I want to endorse the goals outlined in Alana Semuels’s piece at Atlantic:
There was a time, half a century ago, when what was good for many American corporations tended to also be good for America. Companies invested in their workers and new technologies, and as a result, they prospered and their employees did too.
Now, a growing group of business leaders is worried that companies are too concerned with short-term profits, focused only on making money for shareholders. As a result, they’re not investing in their workers, in research, or in technology—short-term costs that would reduce profits temporarily. And this, the business leaders say, may be creating long-term problems for the nation.
“Too many CEOs play the quarterly game and manage their businesses accordingly,†Paul Polman, the CEO of the British-Dutch conglomerate Unilever, told me. “But many of the world’s challenges can not be addressed with a quarterly mindset.â€
despite any reservations about the specific policy changes she outlines. We need to align the incentives we put in place with national objectives. This conclusion, however, worries me a bit:
Perhaps most compelling of the American Prosperity Project recommendations are those that companies can undertake on their own. After all, Congress has been and will likely be locked in gridlock going forward, and it’s doubtful it will take up bills that address corporate taxation or tax incentives in the new session. So instead there are recommendations in the report that individual companies can implement, if they truly want to put an end to short-termism. They include giving enhanced shareholder voting rights to investors who hang onto stocks for the long term, and voting on executive pay in a longer time frame so that executives’ incentives aren’t aligned with the need to post big quarterly gains. They also include discouraging short-term earnings guidance so that companies can focus more on the long term. Companies can, after all, refuse to issue earnings guidance, and only share financial information when they issue quarterly reports and other financial statements.
Years ago when I was working for a Fortune 500 company, my boss said something to me that has stayed with me to the effect that if he looked beyond the next quarter the quarter after that there would be another guy sitting at his desk who was focusing on the next quarter rather than the longer term.
Off-hand some of the reforms we need to consider include:
- Reverse the Clinton era reforms to the treatment of stock options as executive compensation that incentivized short term thinking and put the gap between top management pay and ordinary worker pay on steroids.
- Stop incentivizing companies to invest overseas.
- Provide greater incentives for companies to invest here at home.
- Change the H-1B and L-1 visa programs so that businesses can bring in the workers they need without using importing workers as leverage to reduce wages.
The economic story of the last fifteen or so years hasn’t been a shortfall in consumer spending or government spending but not enough business investment and importing too much. We need policies beyond cuts in the top marginal rates of the personal income tax.
Very revealing, and a bit sad.
Isn’t most of your last paragraph’s analysis involve what the next president’s economic agenda supposedly addresses? After all, business is Trump’s wheelhouse. And, he is placing people of the same ilk in cabinet positions, making his administration top heavy in business giants. This is exactly the opposite of Obama’s cabinet composition, which was oftentimes criticized for the thin, light weight influences he chose to surround himself with and have as his primary council.
Just reviewing some of his main themes, Trump seems focused on renegotiating trade deals, lowering corporate taxes, bringing back overseas money via fiscal incentives, reducing suffocating business regulations (especially hard on small businesses), doing away with Dodd-Frank that has made small business loans difficult to impossible to fund, and of course diving into Obamacare regs which has posed major obstacles in the hiring of people full time. These are all business friendly ideas making it easier to have a business friendly country, ultimately providing more positive means for growing jobs and the economy.
I’m confused by the prediction that Congress will be deadlocked. Was the Atlantic piece written before the elections? I assume that there will be a major tax overhaul this year, and in particular I assume there will be some neutralization of the tax incentives from foreign country VATs.
I think she’s making several assumptions:
Maybe, maybe not. IMO any bet that Democrats will hold discipline is a loser.
1) I have no idea what the Democrats will do. Part of me thinks they try to break the record the GOP set on filibusters. Most of me agrees with you that they are not that cohesive.
2) Your ideas might help Americans. Not sure your first will do anything. I think our culture has changed and it is now acceptable for execs to make tons more than anyone else. Doing away with options means they will just find another way.
3) Cutting corporate taxes might help corporation, their executives and some shareholders. There is no evidence that it will broadly help Americans.
Cutting regulations might help some business owners. There is no guarantee it will broadly help Americans, and may hurt.
We brought back overseas money before. Essentially none of the money went back into businesses here to help Americans. Not sure why it would be different this time.
Renegotiating trade deals may just help large US corporations, and not Americans. No guarantee other countries will cooperate.
Doing away with Dodd-Frank means big banks can do whatever they want again. I am sure they won’t try to destroy the world economy again, so maybe that will work, LOL
Steve
They already do whatever they want. They believe that regardless of what any law says they’ll be bailed out of any conceivable foolishness. They’re right.
Dodd-Frank is just a license for regulators to harass banks and extort flea bite fines from them. It’s a nuisance not a deterrent.
WRT this comment, steve, you can’t turn an ocean liner on a dime. Our problems have been growing over 25 or 30 years and they will take some time to fix. I won’t live to see it.
Dave- Dodd-Frank is not strong enough. I agree the bank will do pretty much whatever they want. They own the GOP and lease the Dems. However, there is some stuff in it they genuinely don’t like that has a chance, small I will grant you, to make a difference. Under Dodd-Frank they need to have a living will made out. That at least makes them plan ahead, and would make it easier should they go bankrupt. Yeah, we will probably just bail them out, but if we decided not to do so, it would be easier with the Dodd-Frank requirement.
Steve
According to a memo put out by Chuck Schumer, the dems are planning to “slow walk” 8 of Trump’s cabinet nominations, creating voids in his administration through March of ’17. If true, their “good for the country” intentions are to start administration obstructions immediately, rather than wait (like the R’s did during the first portion of Obama’s first term) to evaluate the merits or demerits of his team.
Contrasting these dem threats is what happened to, Obama’s nominations, which were approved in short order, with bipartisan support. Sebelius and Geithner were the two who garnered the least amount of R support.
All you need to know about Dodd Frank is to consider the much simpler, and more effective, alternatives that were not adopted.
“Now, a growing group of business leaders is worried that companies are too concerned with short-term profits, focused only on making money for shareholders. As a result, they’re not investing in their workers, in research, or in technology—short-term costs that would reduce profits temporarily.”
I find this such hackneyed commentary. It was popular “analysis” 30 years ago when I was in business school. At the time the “long thinking” Japanese were the boogeymen. Anyone remember Lester Thurow?
If you have opportunity for growth in revenues and earnings you will have investment. Nothing creates equity value – for shareholders or executives – and jobs like growth. This country has been so intent on placing drag on the airplane that the damned thing can’t fly anymore.
As for Dodd-Frank. If you think it really accomplished much more than provide exculpatory cover for Chris and Barney, and a license to meddle, I’ve got a bull with two tits for you.
Another facet of the problem is the rise of mutual funds as major owners of corporate stock. Their interests conflict with those of stockholders who are in for the long haul.