Thursday, July 16, 2015

OpEdge Redux: We should be asking more of business owners and executives than merely creating wealth for themselves

By Marc Jampole

While OpEdge is on a two-week hiatus, we are running some of the more evergreen columns from past years. This blog entry originally appeared on October 21, 2010.

I’ve been thinking lately about the idea of business ethics, and specifically about the actions that ethical business owners should and should not take in the course of running their businesses.  I’m not talking about what’s legal, but instead about what’s right, which is something altogether different. For example, we know that it was mostly legal for banks and mortgage brokers to write all those subprime loans, but it turns out that it wasn’t right because it ended up hurting our economy and our society.  In the same way, businesses make all kinds of “business” decisions that are legal, but which may not be helping society.

All the time we read public businesses extolling the fact that their job is to maximize value for their shareholders.  But don’t they have a responsibility to the communities that buy their products and services, build their roads, sewers and infrastructure, and protect their assets and employees? 

Many corporations and businesses talk about their social responsibility, and what they usually mean is contributing to nonprofit organizations, serving on boards and exhorting their employees to do the same.  All good, but what I’m talking about is not what a business does with its excess profits and the executives’ and other employees’ time, but how you run the business.

Those who have been following my blog for even a few weeks know that I take a fairly left-leaning stance on most political and social issues, and that I believe that as a society we need to address the related environmental issues of global warming, pollution and depletion of our natural resources.  So it won’t surprise you to see that a concern for social equity and environmental protection drives the following principles, which I am recommending to all businesses, large and small.

So here is the OpEdge “Pledge to America” that I believe owners of private companies and leaders of public companies should take:
  1. Subsidize mass transit for employees, but do not pay for parking for any employee who does not absolutely require an automobile to do the job. 
  2. Recycle and insist that the buildings in which you have operations or offices be “green,” which means making the facilities more energy efficient, recycling building waste and using recycled and recyclable building materials.  
  3. Pay all of the premiums for the most benefits-rich healthcare plan available for your employees.
  4. Make sure that it is clearly understood that the company will not tolerate any discrimination against employees, prospective employees, vendors or customers because of a person’s race, age, sex, sexual orientation, religion, disability, illness, obesity or lifestyle. By the way, besides being the right thing to do, it’s also the law of the land.
  5. Make sure that all employees, regardless of location across the globe, are paid the same rates for the same work and enjoy the same safety protections and that all facilities hew to the highest environmental standards, even if located in a country with relatively low standards.
  6. Do not mandate overtime as a way of life.  Getting rid of overtime not only helps the employee, but it helps the business as well.  People who work too much get tired and start making mistakes.  Everyone needs to get away from the office or factory floor to refresh and pursue their own interests.  
  7. Do not pay the owner or executives a total compensation package more than 20 times what the average full-time employee makes.  That seems like a lot (and by the way, my share of the take is smaller than 20 times the average of my employees), yet the ratio is much higher than that in the United States.  In fact in the United States, the average CEO makes about 350 times what her or his employee makes; it was about 42 times as great as the average worker in 1960.

I am guessing that many of my readers, including most of the business owners in the audience, are going to get angry at me for making these recommendations, especially the last one.  On the surface, it seems to be patently un-American to limit one’s pay, and almost all of these recommendations take money out of the pockets of owners and operators.   After all, isn’t it the owner who invests in the business, takes the risk, knows the most, has created the product or service and has to take responsibility for what the organization does?  Doesn’t the owner therefore deserve all she or he can get?

But how much is the business owner’s position based on nothing more than luck. I’ve gone over this line of thinking before. Business owners work hard, but so do most other people.  The business owner, though, has usually had a lot of luck.  Here are some of the luck factors that make some people wealthy and others not so well off:
  • Having a wealthy or prominent family.
  • Being born with a special skill or more intelligence than the average person.  No matter how hard a 5’0’’ male athlete works on his game, he’s not going to be able to keep up with the 7-foot Shaquille O’Neal. No matter how much a person of average intelligence studies, he or she won’t be able to keep up with someone with a photographic memory.
  • Marrying into a wealthy or prominent family.
  • Growing up in a family that has not been devastated by substance abuse, criminality or mental illness.
  • Being in the right place at the right time.
  • Meeting a mentor or someone connected who will take a special interest.
  • Not having an accident or dying young in a war.

In other words, as the philosopher Daniel Robinson points out in Praise and Blame: Moral Realism and Its Application, very successful people typically deserve much less credit for their success than we give them.  Much of their success is based on factors beyond their control. 

I’m really just asking the question that many ask all the time when hearing that Alex Rodriguez is making $25 million a year to play baseball or that Lady Gaga made tens of millions from a concert tour.  Does he, or she, deserve it?  And my answer is, yes, but only to a certain point.  After that, it’s a matter of the luck of the draw or the social conditions.

Another argument against my recommendations is that it will raise business costs so much that the owner or executive will have to lay off employees or even close down the business.   My answer to that is that in theory there may be some businesses that could be threatened if they implemented all my recommendations, and in those cases, I suggest that you start by limiting your income and then see what else you can do.  Remember: if your average employee is making $50,000 a year, I’m asking you to limit your total compensation to a maximum of $1.0 million a year.  I think that’s quite enough for anyone, even if the spouse isn’t working.

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