This notion is entirely correct. What happens, though, if the business is not planning to stay in business over the long term anyway? If my plan is to sell 1,000,000 units, I really don’t care that there will not be enough repeat customers to purchase the second million.
And if I am an inovator who creates a business capable of selling those 1,000,000 units, wouldn’t I be stupid to keep the capitalized wealth of this company all in that same company? Wouldn’t it be smarter for me to sell part, most, or all of my interest in the company and put the profits in something less risky?
Perfectly acceptable? I guess for some. I have no doubt that for a very small part of the population (almost certainly those connected with the central government) communism was good. But as a means of providing the best possible opportunities for the greatest number of people, of all stripes, communism has been a failure. It is in some form of retreat in almost every country it has been in use. In many countries it has been officially, or unofficially, repudiated.
Socialism is another matter and throughout the world there are (were) variations of it in use. Many of them are stable forms of government and commerce. Many of them have some features that may be superior to capitalism. (health care is often mentioned)
My overall impression is that capitalism has shown to be the most effecient way to allocate the productive use of capital and provide the greatest opportunities for the greatest amount of people.
Are there problems? yep. But rather than making broad sweeping allegations that can’t be supported, as has been done in this thread, go to the core issue and participate in the solution. Some of the problems that have laid at the feet of the “Corporation” are really issues of [criminal or civil) law, policy or legislation (population control; use of the world’s precious resources, shareholder concerns (read:shareholder activism) , or societal issues (Short term thinking comes from us!), tax legislation etc.)
I would suggest that…
1) If you’re an owner act like one! If you have a job, and profit sharing, you’re almost certainly an owner of a company. (even if it’s .000000000001%) I’m guessing that most here haven’t heard of Robert A.G. Monks, John Bogle or Calpers. They are wll known shareholder activists and are working towards holding companies more accountable. Twenty years ago the CEO made 10 times more than the average worker. Now it something like 300 times. Bull. Tell your mutual fund manager that you want a fund that is socially responsible.
Call your congressman. Do you think that Martha Stewart should do real time? Tell him/her. Elliott Spitzer (The AG of NY) is kicking but on Wall Street. Write a letter to the SEC! It’s your government. Use it.
Tax policy needs to change. I can borrow a bazillion dollars and it is treated better than if I invest a bazillion dollars in R&D. Part of the reason we have short term earnings expectation is that tax policy encourages short term behavior. Taxes for short term capital gains profit taking should be** significantly **higher for all investors. You want better long term planning. Enact sensible tax policy.
Support conservation efforts. All the silly arguments about the Evil Corporations using the world’s resources while we reject hybrid cars for SUVs. Corporations are not squandering the world’s resources. We are.
The rest of the world needs a stronger labor movement. throwing up protectionist walls will hasten our decline as world leader. The guy in VietNam who’s toiling all day making my $125 Nike sneakers needs a better wage. can we go unionize Viet Nam? Nope. But I can buy sneakers that are made in countries that pay a living wage. (That goes for coffee, clothing…)
I see these silly rants about “corporations” and it looks to me to be muckraking plain and simple.
Yep. I would agree. I don’t know of many businesses that have a business plan that plans on raking their customers because the business will fold once 1,000,000 units are sold. A good example might be those hardy souls who show up after earthquakes and sell generators, flashlights and bottled water at predatory prices. There’s no intention of establishing good will and it is understood that the business will have a finite life span. It’s a good example of taking a short term view towards the business and understanding the the additional profit premiun ensures the business’s demise.
Would I invest in a business that had this type of mentality? Maybe. If a product became faddishly popular (think mood rings, Von Dutch hats) I might invest knowing that the business will ride this wave and die. Thts’ only if I was close to the organization. As Joe Schmoe on the street investor? Heck know. I never liked musical chairs.
Here’s a link from Robert A.G. Monks, who is one the leading activists dealing with corporate governance.
He’s extremely well respected, and well known among investors. He’s definately not a socialist. If I got the link correct, you’ll note he’s nothing like Jacob Marley, Ebenezer Scrooge’s business partner. And, he believes that maximizing shareholder is not inconsistent with sound practices towards a business’s vendors, customers, employees or the enviornment.
Here’s a speech given by Robert A.G. Monks at Harvard. For those who haven’t heard of him, he’s intensely bright, very well respected and well known. He’s been a thorn in the side of many large companies on the issue of corporate ethics, governance and practices.
It’s long, and very well done. (1 hour, 26 minutes) If you’re interested in the topic here’s some words of wisdom from a leading voice on the topic and a beackon of hope for those think that change is needed.
Unfortunately, it’s not as fun as throwing out pithey comments that corporations will spell the end of all humanity…
Follow the link “Robert Monks lecture at Harvard Law School
“Why Capitalism without Owners Must Fail”
December 3, 2003 (video of presentation)”
It will take you Harvard’s web page and the speech is one of those links. It is an interesting an informative speech. It’s on point with the thread/OP.
What gets a person from “here to there” is work. Agreed. Effort is questionable. Effort implies an existential tension, some sort of intentional labor. Positive feedback triggers an effect more akin to drug addiction than anything involving intentional labor. “work” is property of energy and motion… one would assume that motion is occuring if there is to be a “from here to there”… that’s trivial. One assumes the substance moving has mass. Again, trivial.
No, ethics is about a desire. You need to want to get somewhere, to embody something. “animals” do represent some rudimentary ethics with respect to food, they just don’t abstract it into external code like we do. Clearly, even a sheep opens its mouth to eat food. The difference, is that we can write this down, comprehend the cause and effect and decide “I don’t want to eat food” (a desire), “so I won’t open my mouth” (the ethic).
This is not as you say, a matter of logic. Without even knowing much about logic, I figure that its extremely safe to say that there isn’t a logical system that is so abstract as to include proofs that people need to eat food in order not to starve to death. The relationships between all of those variables seems trivial to us, but there is no logic that implies these relationships… or that one necessarily exists and the sequence necessarily implies one from the other… first and formost, because logic doesn’t even “get” these relationships. We don’t know how to construct a logic that reveals these relationships without it being circular (because it’s so intuitive to us already). Aside from logic altogether, there are many reasoned arguments about why food doesn’t have anything to do with starvation! That’s why I stated that the condition was vague, but to bear with me for the sake of explaining why an ethic always needs a desire.
About “not causing more harm than necessary”. What’s that saying…? “One persons trash is another persons treasure.”. We’re just talking about ethics here, not meta ethics. Your idea of harm, is anothers idea of enrichment and visa versa… totally subjective at this point. The reason you don’t listen to people who have perfect inversions of your reasons for making money and can turn it around with the same logic and prove that the most ethical thing to do is suicide in terms of effoiciency and whatnot, is not because the argument is flawed by virtue of your own reasoning being inverted, but because it’s not what you desire. Part of the problem with ethics is that people in general aren’t really sure what they want, or when they get pressed against points like this, it becomes clear that maybe their desire hasn’t been articulated well to themselves in their own lives. The main point about ethics though, is that you have this impulse, or even desire…
There is a way to get there, or not.
The ways that get you there are the ethical ways.
The ways that don’t are the unethical ways.
There may be a billion ways to make a million bucks. If your goal is to make a million bucks. ANY of those ways would be the most ethical. If you add another condition, the pool narrows, and the pool of what is unethical increases.
Now, when you state “That which causes the least harm” You’re moving away from ethics and into MORALITY, because you are not qualifying what constitutes harm. This is how religous minds are developed; minds that are wired to exploit people or become violent – because there’s so little accountability with the purposes being expressed, “little harm as possible”, you have people who aren’t aware of their existence who just parrot memory retention and recall algorithms in the “survival” mode of the lesser species of animals being referred to… only the memory recall and retention capacities are increased. Anyhow, I shouldn’t get too far into this… But, needless to say, it’s indicative of a mind with a parrotive cognition to suggest that ethics is not about accountability with respect to “something out there to demonstrate it against to see if it works”. That’s what distinguishes ethics from morality. But as I stated earlier, if you want to exploit everyone… then it is ethical to use ethics and morality as synonyms so that a term referring to accountability can be striken from the lexicon in order to secure the type of non-transparency necessary to allow for social stratification to exist.
I don’t know that none of them lost jobs as a result. Some third or fourth tier down from the top manager might have gotten the axe. However, the head of Ford development of the Pinto at the time was Lee Iacocca who went on to become President of Ford Motor Co. See here.
Way to shift the burden of proof there. All I said was that there was nothing inherent in a corp that required it to maximize return, and you don’t get there by adding “for-profit” to it, because “profit” does still not equal “maximized return.”
If a corporation is funded with capital at risk it is indeed inherent to the owners of the corporation to maximize the returns.
Along the way, an owner may make choices that are altruistic. Ben & Jerry’s for example are very socially progressive and make donations to social causes. But the fact is that many (most?..) businesses practice some form of charity.
But having altrusitic concerns doesn’t negate the fact that a business must maximize it’s returns (if for no other reason but to practice charity!) or it will not survive and/or grow.
I would also like to call into question the “morally neutral” description of corporations. I don’t think this is necessarily true. How we set up a sale, a game, an election, etc, are all involving the creation of a non-person kind of entity, mainly the rule set, and secondarily the decisions system. We are not immediately guaranteed a neutral result simply because the entity in question is artificial. The question we need to answer is, “Is the corporation strategy-neutral?” The answer to this, by nearly unanimous result in this thread, is “No.” Now the question remains, “What mechanisms are encouraged or discouraged for a corporation to implement its strategy?” Here we should, I think, focus on the “profit-maximizing” characteristic and as ourselves, “Does this have a tendency towards ethically negative, positive, or neutral decisions?”
Artificiality does not ipso facto guarantee neutrality. At all.
No it is not. Charity is an expense to the business, as any other expense. It might be distinguished as not a “core” cost to the business; an expense that is not directly related to the ongoing part of selling their goods and/or services.
Profit is the money left over after costs. Most businesses recognize 3 basic types of “profit”; Gross Profit which is the profit left after “cost of goods” or “direct costs”, from which overhead (sometimes referred to G&A, or SG&A) is paid.
Which leads to Pretax Profit. Net Profit is what’s left after the tax man gets his cut.
Nope. We’re not setting up a “non-person kind of entity.” It’s simply a legal construct. That’s it. There is no question in this thread that posed the question as you framed it up, nor do I see that “nearly unamimous answer.” Corporations are a legal construct that alllow owners to conduct business. They will naturally go out and hire employees as part of their business. In the end, the corporation, as a practical matter if not a legal one, is simply a group of people, some owners (shareholders) and some employees, that are gathered together to conduct business. To the extent that group of people form a strategy to conduct business, it is the** individuals**, led by the management (owners or hired managers) that do it.
Each individual must decide for him/her self how they will behave. If the people running the business share in common a proclivity to engage in unethical/illegal behavior it is still up to the individual to determine if they wish to be part of this enterprise. (or if they wish to leave)
Corporations have no tendencies. Individuals do. If the leader is corrupt he/she may embark on business practices that are corrupt. But in the end, it is still a collection of individuals that must determine, for themselves, what their conduct will be.
Rebutting your points is as easy as the arguments against private property (private access). You present your argument as if public corperation have bail-outs and private industry does not.
Let’s put it this way. Who is more valuable as a human being? Take two respective people who both have the option to accept a million per year.
The person who accepts a million per year or the person who only accepts 20,000 per year?
Think of value in both relative and absolute senses here.
Whatr is private property indicative of, above and beyond this prior simple formulation? It’s indicative of an inability to translate wealth. If everyone could have your ability, would you STILL be selected to have the money you take?
If you are still selected after translating all your abilities (looks, experience, intelligence etc…) for accepting 1 million per year when others make 20,000, then your decisions are inherently valuable with respect to the beliefs that you use to justify those actions.
Beliefs NOT inherently valuable with respect to justification of actions will kill you, and the species at large. All you have to do, to even try the test tenatively is ask everyone whether or not they AGREE with what you accept. If anyone states “no”, then you’re not representing the behaviors that correspond to the beliefs for acting with respect the the purposes that you formulate with respect the the ideals you believe that you represent.
You’re wrong. Imagine a party with lots of guests. Which system will help keep the guests honest?
A. C-notes lying all about the house.
B. The money kept in a safe.
As I said, the way corporations are structured is too big a temptation for most people. I say this because most corporations use their capital immorally, though not necessarily illegally. Though there is much of the latter, too.
One example: execs in the US get paid too much. You must admit, at least, that many intelligent commentators think so. I think so. Their pay is way out of line with that of the rest of the world. An example is the retired Jack Welch, who was getting use of an $80,000/month Manhattan apartment for free. This made the news and created quite a stir. I’ll call anyone a liar who says he thinks this kind of behavior “maximizes shareholder value.” It is nothing more than till-dipping by a priveleged class of people.
No–the system informs behavior to a great degree. This is an obvious point.
You gave examples similar to the ones I gave. I guess we agree. Yeah, there are some large private-equity firms, and yes, they can engage in the same type of negative behavior. But I repeat: those owners know that they are paying for everything, not the shareholders at large. Try to respond to my actual arguments next time.
Snip You’re not responding here to an actual argument I made.
You know as well as I that very few companies pay substantial dividends any more. You named utilities–there aren’t many more than that. Almost all companies go for growth, mature or not. I would say that Microsoft is “mature” at this point. Let’s see them pay out their billions in cash as dividends. (Yes, I know they paid a puny dividend recently.)
You misread the argument. I’m saying that if all the companies out there who are ostensibly pursuing growth succeeded in delivering YoY 5% returns, mathematically speaking they would consume all the planets resources in short order. What really happens is that a lot of the companies fail, making the growth game “miniscule sum” for investors.
Blah, textbook bromides. The whole risk-return concept lies on the shakiest of foundations. Please, let’s not get into beta!
Hmm, why so confident? If what you are saying is true, why do we have the SEC and more government oversight than we used to? Because more regulations and more enforcement was necessary. There WAS a flaw with the nature of the public corporation. And, I guarantee you, there will be more regulations and more enforcement in the future.
You are obviously a smart guy, but you seem to be getting angrily excited on this topic. Then again, I get worked up a little too. Let’s be buds, eh?
One has to be prudent with his/her money. Leaving it lay around is not prudent, but the analogy to a corporation simply doesn’t work. In your example, the CEO must have the combination to the safe to effectively conduct business. And, in the end, any guest at the party who is fundamentally honest will not steal from his host. Theft is a function of the thief, not of the homeowner.
Jack Welch is one of the most accomplished CEOs on the last 100 years. The amount of value he has created for the owners of GE is stupendous. Further, the amount of opportunities he has created for employees, vendors is beyond measure.
The way he deployed GE’s capital was brilliant and made GE a better company, and enriched the lives of many,many (non-owners) people because of him.
Still, he is (was) overpaid. He’s still overpaid. In the link I gave for Robert Monk’s speech at Harvard he talks extensively about corporate pay. Changes have to be made in corporate governance, and shareholders must be more active. (That means mutual fund managers, insurance companies, even the individual investor) Changes have to be made, but that doesn’t mean that capitalism should be scrapped.
OK, I’ll try. Yes, we agree. I would prefer that most businesses be owner operated. In a world economy like ours, it is impossible. The formation od capital requires that corporations be utilized. Government regulation is needed to ensure that businesses act responsibly. But there is no good alternative to the corporate structure. And despite some problems (like corporate pay) it works extremely well.
That’s news to me. I think dividends have historically accounted for something along the lines of 35% of total return. And I’m guessing that around 70% of the companies in the Standard & Poor 500 pay dividends. Some specific companies pay a pretty good dividend. They are generally in mature industries, and have sound balance sheets. Companies like GE, GM, IBM, Coca-Cola, Gillette…
Not true. The return of companies in any benchmark has consistently been above 5% for most of the years over the last 100 years. The notion that all of that gain is simply an illusion—that growth is the result of picking up the market share of competitors that fail—can’t be supported.
Businesses are using resources for the benefit of the consume®. If/when, as a by-product of a desire to grow, businesses in the aggregate produce goods (that use the world’s resources) in excess of what the consume® requires, goods go unsold, prices fall and businesses compete for the finite demand. (and in some cases businesses fail due to this competition) The laws of supply and demand cannot be suspended because companies all wish to grow. All companies will compete for the “demand” and only the fittest will survive.
If you can disabuse me of the understanding that risk and return can be separated I’d sure like to hear it!
We have the SEC for the same reasons we have traffic laws. The government wishes the markets to perform effeciently and wishes to have some structure/rules for the companies to adhere to. It also wishes to protect the investor and maintain the integrity of the markets. Thieves are well represented in all parts of society. Whether you’re robbing a liquor store with a gun, or an investor with a fountain pen you’re still a thief. The existence of the SEC (and other regulatory bodies) is no more a admission that all CEOs are crooks than it is to say that all people who drive cars run red lights.