In days of yore, to be CEO of a U.S. corporation was to be a manager and an entrepreneur. The objective: to direct resources to satisfy consumer demands, and to do so to generate the requisite minimum return on shareholder investment. The former will cease to be undertaken when it ceases to meet the latter's return demands.
The charge has always required a nuanced touch. Yes, the accounting numbers are the final arbiter of success or failure, but to achieve the numbers, superior analytical and interpersonal skills are indispensable.
The analytical skills are straightforward enough when the charge is allocating capital. You know the immediate costs. You know the potential to produce such-and-such a return ex ante. You also know (unlike a depressing number of ersatz economists) that capital’s potential is realized only when competent labor directs it. Capital is never self-perpetuating.
The skills required to direct employees to direct the capital to achieve the desired numbers can be the psychological equivalent of a run through a fun-house-mirror maze. At times, the executive must assume the role of caregiver, psychologist, prophet, and revolutionary. People, unlike capital, are no automatons. Not only do people differ inter-personally, they differ intra-personally. The you of today is never the exact replica of you yesterday.
The human element, therefore, is forever the varying variable, be it in matters of production or consumption. Labor and capital must continually adjust to generate an adequate return on shareholder capital. Consumer demands are forever protean. Competitors further obfuscate your future with competing offerings and processes for creating their offerings.
The end-all, be-all – managing, allocating, soothsaying, and motivating – to meet the shareholders’ exacting demands is work enough to ensure an executive is rarely idle. But that’s just me. A cadre of self-styled expert sociologists thinks otherwise. The executive must also assume the role of virtue signaler. What’s more, the signals are delivered at shareholder expense.
Stakeholder theory has supplanted shareholder theory in corporate governance. The financial equivalent to squatting has emerged. Somehow, someway, someone who has no financial stake in the enterprise has stepped forward to stake a claim.
This new strain of busybody stakeholder will bless profits only if the profits are generated by means that forward the particular stakeholder’s social agenda. Because the stakeholders are many and varied, agendas are invariably many and varied: Ensure the workforce is sufficiently diverse on matters of race, gender, and sexual orientation. Ensure all are healthy and happy. Pay only “fair” wages to your United-Colors-of-Benetton workforce. Preserve the environment and avoid any that could be constured as warming a phantasmagorical climate. Generate profits that adhere to these diktats, and give a portion of these profits to organizations that promote the diktats. Only then, can we profit in peace (until the cultural zeitgeist changes, and it will change).
We should forgive the executive if he scratches his head, bewildered by the varied non-financial (social) agendas set before him. The diktats are ethereal and wispy at best. The goals are forever elusive because they are rarely expressed in concrete numbers. The goals the diktats seek to achieve are, like the dealer of illegal drugs, what the stakeholder says they are.
Because of the growing influence of non-financial stakeholders, profits, in recent history, are frequently derided as unseemly, something beyond the pale. Profits should be reduced to a secondary, or even a tertiary, consideration in the hierarchy of corporate goals. Profits are fine, so say the social-agenda stakeholders, but only if they are derived while adhering to the proper environmental, social, and governance (ESG) standards.
Try as we might, human nature can never be ignored. If corporate standards are based on anything but productivity first, discontent is sure to arise second. Human nature ensures the more productive employees will bristle at being saddled with, or having to cover the rear ends of, their inferiorly productive co-workers. To hire first based on a variable -- race, religion, sexual orientation, or whatever – other than productivity is to open a Pandora’s box of soul-sapping problems. Social issues are everywhere and all the time politicized issues. Nothing good comes from politics.
Jonathan Swift was insightful enough 300 years ago to observe the importance of increasing efficiency and profits, and, quite directly, living standards. Observed Swift, “ Whoever makes two ears of corn or two blades of grass to grow where only one grew before, deserves better of mankind, and does more essential to his country than the whole race of politicians put together.”
Perhaps Swift intuitively knew that demand curves are downward sloping. Intelligent allocation of man and machinery will increase labor productivity to increase labor wages to increase living standards. The great family fortunes – Rockefeller, Ford, Walton, Albrecht – were predicated on Swift’s observation. By increasing efficiency – driving down costs – these patriarchs drove profit growth by continually lowering prices while concurrently increasing quality to spur additional demand.
Whether we are indifferent or otherwise to the relentless push to profit-driven efficiency, it’s all been for the greater good. Smith’s concept of the invisible hand, fixating on profits first, has helped the social justice warriors get much of what they want. I offer one of many examples of the ability of profit-seeking capitalists to achieve an outcome desired by the social-justice warriors, even if it were something other than the primary goal.
John D. Rockefeller literally saved the whales. Whale oil was the popular fuel for lighting. Kerosene competed with whale oil to light interiors. The man most responsible for the commercial success of kerosene was John D. Rockefeller. As kerosene became generally available throughout the country, the demand for whale oil dropped precipitously. The 735-ship fleet of 1846 had shrunk to 39 by 1876.
Rockefeller was equally as vigilant in reducing waste, frequently a business-generated pollutant. Rockefeller developed markets for what was formerly waste destined for landfills or the Cuyahoga River. Rockefeller utilized the waste from kerosene refining to develop naphtha, gasoline (then used as a solvent or turned into gas for illuminating buildings), fuel oil, and lubricants for moving parts in trains, railway cars, agricultural equipment, cotton spindles and, later, bicycles.
The corporate culture must despise waste because it raises costs and reduces profits. If despising waste greens the earth (and it does) at the same time, all the better.
The coin is always double-sided. Profits signal producers what they should produce. They also signal employees to develop skills producers demand to produce. To trump productive skills with tertiary considerations – race, general, sexual orientations – is to distort markets and truncate efficiency and profits. It is to retard employee wage growth and employee well-being. It is the equivalent of the Luddite's goal to retard human advancement.
To social-justice warriors, I say, “get in the game." Transcend stakeholder theory and embrace shareholder reality. Become a shareholder. Growing profits leads to growing share price, growing dividends, growing business value. When you have elevated profits to the first position, you control more resources to advance your primary agenda.
The charge has always required a nuanced touch. Yes, the accounting numbers are the final arbiter of success or failure, but to achieve the numbers, superior analytical and interpersonal skills are indispensable.
The analytical skills are straightforward enough when the charge is allocating capital. You know the immediate costs. You know the potential to produce such-and-such a return ex ante. You also know (unlike a depressing number of ersatz economists) that capital’s potential is realized only when competent labor directs it. Capital is never self-perpetuating.
The skills required to direct employees to direct the capital to achieve the desired numbers can be the psychological equivalent of a run through a fun-house-mirror maze. At times, the executive must assume the role of caregiver, psychologist, prophet, and revolutionary. People, unlike capital, are no automatons. Not only do people differ inter-personally, they differ intra-personally. The you of today is never the exact replica of you yesterday.
The human element, therefore, is forever the varying variable, be it in matters of production or consumption. Labor and capital must continually adjust to generate an adequate return on shareholder capital. Consumer demands are forever protean. Competitors further obfuscate your future with competing offerings and processes for creating their offerings.
The end-all, be-all – managing, allocating, soothsaying, and motivating – to meet the shareholders’ exacting demands is work enough to ensure an executive is rarely idle. But that’s just me. A cadre of self-styled expert sociologists thinks otherwise. The executive must also assume the role of virtue signaler. What’s more, the signals are delivered at shareholder expense.
Stakeholder theory has supplanted shareholder theory in corporate governance. The financial equivalent to squatting has emerged. Somehow, someway, someone who has no financial stake in the enterprise has stepped forward to stake a claim.
This new strain of busybody stakeholder will bless profits only if the profits are generated by means that forward the particular stakeholder’s social agenda. Because the stakeholders are many and varied, agendas are invariably many and varied: Ensure the workforce is sufficiently diverse on matters of race, gender, and sexual orientation. Ensure all are healthy and happy. Pay only “fair” wages to your United-Colors-of-Benetton workforce. Preserve the environment and avoid any that could be constured as warming a phantasmagorical climate. Generate profits that adhere to these diktats, and give a portion of these profits to organizations that promote the diktats. Only then, can we profit in peace (until the cultural zeitgeist changes, and it will change).
We should forgive the executive if he scratches his head, bewildered by the varied non-financial (social) agendas set before him. The diktats are ethereal and wispy at best. The goals are forever elusive because they are rarely expressed in concrete numbers. The goals the diktats seek to achieve are, like the dealer of illegal drugs, what the stakeholder says they are.
Because of the growing influence of non-financial stakeholders, profits, in recent history, are frequently derided as unseemly, something beyond the pale. Profits should be reduced to a secondary, or even a tertiary, consideration in the hierarchy of corporate goals. Profits are fine, so say the social-agenda stakeholders, but only if they are derived while adhering to the proper environmental, social, and governance (ESG) standards.
Try as we might, human nature can never be ignored. If corporate standards are based on anything but productivity first, discontent is sure to arise second. Human nature ensures the more productive employees will bristle at being saddled with, or having to cover the rear ends of, their inferiorly productive co-workers. To hire first based on a variable -- race, religion, sexual orientation, or whatever – other than productivity is to open a Pandora’s box of soul-sapping problems. Social issues are everywhere and all the time politicized issues. Nothing good comes from politics.
Jonathan Swift was insightful enough 300 years ago to observe the importance of increasing efficiency and profits, and, quite directly, living standards. Observed Swift, “ Whoever makes two ears of corn or two blades of grass to grow where only one grew before, deserves better of mankind, and does more essential to his country than the whole race of politicians put together.”
Perhaps Swift intuitively knew that demand curves are downward sloping. Intelligent allocation of man and machinery will increase labor productivity to increase labor wages to increase living standards. The great family fortunes – Rockefeller, Ford, Walton, Albrecht – were predicated on Swift’s observation. By increasing efficiency – driving down costs – these patriarchs drove profit growth by continually lowering prices while concurrently increasing quality to spur additional demand.
Whether we are indifferent or otherwise to the relentless push to profit-driven efficiency, it’s all been for the greater good. Smith’s concept of the invisible hand, fixating on profits first, has helped the social justice warriors get much of what they want. I offer one of many examples of the ability of profit-seeking capitalists to achieve an outcome desired by the social-justice warriors, even if it were something other than the primary goal.
John D. Rockefeller literally saved the whales. Whale oil was the popular fuel for lighting. Kerosene competed with whale oil to light interiors. The man most responsible for the commercial success of kerosene was John D. Rockefeller. As kerosene became generally available throughout the country, the demand for whale oil dropped precipitously. The 735-ship fleet of 1846 had shrunk to 39 by 1876.
Rockefeller was equally as vigilant in reducing waste, frequently a business-generated pollutant. Rockefeller developed markets for what was formerly waste destined for landfills or the Cuyahoga River. Rockefeller utilized the waste from kerosene refining to develop naphtha, gasoline (then used as a solvent or turned into gas for illuminating buildings), fuel oil, and lubricants for moving parts in trains, railway cars, agricultural equipment, cotton spindles and, later, bicycles.
The corporate culture must despise waste because it raises costs and reduces profits. If despising waste greens the earth (and it does) at the same time, all the better.
The coin is always double-sided. Profits signal producers what they should produce. They also signal employees to develop skills producers demand to produce. To trump productive skills with tertiary considerations – race, general, sexual orientations – is to distort markets and truncate efficiency and profits. It is to retard employee wage growth and employee well-being. It is the equivalent of the Luddite's goal to retard human advancement.
To social-justice warriors, I say, “get in the game." Transcend stakeholder theory and embrace shareholder reality. Become a shareholder. Growing profits leads to growing share price, growing dividends, growing business value. When you have elevated profits to the first position, you control more resources to advance your primary agenda.
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