning them. But, he enjoys tremendous power on the board, so there he remains.

[cowboy]

I agree that it's a fine line, but stocks granted on top of a huge salary seem, to me, to encourage riskier behavior than someone who built the company from the ground up with their own money. If I'm investing in a company, I'd prefer a CEO with real sweat equity. I used to own shares in NNUT, a Macadamia growing operation in Hawaii. Dennis Simonis, the President and CEO pays himself a salary of $304k, equal to quarterly net income. The company used to be worth twice what it is, used to be a NASDAQ stock, and used to pay a healthy dividend. Over the last decade, that has all gone away, and I don't feel like Mr. Simonis has positioned the company to deal with the increase in production overseas.

I do not feel that his salary is justified when the company continues to struggle to make a profit, so I sold the shares I owned after almost a decade of owning them. But, he enjoys tremendous power on the board, so there he remains.

I believe this is the answer to the CEO compensation question. If you don't like what they make, don't own their stock. I think this is a question that the market, in this case being the shareholders, can answer far more efficiently than regulation. That doesn't mean compensation will be perfectly fair, but I do think it will strike a better balance between risk, incentive, and reward than policy makers will ever be able to.

[Moliere]

I think cronyism can come into play with these board appointments. I often wonder how-in-the-hell some people can be on so many boards and do their jobs effectively. I also think that granting large stock options to CEOs encourages risky behavior.

Cronyism was what I was getting at but couldn't think of the word. Sure the market drives CEO salaries and benefits, but to think there isn't a lot of quid pro quo going on at the upper echelons of corporate America is ignorance.

Stock-based compensation is another interesting matter. I'd agree that paying with stock options can be risky. I much prefer the restricted stock method where the stock can't be transferred or sold until a certain vesting period has elapsed, thus requiring the executive to seek out longer-term growth as opposed to volatile price movements. Volatility generally increases the value of stock options and decreases the value of restricted stock.

Thankfully after the tech-bubble burst and subsequently the Enron debacle the accounting standard setters finally had enough public support to force corporations to recognize the expense of stock-based compensation. This was proposed back in the 1980s but was vehemently shot down due in large part to the power of corporations and their lobbying efforts that pushed the SEC to intervene with the FASB (who is supposed to be an independent standard setter) as they tried to set accounting standards for recognizing the expense of option granted.