In Are Corporations Really the Devil? we examined the concept of corporate profit maximization. Corporations are essentially amoral in nature, pursuing economic efficiency for the benefit of shareholders. In this pursuit they exhibit both good and bad behaviors. Since Charles Hugh Smith conflates corporations with the “work of the devil,” let’s begin with his thesis of the evil corporation.
The Bad
Having worked for thirty-plus years within the bellies of these beasts I can indeed report lots of bad stuff:
Greed – Executive compensation often dominates the corporate agenda. It is a costly diversion, consuming the efforts of attorneys, consultants, accountants and senior management. Management is often diverted from the more important job of running the business. In the end neither shareholders nor the executives are satisfied. The result of the process is that there are too many overpaid executives. Few if any executives demonstrate the management acumen justifying such overly generous compensation packages.
Lack of Foresight – I could excuse large pay packages, if a senior executive had true foresight and talent in matters relating to the business of the corporation itself. The record of too many CEOs? They stayed in businesses which should have been sold, missed investing in and deploying new technologies, made horrendous hiring decisions, laid off employees when they should have been hiring, and were late in removing poorly performing executives. A corollary truth to this realization: many executives can competently perform their jobs, but few are visionary. Few executives can follow hockey great Wayne Gretzky’s advice: “…skate to where the puck is going to be, not to where it has been.”
Careerism and Promotions – Many executives put their own career advancement over the good of their employees, fellow executives and the corporation. And worse, business ethics and simple interpersonal courtesy and manners were routinely and very sadly lacking. Bad corporate behavior includes: withholding of critical information, undercutting colleagues’ efforts, and wasteful projects for self aggrandizement. Many times bad behavior leads to ethical lapses and legal shortcuts that subject the company to expensive liability.
Many times the wrong person is promoted into a higher level job for all the wrong reasons. The tireless self-promotion and undercutting of colleagues that some executives made their modus operandi sent terrible messages to good performing employees when these behaviors were rewarded with inappropriate promotion and aggrandizement.
Abnegation of Responsibility - When something in a corporation goes wrong, executives who accept blame and responsibility are few and far between. It is the rare executive who accepts blame for a decision gone awry and takes responsibility for the cleanup.
Job Insecurity – When I began my professional life in 1977, there was excellent job security in corporate America. Starting in 1981 and each and every year thereafter until I retired in 2009, my corporate employers and many others had work force reductions either through early retirement or layoffs. It was a fact of life. Accepting this fact, my belief is that one is paid up to date, and the corporation does not owe the employee lifetime employment.
Bureaucracy – A corporate hierarchy by definition is a bureaucracy. Myriad layers of corporate approval always slow innovation. In the wrong environment, bureaucracy is a sure condition for good ideas to go nowhere.
The Good
Wealth Accumulation – Given the current state of our tax laws, corporations provide the average employee with a means for wealth accumulation. Many companies have 401k savings plans, often with generous matching contributions, health spending accounts, defined benefit pension plans, employee stock purchase plans, and medical, dental, vision and life insurance plans. In my experience a frugal secretary who took advantage of stock purchase and savings plans would be able to accumulate substantial wealth, often times in excess of a million dollars.
Freedom from Discrimination – With our wide range of equal employment and anti discrimination laws, employees of big corporations are largely free of discrimination. Although much maligned, the human resources department does ensure that employees are treated in accordance with the law and that the workplace is essentially fair.
Training and Promotions – Corporations provide their employees valuable formal and informal training. Further, many large employers pay for college and advanced courses, thus enhancing resumes and promotional opportunities, notably promotion from within, which increases seniority while maintaining job stability for an employee. I worked with many secretaries and paralegals who completed college and master’s programs, and then were promoted into management.
Ethical Conduct – Corporations promulgate codes of conduct. Corporations are serious about enforcing these codes of conduct, as ethical infractions could lead to criminal penalties and fines. While everyone can point to Enron and WorldCom as counter examples, by and large corporations are ethical bastions with numerous controls in place (internal and external auditors, compliance and legal departments) to deal harshly with violators.
Balancing It All Out
Regulators – Mr. Smith believes that large corporations can bend compliant regulators to their will. And yes, corporations are profit maximizers in any way they can be. They are going to try everything within the law to shape the regulatory environment in their favor. Mr. Smith fails to realize that this is not a one-handed game. Industry competitors, consumer groups and other activists are also lobbying regulators to bend the rules in their favor. One corporation cannot entirely shape a regulatory agenda.
Taxes – Commentators lambasted GE for investing in a huge tax department to avoid paying any US income tax. In law school one of the strongest mantras is: no taxpayer has an obligation to pay one cent more than is due. If one does not like GE’s tax avoidance, change the tax laws.
Technology – Much has been made of layoffs, outsourcing and the dispensable employee. Little thought has been given to the role of technology which has eliminated the need for many jobs. High speed communication innovations and faster, larger modes of transportation have made outsourcing of manufacturing and other jobs feasible. Are corporations supposed to retain employees when the job no longer exists or is uneconomical to perform in the US?
Man versus Machine
Corporations are a legal construct. They are created by humans and are flawed like humans. On balance, they probably do more good than bad. To particularize the current state of affairs, we live in a highly competitive, financially short sighted world. And knowing that means that the days of guaranteed employment, lush compensation and benefit packages, and benevolent corporations will not be returning in our lifetimes. In the end I guess no one likes to contemplate the thought that we are all dispensable.
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