July 30, 2002

7:46 AM

America's CEOs aren't greedy enough,argues Elan Journo: "Far from being too 'greedy,' too many of America's CEOs are not greedy enough. They are pragmatic corner-cutters, who fail to recognize that there is far more wealth to be achieved by a consistent, long-range policy of honesty - by creating a good product and maintaining the company's reputation over many years - than by squeezing out some momentary advantage."
posted by dagny (33 comments total)

I think this is a cool post and all, and I apologize for being dismissive, but duh.
posted by dong_resin at 7:59 AM on July 30, 2002

Except for the preposterous attention-grabbing headline, I agree.

This part is certainly true:

"...there is far more wealth to be achieved by a consistent, long-range policy of honesty - by creating a good product and maintaining the company's reputation over many years - than by squeezing out some momentary advantage."

What this piece really argues for, whether the author wants to admit it or not, is the relative wisdom of making decisions based upon long-term profits vs. short-term gains. Which I also agree with.

I was stymied about the "not greedy enough" part until I read the credit at the bottom:

Elan Journo is a writer for the Ayn Rand Institute (www.aynrand.org) in Irvine, Calif.
posted by pmurray63 at 8:01 AM on July 30, 2002

Funny, the director of the Ayn Rand Institute was going on in a NY Times letter the other day about how she really wasn't into greed, or the sort of greed Greenspan was talking about, or something. Whatever you say.

There's a serious error here, regardless. The word "greed" tends to carry the definition of excessive or reprehensible acquisitiveness. Normal people don't make distinctions between types of greed. There's really one type of greed, greed greed, and that's not what this guy is writing about. He's writing about running a business well and honestly. Giving something back to a community can also help your business in the long run too. In any case, his failure to make a clear semantic distinction between greed and what he's talking about makes his column a mistake. If you want to call it rational self-interest, go right ahead, but use of the word greed used in such a context has to stop, already. It's silly, and maybe audiences for this material aren't making the distinction, and just hearing the word "greed" used in a rah-rah context instead.
posted by raysmj at 8:02 AM on July 30, 2002

If I was greedy CEO (Greedy in the real sense, meaning, I want more for me), and I walk from a company with 10s (if not 100s) of millions of dollar, why would I care if the company folds behind me, exactly?

I wouldn't.

And this writer, esp. being from the "Ayn Rand Institute", should know that (greed being a virtue with them at all). Why would a greedy CEO have any real allegiance to making the corporation better if they can get off rich? For the greater good of the company and its shareholders or future generations? Doing things for the greater good is a mortal sin for Randists, and not the way greedy people work in general.

Enforcement and better regulations on corporate accounting is exactly what is needed to fix this.

I'm willing to listen to other opinions, but this one is just full of "objectivist" silliness. I guess when you are so commited to one philosophy you have to find a way to apply it to everything. What's that adage?

When all you have is a hammer, every problem looks like a nail.
posted by malphigian at 8:03 AM on July 30, 2002

Excuse me, the letter writer to the NY Times was from something called "The Objectivist Center," which is still Ayn Rand-connected.
posted by raysmj at 8:09 AM on July 30, 2002

They're plenty greedy (I agree with raysmj, above) -- what they don't have enough of is ambition.
posted by mattpfeff at 8:19 AM on July 30, 2002

Most reasonably sophisticated administrators realize that long-term growth - whether locally within their own companies, or globally on the markets - is the goal. However, what too many seem to do is (obviously) focus on short term fluctuation in stock price and profit announcement. That is fed by business reportage (which focuses even more so on the short term, because that is the nature of daily reportage), and the normal fluctuations of the markets are exagerrated by that.

HOWEVER, the trend overall is - and has always been - for long term growth. Those individuals who recognize this (whether they are corporate management or individual investor) will benefit accordingly. Those who concentrate on short-term profit taking - while exciting - will in overwhelming numbers lose. The prime example - the day trader.

Speaking as a corporate thug and an individual investor, long term planning coupled with honest risk-assessment is the prescription for success. I have in the past succumbed to the lure of the sure thing, and my net worth has suffered accordingly. I would suggest two things to address the current corporate hoohah: (1) stiffer penalties for white collar crimes of all types. (2) Allow FASB to create a single set of accounting standards by which all companies must follow. Later: (a) FIX THE TAX CODE; (b) address the process by which large corporations may lobby for law in their favor to the detriment of the investor and consumer; (c) Toughen the SEC and NASD, and explicitly codify their rules; (d) regulate stock analysts; (e) fight conflict of interest wherever it exists.

That'd be a start. Capitalism DOES work! However, it is the job of government to ensure a level playing field and prevent fraud and deception. They are currently doing neither... and stockholders (and, by proxy, the public) are suffering accordingly. At the same time, each of you must realize that you do not exist in an economic vacuum! Yes, it is not the most interesting subject in the world - but everyone needs to educate themselves on basic economic principles, understand their economic needs (both current and future) and take personal responsibility for their economic activity.
posted by UncleFes at 8:19 AM on July 30, 2002

Enforcement and better regulations on corporate accounting is exactly what is needed to fix this.

How? Why aren't laws against fraud and theft enough?

And regardless of the author's background, the point made is a good one: businesses should plan for the long-term, not the short-term. The problem is, when CEO's are paid with stock options, and a boom and bust market is perpetuated by the Fed toying with the money supply, it becomes easier to quickly inflate stock value, and cut and run with several million, rather than stick around for the long-haul. Theft is incentivized, and the government is generally a willing accomplice, and at very best a blatant hypocrite, as it is the largest enterprise in the world, with the most accounting dishonesty, to boot. Basically malphigian is promoting the blind leading the blind, straight off a cliff.
posted by insomnyuk at 8:19 AM on July 30, 2002

um. let me get this straight: you say corporations should produce quality products at reasonable prices and provide generous customer support, stand behind their products and do this consistently for years? why do you hate america so much? why do want the terrorists to win?
yet another u.s.-patriot-act-approved comment from the quons...
posted by quonsar at 8:27 AM on July 30, 2002

I had a cousin who was an Objectivist. She also did cat tranquilizers.

Why aren't laws against fraud and theft enough?

I think Enron, WorldCom, Adelphia etc. have proved it's pretty easy to avoid fraud and theft charges, at least long enough to protect some of that money. And they're just the ones that have gotten caught -- there are plenty more that have gotten away with it entirely.

What I'm truly surprised at, in hindsight, is why corporate boards put the incentive for short term gains in there to begin with. As UncleFes pointed out, short term gains are almost never a successful business strategy -- as soon as the sustainability wears off, the stock's back in the dumper. Boards should have made the excercise date for all those options somewhere way into the future, or else require a year of gains, not just an earnings/stock price spike.

Oh well, it's all 20/20 from here.
posted by me3dia at 8:30 AM on July 30, 2002

If I was greedy CEO (Greedy in the real sense, meaning, I want more for me), and I walk from a company with 10s (if not 100s) of millions of dollar, why would I care if the company folds behind me, exactly?

Because, according to the objectivist philosophy, hand in hand with "greed" is a profound respect for property rights. The CEO does not own the corporation, he or she merely runs it. The corporation is the property of its shareholders, just as the pension fund is the property of the employees, etc. To run the corporation into the ground while taking as much out of it as possible is theft, not capitalism.

Perhaps the real problem is not greed, whatever that might entail, but a simple disconnect between our conception of ownership and the corporate form. Too often, I think, people have the misperception that CEOs own the companies they work for, when in fact they actually bear serious fiduciary obligations to the corporations and its real owners, the shareholders.

It's ironic that despite how much Ayn Rand derides religion, a central tenet of her philosophy turns out to be 'do unto others property as you would have them do unto yours.'
posted by monju_bosatsu at 8:31 AM on July 30, 2002

insomnyuk: Right you are, I should have put have put more emphasis on the word enforcement. The better regulations, in my opinion, would be preventing accounting firms from consulting with the same company, and possibly fix the stock option situation (on the executive side, on the reporting side, and w/r/t limits on individual employees exercising options). Can't think of much more than that to change.

Other than that, I was mostly just talking about the author's personal philosophy, so I'm not sure why you think I was advocating "The blind leading the blind". I actually mostly agree with everything you said. Of course the government has been an accomplice, they know who is funding their campaigns.

If corporations see laws being enforced, and execs see real punishments being handed out for abuses, they are far more likely to run their business in legal, good for the company, long-term fashion. As far as the government's role, basically, I'd echo what UncleFes said above: it is the job of government to ensure a level playing field and prevent fraud and deception.
posted by malphigian at 8:33 AM on July 30, 2002

I work for AOLTW, so I have gotten a rather painful recent look at what happens when your corporate integrity crumbles. Of all the AOLTW developments of late, I think one of the most interesting is that almost all of the people who seemed obsessed with pleasing The Street every quarter in an aggressive manner are gone, and they're being replaced by people who come from the parts of the company that have built integrity over decades. I do not think that is a coincidence.
posted by Phaedrus at 10:06 AM on July 30, 2002

Too often, I think, people have the misperception that CEOs own the companies they work for, when in fact they actually bear serious fiduciary obligations to the corporations and its real owners, the shareholders.

I think the important idea here is that stockholders are owners. I would like to see legislation that requires ALL stockholders (including "day traders") to be legally liable for illegal activities of the companies they own. This alone should be enough to put an end to the casino gambling mentality of today's stockmarket. Also, owning stock should be longterm and represent a legal commitment to the company, not just a method of gambling without risk beyond personal financial risk.

Why is it that stockholders are not legally responsible for corporate actions? If my car kills someone while someone else is driving, I am still legally liable. If my company steals billions of dollars through fraud, oughtn't I be criminally liable?
posted by plaino at 10:13 AM on July 30, 2002

plaino - "Why is it that stockholders are not legally responsible for corporate actions? ... If my company steals billions of dollars through fraud, oughtn't I be criminally liable?"

Typically, the stockholders are the victims of the theft/fraud. If I hire an accountant and he skips off to South America with all my money, that doesn't mean I should be prosecuted.

Unfortunately, the average investor doesn't have enough stock in a given company to exert a lot of control over management and prevent corruption. This is particularly true of those who hold their stock through 401(k) or other diversified plans. This being the case, some sort of governmental control is necessary, whether that's new regulations or (preferably) giving some teeth to existing regulations & regulatory agencies. (The existing agencies might be theoretically sufficient, but they can't do their job if they're reined in by bought-and-paid-for politicos.)
posted by tdismukes at 10:39 AM on July 30, 2002

If my car kills someone while someone else is driving, I am still legally liable.

You may be financially liable (hence: insurance) but you are certainly not criminally liable.

Making shareholders criminally liable for the activities of the corporate executives, barring the inherent injustice of assessing criminal penalties to people who haven't actually committed any crimes, would build into each investment a level of risk far beyond the capabilities of nearly all individuals and many investment banks, who would subsequently sell their equity holdings.

At which point, you would see economic disruption on a scale previously unheard of, with adverse effects that could easily be described as "biblical." :)
posted by UncleFes at 10:47 AM on July 30, 2002

I work for AOLTW, so I have gotten a rather painful recent look at what happens when your corporate integrity crumbles.
when did they get some? i must have missed that.
posted by quonsar at 11:02 AM on July 30, 2002

Typically, the stockholders are the victims of the theft/fraud. If I hire an accountant and he skips off to South America with all my money, that doesn't mean I should be prosecuted.

If you hired him to take care of someone else's money you may in fact be legally responsible. Particularly if you were complicit or willfully ignorant of his activities.

And this is an important point: stockholders are largely ignorant of the internal processes of the company they invest in. In part, this is willful ignorance of the form: "As long as the stock goes up, what do I care what the company is doing?" The short term investor who is simply trying to capitolize on a short term gain is complicit with a system designed to reward otherwise bad business practice. Are these investors less culpable just because they got burned in the end? I would say no. Or in other terms, nobody who got their money out of Enron last year (with a tidy short term profit) is complaining about being "victimized."

I agree that any substantive change in the current system would cause serious economic disruption in the short term. But if we are really talking about long term stability then we need to get rid of short term owners and make ownership equal to responsibility. Otherwise it is just gambling with gov't oversight.
posted by plaino at 11:12 AM on July 30, 2002

The short term investor who is simply trying to capitolize[sic] on a short term gain is complicit with a system designed to reward otherwise bad business practice.

That may be the case with short term investors, but the majority of (non-professional) investors are still of the buy-and-hold type.

And there's a huge leap from being ignorant of internal processes and being complicit in them. We're not talking about a bunch of people who signed on to rob a bank and got left holding the bag, we're talking about the bank. The victims of fraud in these cases (Enron, Adelphia, etc.) are the investors -- they're who lost the money. What you're saying is tantamount to saying "It's they're fault they got raped. They asked for it."
posted by me3dia at 11:34 AM on July 30, 2002

The problem with your solution plaino is that it is equivalent to holding the owner of a car completely responsible for damage done with that car, even when it is being driven by someone else. The owner is liable for repair costs and higher insurance premiums, sure, but the operator (CEO) is the one responsible. It is the owners job to hold him responsible. If he does not, he loses his car. We've seen the same thing happen in the stock market. Owners (shareholding investors) are going to need to pay more attention to what the drivers (CEOs) are up to. I suppose in the analogy the owners could be sued for willful negligence (giving the keys to a 5 year old), but in cases of investors being liable, it shouldn't really exist unless the shareholders have a position of responsibility in the company, like CEOs who also own stock.

malphigian: thanks for clearing up your position, in my haste I misread bits of what you said.
posted by insomnyuk at 11:40 AM on July 30, 2002

Plaino -

Often when people talk about what allowed the capitalist system as we know and have known it to arise, the most (or one of the most) important things they cite is the joint-stock company. Without the protection offered by limited liability structures (corp.s, LLCs) the risk/reward would basically never be on the side of owning equities. I would argue that most reasonable investors would avoid them, and companies would therefore be unable to raise capital to grow. This would not be a short-term disruption of the system - it would actually require a new system; or at the very least rather than stibility, it would likely inaugurate a decline, rather than growth, in everything from new medicine to new technology, to new power plants, factories, etc.

Also, regarding the car agument, a better one might be: if someone steals your baseball bat and creams someone with it, it's not your fault it's the bastard who stole its fault. The thing about fraud (in general) is that if it was easy enough for most investors - or almost any investors - to notice, it would never happen. There were serious long-term professional investors managing billions of dollars who backed Worldcom because there was no way to know what was going on. I don't think you can reasonably blame people for things they couldn't have known about.

Finally, if the argument is that unlimited liability will produce either better decisions by investors or more equitable outcomes for everyone, just look at LLoyd's of London. That was a horrible tragedy: people backed insurance with unlimited liability, and lost everything. It was absolutely awful. Saw a great play about it though, the name of which escapes me.
posted by fluffy1984 at 12:02 PM on July 30, 2002

We're not talking about a bunch of people who signed on to rob a bank and got left holding the bag

This is very close to what we are talking about. But it's more like buying a Rolex for $50 and selling it for $500 without ever asking why it was so cheap in the first place. Was it fake? Was it real, but stolen? Who cares as long as you can unload it before the truth is discovered (it's value plummets), right?

Besides, I am not advocating throwing small investors in jail. I am advocating a simple change which would largely eliminate the kind of abuse we are seeing without throwing anyone in jail. That is: if you obtain stock or options you must hold them for X years (1 or 2 seems reasonable to me). There is now very little motivation to manufacture spikes in the stock price and lots of motivation to create sustainable increase in value.
posted by plaino at 12:12 PM on July 30, 2002

I would like to see legislation that requires ALL stockholders (including "day traders") to be legally liable for illegal activities of the companies they own.

if you obtain stock or options you must hold them for X years (1 or 2 seems reasonable to me).

How does this solve anything, and how would it not harm small investors? It may take the incentive out of manufacturing price spikes, but what about other, unmanufactured problems with the company, such as bankruptcy or a tornado hitting a factory? Under your plan, investors would be rendered helpless as they watched the value of their holdings plummet. Or you simply delay the stock sell-off by one or two years.
posted by me3dia at 12:37 PM on July 30, 2002

Under your plan, investors would be rendered helpless as they watched the value of their holdings plummet.

This would be called "risk," something today's stock investors seem to think they should be immune to. A thoughtful investor might research the location of the company's plants and consider the possible impact of a tornado if the plants are concentrated in OK for example. This is exactly the type of investing I would like to encourage. Researched; Thought out; and Informed! As for bankruptcy, again researching the company's financial situation thoroughly before buying would reduce that risk (not to zero of course).

Or you simply delay the stock sell-off by one or two years.

A company heading toward bankruptcy would have a much easier time regaining a foothold if massive sell-offs were not inevitable at the first hint of trouble. There would be time for internal reform and, here again, much less incentive to misreport unfavorable fluctuations in earnings.
posted by plaino at 1:21 PM on July 30, 2002

Barring the fact that stock options already often come with sales caveats on them, the only things these types of laws would produce would be a disincentive for the small investor to purchase stocks. Also, it does not eliminate the kinds of abuse we're talking about here - it simply enables investors with more than two years in to take avantage of those without.

Efficient, effective enforcement of current law, implementation of actual (rather than "accepted") accounting standards, and a return to the core values of goverment under a capitalist economic system will serve to deter corporate fraud in the future.
posted by UncleFes at 1:31 PM on July 30, 2002

This would be called "risk," something today's stock investors seem to think they should be immune to.

I think the past 18 months has been a very good lesson in the risks associated with purchasing equities.

Risk assessment should be the primary factor in determining the makeup of a portfolio. I agree with you in this - but hamstringing the individual investor is a fairly bad way of teaching them this particular lesson.
posted by UncleFes at 1:39 PM on July 30, 2002

the only things these types of laws would produce would be a disincentive for the small investor to purchase stocks.

On the contrary, it would only be a disincentive for small investors whose impetus is "turn $100 into $200 as fast as possible." It would provide a strong incentive for a new demographic of investors (like myself) who have so far demured from stock investments because they look and smell exactly like gambling.
posted by plaino at 1:48 PM on July 30, 2002

If the incentive to make money is removed, why would anyone buy a stock? Despite the great coverage day traders get in the media, the vast majority -- I'm talking 99% -- of individual investors do not buy and sell rapidly just to make a little extra cash. They do it to invest -- to earn money for retirement, to buy a house, whatever, and that kind of money can't be made by the method you're complaining about.

The majority of investments by individuals are made through 401ks and mutual funds, both of which already make it a bit of a pain to jump in and out of holdings for some quick gains. What's the point of investing at all if the ability to make money in the long term is hampered by overly-strict regulation in the short term?
posted by me3dia at 2:21 PM on July 30, 2002

And why should the rest of the investing public - who has done their homework and understands the risks involved - be penalized because a certain demographic wrongly assumes that investing = gambling? If you don't want to invest in equities, don't invest in equities. There are plenty of other options that are safe and effective ways to save for the future and build personal assets. But don't assume that because you don't understand the way the equity markets work, all those who do are criminals who should be punished for your beliefs.
posted by UncleFes at 2:24 PM on July 30, 2002

But don't assume that because you don't understand the way the equity markets work, all those who do are criminals who should be punished for your beliefs.

What a troll-ish response. I don't want to punish people, really. But I'd like to take away the incentives to defraud. I'd be open to better ideas if they were real solutions rather than desperate attempts to preserve a flawed system.
posted by plaino at 2:47 PM on July 30, 2002

What a troll-ish response.

That's adorable. Have a nice thread.
posted by UncleFes at 2:56 PM on July 30, 2002

When you insist that everyone involved in the stock market is a gambler, you show your ignorance and invite criticism. You're not playing the odds when you invest in the stock market. Despite the common terminology, you're not "betting" on stocks, you're making calculated decisions based on the potential risks and benefits involved.

But I'd like to take away the incentives to defraud. I'd be open to better ideas if they were real solutions rather than desperate attempts to preserve a flawed system.


There is a flaw -- we all agree -- but it's not in the stock market, it's in the boardroom. Messing with investment regulations will do nothing to stop fraud, people will just find another way to do it. The new requirement that CEOs vouch for their companies' accounting reports, which goes into effect August 14, is more likely to do what you're hoping for than anything else I've seen proposed. It won't stop scandals entirely, but it will make it a whole lot easier to send people to jail over them.
posted by me3dia at 3:14 PM on July 30, 2002

Despite the common terminology, you're not "betting" on stocks, you're making calculated decisions based on the potential risks and benefits involved.

But are those decisions really calculated, if in fact the typical investor doesn't have anywhere near a sufficient basis for making them? I mean, even if they wanted to do all the necessary research, it's not clear that very many people would be able to decipher companies' earnings statements and reports, or determine if a given business is actually healthy.

You could argue that investors somehow calculate whether the economy will grow overall, and invest in a diverse range of stocks accordingly -- but it's even less clear that anyone, including economists, has any real reason to think they know when the economy will grow or shrink.
posted by mattpfeff at 3:56 PM on July 30, 2002