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Commentary: A speech business leaders won't give

This article first appeared in the St. Louis Beacon, Jan. 30, 2012 - As CEO of this great financial institution, I remind this shareholder gathering that we have $5 billion in toxic loans, many awaiting foreclosure. The market has built into our stock price the losses this implies, and if we continue current policies, equity value will increase.

But we are choosing a different path. Instead, we will stop most foreclosures and refinance toxic loans. Although this new policy will yield positive publicity and improved customer satisfaction, the benefits will be ephemeral and will not outweigh the costs. We therefore anticipate a 20 to 25 percent stock price reduction.

While some of you will lose millions, I know you will support us because this is the right thing to do. It is right for customers who will otherwise become destitute, perhaps even homeless. It is right for our economy because it will keep money circulating and thereby preserve jobs, because it will help stabilize home prices and revitalize the housing market.

Each of you will be proud that your financial sacrifice will benefit your neighbors and your nation.

The above speech provides uplifting fantasy. But fantasy it is and fantasy it will remain because it violates a fundamental corporate directive about money, profit and obligation. That directive is enshrined routinely in state laws that explicitly require corporate directors and officers to pursue enhanced shareholder wealth.

And as a poll of 34 members of Fortune 200 boards of directors demonstrates, the directive is all but universally accepted in the corporate hierarchy. In the 2007 poll reported in the Journal of Business Ethics, 91 percent acknowledged that, if it were legal, they would cut down a mature forest or release a dangerous unregulated toxin into the environment to maximize shareholder wealth.

The consequences of that attitude are ubiquitous. For example:

  • Tobacco companies have known for 50 years of the deadly impact of their product. The estimated death toll is 400,000 Americans annually, millions worldwide. But "it's a legal product," goes the refrain, so the directive reigns supreme.

  • With its infamous Pinto, the Ford Motor Co. knew its gas tank design would yield fiery explosions following low-speed rear-end crashes. But the lethal design was maintained because remedial steps would shrink already limited storage space and thereby reduce sales. Ford coldly estimated that retooling the tank would cost $137 million as compared to liability projections of $49 million. From the directive's standpoint, it was a no brainer. The official death toll was 27.

So it is when banks foreclose on borrowers to whom they never explained the fine print of loans they knew could not be repaid; when those same banks lobby against transparent language and full disclosure in their loans; when drug companies hide lethal adverse effects; when chemical waste and toxic coal ash flow inexorably into once pristine streams.
The apostles of free markets will protest. They will preach loud hosannas about thecor benefits of unfettered capitalism and cry socialism when upstart moderates pursue constraints on poisoning the air or the perils of the workplace.

But when they pretend that there is a free lunch in a free market, they are conjuring a world that never was and never will be. When they ponder the Wall Street debacle and still imagine that salvation is at the end of some deregulated nirvana, as if there is no downside, they are denying the central motivation of the marketplace they extol.

When they behave as if Ford and Enron and Lehman Brothers and AIG and MF Global and Merck (with Vioxx) and World Com and the tobacco companies and on and on are isolated rotten apples in a sea of virtue, they are denying reality as they gainsay both human and market nature. And in the process, they unwittingly proclaim that they have no legitimate role in the tempest of ideas or the corridors of governance.

If we are to have a vibrant economy, we must of course have a thriving marketplace. And it's incontestable that there are countless decent and compassionate corporate executives, countless illustrations of upstanding corporate behavior.

It's also incontestable, for example, that when auto companies pursue reliable and comfortable vehicles, their consumer friendly-efforts are consistent with and in pursuit of the central economic purpose of their existence. A benefit of a market economy is that consumer and national interests are often consistent with profit focused objectives.

But this happy circumstance is far from routine. As our list of corporate transgressors highlights, there is frequently a profoundly destructive divergence between basic human and national concerns and the goals, behaviors and impacts of corporations. That's why regulation is essential. That's why corporate money should be removed from politics. And that's why the fictional speech described earlier is never likely to be delivered.

Ken Schechtman is a freelance writer and a professor at the Washington University School of Medicine.