Friday, August 30, 2019

Should the 'Business Roundtable' Change Its Name To 'The Profit-Haters Roundtable'?



Last week, the Business Roundtable issued a statement.

It reads in part:
Business Roundtable is modernizing its principles on the role of a corporation...
Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance that include language on the purpose of a corporation. Each version of that document issued since 1997 has stated that corporations exist principally to serve their shareholders. It has become clear that this language on corporate purpose does not accurately describe the ways in which we and our fellow CEOs endeavor every day to create value for all our stakeholders, whose long-term interests are inseparable...

While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders...


Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect...

Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
The above is simply bizarre. It shows that the 181 CEOs who signed the statement have no idea what they do when they push to earn profit for their firms.

Profit in a free market economy is nothing more, nor less, than the result of combining natural resources, labor and capital at a price that is less then the combined product created can be sold for. Since the "sold for" price always ultimately reflects consumers desires, the greater the profits, in effect, the greater the applause from consumers for the effort.

This is how businesses serve the economy. Any other demands on business, even if made by the Business Roundtable, reflect a basic failure to understand the incredible value of profit and how this is the sole important service that a business can provide to an economy.

As Ludwig von Mises put it:
Profit is the reward for the best fulfillment of some voluntarily assumed duties. It is the instrument that makes the masses supreme. ( Bureaucracy p.88)
and
Profits are the driving force of the market economy. The greater the profits, the better the needs of the consumers are supplied. For profits can only be reaped by removing discrepancies between the demands of the consumers and the previous state of productions activities. He who serves the public best, makes the highest profits. (Human Action p.809)

The idea that there are other stakeholders is delusional. There are suppliers, wage earners and customers but none of these play the role of combining the product in a manner that makes a profit. That is the role of the businessman. Suppliers and laborers simply provide their services and products to the highest bidder. If the firm fails they move on, which is different from the capitalist who may own equity in a firm or who may have loaned funds.

On another point, the idea that firms must invest in employees is faulty.

Israel Kirzner had it correct when he said:
I don't believe in defenses of profit that say we have to pay for people's know-how and skills. These items will have their own independent price on the market.
In some cases, it may make sense for a firm to teach an individual certain skills. In other cases, it may make sense for individuals to learn skills outside the firm.

If I am looking to hire a Chief Financial Officer for a firm, I am certainly going to look for someone who already understands, for example, how to read a balance sheet and knows the difference between a debit and credit.

On the other hand, if I am a restauranteur at a high-end restaurant with delicacies that most people are not going to be familiar with, I am probably going to hold a class to teach my wait staff about the delicacies so that they can explain them to customers.

In other words, there is nothing inherent in firms which implies that in all cases it makes sense for them to "invest" in employees.  Sometimes it does, some times it doesn't. And businesses must make this decision on an individual basis, not because of some proclamation from the Business Roundtable that it must be done.

"Fostering diversity and inclusion, dignity and respect..." is another absurd principle for a firm. Certainly, if a particular group is discriminated against by some businessmen, it will make sense for the businessman who does not hold such prejudice to hire such people, since there will be less bidding for them by others. Though in the current day world, it appears that competition for labor is so fierce that there is little in the way of picking up on the market some cheap discriminated labor.

The only thing firms should do as far as "respecting the environment" is not to violate the NAP by polluting the land of others who don't want their land polluted. Most popular thinking today about  "respecting the environment" falls under the heading of not understanding the economics of waste and attempting to manage waste in a profit-hating, socialist manner.

In short, the Business Roundtable should be ashamed of itself for their ignorance about the nature of profit-seeking firms in a free market setting.

But, I rush to point out that while they have made this absurd proclamation, bending to the profit-hating trends now in vogue, they have done nothing to warn firms against seeking crony gains which are not made be serving the consumer but by cozying up to government officials willing to distort the free market economy against competition with new regulations and who are also in favor of the production of products for the government that are useless for the general public. Money gained in this manner is not profit, it is filthy lucre.

Why no objections to the very prevalent filthy lucre, Business Roundtable?

Are you just crony criminal posers in front of the clueless masses?


Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.comand Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bankand most recently Foundations of Private Property Society Theory: Anarchism for the Civilized Person Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. More about Wenzel here.




4 comments:

  1. "Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect...

    Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses."

    Most of this statement here is merely corporate virtue signaling; maybe it's projection on their part since they know by now most people are pretty cynical about the workplace since everyone has been reduced to a 'human resource' and can be taken out next to the trash any time for anything. No real reason for the average person to provide outstanding customer service or much else beyond show up on time and don't do anything stupid. The MBA bean counters seized control of corporate America a long time ago and everything is reduced to a $$$ sign.

    Businesses are not a charity and there is nothing inherently wrong with profit; we all work for profit. However, it would be nice if businesses truly re-evaluated whether they can still make a reasonable profit and provide some stability to society and a community.

    It amazes me that a number of corporate CEO's are on other corporate board and for people so smart they can't grasp that if the citizens here don't have that a great of an income, those $50k vehicles and $300k or more card board shacks are not going to buy themselves. And it would seem the mortgage industry should have tanked by now given the paucity of incomes.

    None of these CEO's have lives or property I would give a damn about defending if it came down to it.

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    1. The Business Roundtable statement is virtue-signaling, SJW junk. Where we disagree has to do with your statement that everyone...can be “taken out next to the trash” (i. e. fired at will). This leaves out the fact that the employee can leave the corporation, presumably for “greener pastures” anytime he or she wants. In the end, employees represent a product of sorts. The higher the human capital of a given employee, the more valuable they are to a given corporation. And the less likely they will be “taken out next to the trash.”

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    2. I'm not trying to be paid in loyalty or respect, the paycheck suits fine. Up to the employee to be a price seeker and always stay competitive. Sucks, but that's life in the marketplace.

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  2. Presumably if this results in lower profitability relative to less woke corporations then we'll see disappointed shareholders dumping these stocks, possibly depressing their prices (which, by the way, would hurt those employee pension plans that are investors in public stocks).

    It will also be interesting to see if some enterprising trial lawyers produce this statement in court as evidence of breach of (the currently recognized) fiduciary duty to shareholders.

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