The justification for a corporation doing something harmful with the excuse that “It will increase our profits” or “It’s good for America for us to increase our profits” is a Big Lie.
There are lots of examples of an outrageous Big Lie, but the one I think of first is Hitler’s:
“We Germans lost WW I because the Jews stabbed us in the back.”
This kind of Big Lie starts out 180 degrees off from the truth. It’s totally invented. And a central to the liar achieving his/her goals.
The second type of Big Lie is of “The Emperor’s New Clothes” variety.
It’s a cultural, social, or psychological myth that gets repeated so often. So long, that people just believe it without even thinking about it.
Most importantly, it is a pervasive Big Lie that contaminates an entire society.
“Wait,” you say, “are you actually saying that higher profits aren’t automatically a good thing? What are you, some kind of a communist?”
I’m not a communist, socialist, or bleeding-heart liberal. I’m a pragmatist and a capitalist.
The knee-jerk assumption that higher profits are always a good thing is absolutely false.
Higher profits aren’t good when the benefits gained from those higher profits are outweighed by the harm the company does to get them.
Now, let’s be clear. I’m not talking about the value of making a profit instead of a loss. I’m not talking about operating in the red instead of in the black.
There are times when increased profits are needed for an important, specific, business purpose.
A company may need capital to build a new factory, develop an expensive new product, expand into a new market.
Usually, it can sell additional shares or borrow to raise that money, but there are times when the company may need increased profits to make that happen. For publicly-held corporations though, that’s relatively rare.
Excepting a targeted capital event or a company struggling to move from the red into the black, what good comes from an increase in profits?
More profits will generally raise the stock price. The thing is unless the company is in the midst of a public offering the company itself doesn’t get a dime from an increase in its stock price.
Outside of a public offering, all the sales of the company’s stock are by private owners between themselves, and not one penny of that money goes into the company’s bank account.
“But,” you say, “the company’s shareholders will benefit because if the price goes up they can sell their shares at a profit.”
Almost all of the owners of the company’s stock purchased that stock from private owners, not from the company. Whether they make or lose money gambling on the company’s stock is almost entirely irrelevant to the company itself.
Yes, when the company has a public offering people buy the shares because they know that they can resell them on the public market. And their buyers also know they can re-resell them on the public market. And their buyers know that they can re-re-resell them on the public market.
But at some point, ten or fifty or a hundred transactions down the road the connection between the hundredth buyer and the original public-offering buyer has disappeared.
The guy who bought the shares from the company one hundred transactions ago wasn’t concerned with whether or not a hundred transactions in the future the stock price would go up or down.
The sale price of the trades today, two, three, five years after the company’s public offering, is far too remote to have had any effect on the price the company received way back when.
In a very real sense, the sale price of the shares today is irrelevant to the people who actually put any money into the company’s pocket all those years ago. And most of the people who are affected by today’s share price are essentially gamblers who haven’t contributed one penny to the company’s coffers.
While that’s not a reason to wish them harm, it’s also is not a reason to care very much, if at all, that they get any richer betting on the company’s stock.
In addition to the market gamblers, the other group that will benefit from an increase in the price of a public company’s stock is company executives who’ve received stock options.
Essentially, the company grants CEO John Smith an option to buy a million shares at today’s price of $50/share, exercisable in nine months. If nine months from now the stock is trading at $55/share Mr. Smith borrows $50M from Big Bank and exercises the option. One minute after getting the stock Mr. Smith sells the stock for $55M, pays back the bank’s one-day $50M loan, and puts $5M into his pocket.
The company gets the $50M, the same amount it would have received had the profits not gone up at all. Mr. Smith puts five million dollars into his pocket, and the rest of the shareholders see their holdings diluted by the issuance of an additional million shares.
Dividends for S&P 500 companies vary year-to-year and industry-to-industry but are generally in the range of 30% to 35% of profits. So, if profits went up $100M this year over last year, that increase would likely only result in about $33M actually being distributed to the shareholders.
The truth is that a lot of corporate profits are just put in the bank. It’s estimated that U.S. corporations have moved approximately two and one-half TRILLION dollars into overseas bank accounts in order to avoid paying U.S. corporate taxes.
When Carrier decided to cut two thousand U.S. jobs and move production to Mexico the justification was that it would increase corporate profits.
In fact, every time any company decides to cut good-paying U.S. jobs and move production abroad the justification is always that it will increase profits. When…
Everything that costs a company any money will, of course, decrease profits.
Almost anything and everything that makes life better for employees, vendors, customers and the public decreases profits.
Conversely, almost everything that makes life worse for employees, vendors, customers, and the public increases profits.
Executives talk about higher profits as always being inherently a good thing without the slightest consideration of the negative effects they have on employees, vendors, customers, and the public.
Executives begin and end with the assumption that none of those groups matter.
It’s like someone saying, “Doing this is good” when they’re really saying, “Doing this is good for me” with the assumption that no one else’s welfare even counts.
The notion that higher profits are always inherently a good thing, that anything that reduces profits is always a bad thing, is a Big Lie because it ignores the questions of who the additional profits are good for, and who they’re bad for.
It’s a Big Lie because it’s founded on the premise that the only people who count in the “More Profits Are Good” equation are the executives and the Wall Street gamblers who benefit from them, and that the damage that “More Profits At Any Cost” does to the employees, the vendors, the customers and the public is totally irrelevant.
1. Pay our employees more money.”
2. Lower prices.”
3. Afford to keep our company in the U.S. and continue to pay good, middle-class wages.”
4. Improve the quality of our products without raising the price.”
No, what they say is:
“We want to make our operations more efficient so that we can make more money, period, just to have it, just to put it in the bank, just to raise the price of our stock so that everybody who’s betting on that stock to make a quick buck can get a lot richer.”
There are important good things that come from not increasing profits:
It’s easy to understand the value of better, safer, less polluting, lower-priced products made by employees who are paid enough to have a decent middle-class life.
Those products are good for the employees who build them, good for the customers who buy them, and good for the society where they are made.
That’s the foundation that capitalism is built on: more and better products at lower prices.
That’s the justification for the guy who has five cars buying number six, the guy with four houses buying number five, the guy with twenty watches buying number twenty-one.
More for the sake of having more is not a virtue. Getting more for the sake of having more is not a valid justification for anything.
There is no justification for hurting your employees, your customers, your vendors, or your society only so that you can go from having $100M in the bank to having $110M in the bank.
In order to justify what you’re doing to get that extra $10M you need to be able to explain how that extra $10M is going to make your life materially better.
More stuff just for the sake of having more stuff is not a good thing. It’s a bad thing.
There’s a word for it. The word is “Greed” and it’s a vice, not a virtue.
What is the important benefit that Carrier’s getting from this extra money that outweighs the shattered lives of its workers, the damage to the community’s economy, and the damage to the American middle class?
This is a question that not only Carrier’s management isn’t asking. It’s a question that its management considers irrelevant if not downright subversive.
“How dare you question the concept of More? We have a fiduciary obligation to our shareholders to always, ALWAYS, get MORE.”
If you ask those executives how much more is enough, they will tell you that there is no ENOUGH. Ever.
No matter how much money Carrier makes, it’s never going to be enough. In their minds, there is no limit to more.
That idea, that there is never enough, that more for the sake of more is all that counts, is the foundation for the Big Lie that more profits are always a good thing.
You see, in the world of today’s corporate executives more for the sake of more is a First Principle.
It’s a stipulated truth. Unquestioned and unquestionable.
A living wage? Sacrificed on the altar of More.
Less polluting manufacturing? Sacrificed on the altar of More.
Better, safer, lower-priced products? Sacrificed on the altar of More
The next time some company justifies increasing its fees, opposing raising the minimum wage, fighting safety regulations or pollution controls, or firing its U.S. employees because doing so will increase their profits, I would ask you to consider the proposition that more for the sake of more isn’t a good reason for anything.
By David Grace (www.DavidGraceAuthor.com)
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