Ceos Are Ignoring Responsibilities
How does 1996 look so far?
Probably great if you’re Robert Allen, AT&T’s CEO. Not only does he pull down more than $5 million annually in salary, bonus, and stock options, but Wall Street enthusiastically kicked AT&T’s stock price up $2.625 a share last week when Allen announced the elimination of 40,000 jobs.
But 1996 probably doesn’t look so hot if you’re one of those 40,000 AT&T employees, or if you now work for any other big corporation that is tempted by the “downsizing” fad.
“Compassion will be an essential ingredient in the handling of the job cuts,” Allen said. “But I believe the reductions and other actions are absolutely essential if our businesses are to be competitive.”
Competitive - now there’s a word thrown around a lot in business today. What does it mean?
If a company cuts corners in manufacturing and so produces a shoddy product that it sells at a lower price than other companies, is it competitive? If a company sells more than anybody else in the industry but makes less profit, is it competitive? If a company survives through government subsidies, tax breaks and wage reductions, is it competitive? If a company is able to report high profits by underfunding its pension liabilities, but in the process risks its employees’ retirement security, is it competitive? If American industry is earning unprecedented profits while American workers’ earnings are declining, is our economy competitive?
Surely the ultimate test of competitiveness should be the standard of living of Americans.
Why shouldn’t we consider a company to be competitive only when it successfully provides a fair return to all those who work, sacrifice, and invest to make it go? The employees, customers, local communities, suppliers, financial investors, and the greater society - all the stakeholders, not just the stockholders.
Robert Allen and other CEOs in Corporate America would undoubtedly reply, “We can’t worry about all the stakeholders; our job is to make as much money as we can for the stockholders.”
It’s understandable that they would like things as they are today; they get paid millions, and the market value of their stock options shoots up when they trash the careers and economic lives of several thousand workers.
But that’s not the way it used to be, and that’s not the way it has to be.
In the beginning corporations were not chartered to maximize profit for stockholders, and they were not chattels to the tyranny of the bottom line. We first chartered corporations to perform a defined public purpose, to serve the public interest.
Whether the purpose was to develop trade with other nations, or to build roads and bridges or water systems, or to provide mail, insurance, banking, or educational services, the early corporations were held to serving the public interest. Profit for financial investors was allowed to encourage their investment; but it was never accepted as the purpose of the corporation.
We - the people - still charter corporations through our state agencies. We give them the spark of life, without which no corporation could exist. We provide them with valuable special benefits, such as limited liability and unlimited life (which no human has). But we have largely forgotten why we grant these charters. We have forgotten, with much help from Corporate America, that the first purpose of a corporation was to serve the public interest.
If Robert Allen and AT&T recognized their public responsibility, a responsibility to all those who contribute to the success of the enterprise, they would seek a fairer balance between dividends and jobs. Yes, there may come a time in the affairs of any company when it is appropriate to cut jobs. But such a decision can be made with fair and balanced attention to the effects on the respective stakeholders, instead of weighing every decision against the bottom line.
We can restore the public purpose of corporations - and all will benefit. Even stockholders and executives will gain, once they learn that enthusiastic, loyal employees are more productive than scared, angry workers who live in daily fear of being downsized, sacrificed on the altar of the bottom line.
We can begin to restore the public purpose of corporations by asserting their responsibility and accountability to all stakeholders. We need to tell them to stop measuring profit only in terms of gains and losses for stockholders, but instead to take into account gains and losses to all constituents - the cost of lost jobs, the value of cleaner air, the cost of tax exemptions, the value of safer products, the national loss from defense contract fraud.
As the people begin to recognize - or remember - that they give corporations life and that they would rationally do so only to serve their public interest, they will begin to restore the corporation’s public purpose. Then in years to come, we may be spared the pleasure of AT&T greeting a new year by announcing the elimination of 40,000 jobs.
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