Joe Nocera seems to think the path toward prosperity lies with U.S. companies acting more like European ones. Really!:
The only way [companies will boost investment and hiring], however, is if our society implicitly makes the kind of compact that German society makes explicitly: We have to be willing to allow companies to sacrifice short-term profits for the long-term good of the country. As the leadership expert Michael Useem wrote recently on The Washington Post’s Web site, business needs to make “people a priority, not just earnings.”
What makes that hard for executives is that they’ve spent the last 30 years having it beaten into them that the only thing that matters is delivering “shareholder value.” Over time, this phrase has become code for focusing on short-term profits – and chief executives who have ignored this mantra have often found themselves kicked to the street by impatient investors like Carl Icahn.
Not to sound all 1990s, but if I’m a shareholder–that is, an owner–of one of the companies Nocera says should “sacrifice short-term profits for the long-term good of the country,” I’m having trouble seeing what’s in the deal for me. I’m pro-long-term-good-of-the-country as much as anyone, but don’t see why I should be the one to forgo profits on the off-chance that those lost earnings might somehow, eventually, make the country more prosperous in the long-term. Which they probably won’t.
If Nocera is so hot on individual sacrifice for the sake of the long-term common good, why doesn’t he pick on somebody else? Retirees, maybe! He might propose, say, a cut Social Security benefits in order to finance a cut in the corporate tax rate. That would boost corporate returns and likely lead to a slew of new hiring. A common good if there ever was one! Or perhaps he might offer a scheme to cut Medicare benefits and, while he’s at it, abolish the Departments of Education, Housing and Urban Development, and most of Commerce, and use the savings to pay for an across-the-board payroll tax cut. Everyone benefits! Nothing says “long-term good of the country” like a tax cut for all.
What, you say, none of that is politically doable? You’re right, of course. That’s because retirees and federal employees, to name two groups, are politically favored classes who, no matter how bad the economy gets, aren’t likely to be asked to make the sort of sacrifices Nocera has in mind for corporate shareholders–who usually have to fend for themselves.
Nocera’s soak-the-shareholders plan is idiotic. He’s wrong, first, that the notion of shareholder value is “code” for running the business for the sake of short-term profits. As an actual shareholder (reminder: owner) of a number of companies, I want managements to run those businesses in order to maximize their long-term value. That’s my right. I own the darn business. Short-term earnings are largely beside the point. Second, this notion that one way to spur economic growth is to make companies less profitable in the near-term makes no sense. Finally, asking companies to forgo earnings so they can hire workers for jobs that are inherently uneconomic is no recipe for long-term economic prosperity.
What do you think? Let me know!