Myth of Corporate Greed

Corporate Greed ... I'm sure that you've all heard the term. It seems to get thrown around a lot, particularly when economic troubles are in the air ... it is used as the explanation of what is wrong with everything in our economy. Companies laying off workers? Corporate Greed. Companies raising prices or fees? Corporate Greed. Companies going bankrupt? Yup, Corporate Greed.

There's a problem though ... the people using the term can't define it. Basically ... someone else is making more than they are and they don't like it, because if you ask them and press the issue they will likely tell you that the problem is 'greedy' CEOs.

Here's the thing though ... CEOs are employees. Hired ultimately by the shareholders of the corporation. Their pay (and bonuses) are defined by a contract negotiated, often by the board of directors, but ultimately approved by the shareholders of the corporation. Their job (for which they earns the pay and bonuses defined in the contract) is to make as much profit for the shareholders as he possibly can.

You see ... a corporation is basically an elaborate legal structure which exists for one single purpose ... to make a profit. It does not exist to employ people, it does not exist to produce a product, it exists to make money. Employees and Products (or services) are a means to that end.

When the cost of employment starts lowering profit the CEO has a problem ... his job is at stake. He has to make some choices. An over simplified version of the choices available to him are to 1) Pass the cost on to the end user of the product (raise the cost of his product/service to compensate for the additional labor costs) ... probably not a good idea in a down economy as it may result in drastically reduced sales. 2) find ways of lowering costs in other areas (advertising less, etc.) .. these can also have consequences on sales or other aspects of the company itself). 3)Go to the source of the problem and cut employment or compensation packages ... generally the most effective direct result though for a large company it can be a PR nightmare and the effect on production/services does need to be considered heavily.

Most often, of course, it is some combination of all available options that is going to be taken. No matter what the CEO does many of his decisions may be unpopular and very few of them are going to be easy. But that is why they makes the money that they do ... because their experience and business sense has taught them how to make those decisions and what the best road is likely to be for the short and long term health of the company; and more specifically for the shareholders of the company.

It's funny that often if a CEO is given a raise (by the board of directors, or the shareholders) it is because he's greedy, it can't possibly be because ... oh ... I don't know ... that he did a good freaking job. If the employees (or employee union), however, demand a raise ... it's not because they're greedy ... no ... they are the victims of the greedy corporation, enslaved to their pitiful paycheck and benefits.

You see ... the fact of the matter is that in many areas US workers have priced themselves out of the market. A company hiring US employees typically has to pay a lot more in benefits and wages than they would pay someone with the same level of skills in other countries. (Or in some cases even in other States within the US.) .... This effect can usually be traced back to 2 factors - Government Regulation (interference) and Labor Unions. Doing this isn't 'greedy' it's good business sense ... the CEO has a responsibility to the shareholders of the company, not the employees ... the employees exist to assist the company in making a profit, the company does not exist in order to provide them a job and means of income.

Let's take a moment and take a step back .... let's look at who the shareholders are in many of the 'big' companies. The largest holder of many of the large corporations in the US are ... retirement funds ... so, Teachers, Police, Fire, Employee Unions ... in other words 'every day workers'. (It's actually kind of ironic that Unions are often working against the best interests of the retirement funds of the very people that they are supposed to be representing ... but then again the Unions have generally had more of a 'now' outlook so they probably would prefer the 100 now instead of the 1000 later....)

These people have a vested interest in the corporation making as much profit and making it for as many years as possible ... to do this they have a vested interest to hire the best CEO and officers that they can find ... like any market there is a limited supply of people that can reasonably perform that role, as such, experience, track record, all of that is going to come with a price tag.

Are there CEOs (and/or other corporate officers) that are making more than they should be, perhaps, but then again if they were offered the contract, or if the terms that they offered to the corporation were accepted then the shareholders agreed to it and it's up to them to correct the situation for their own good.

Now, of course, many CEOs are also shareholders themselves ... but that doesn't make them greedy either. Yes, it means that they are, in part, making the decisions for their own profit, but that just means that they too have a vested interest in making the best choices possible for the health and profit of the company .... and face it ... would you, as a shareholder, trust a CEO that had no such interest?

People need to realize that there is not a single company on this planet that exists for any purpose than to make a profit for someone; be it the company owner, the partners, or the shareholders. Calling them 'greedy' for looking after their own best interests ... while praising employees for looking after their own is what one typically calls 'hypocrisy'.