Fat-Cats versus Alley-Cats: Why the Occupy Movement is Right

By Dr Wayne Visser

Part 2 of 13 in Wayne Visser's Age of Responsibility Blog Series for 3BL Media.

The most common explanation for the global financial crisis is to point a finger at the banks. And rightly so. But I believe we also need to shine a spotlight on the greed and irresponsibility of executives, fat-cats like Lehman Brothers’ former CEO Richard Fuld. These are the enriched 1% that suck the lifeblood out of the fleeced 99% and which the Occupy Movement is justifiably targeting. Naming and shaming is important, but we need to realise that this is a systemic cancer in our economic and financial system.

It is also not a new phenomenon, but worrying it is showing signs of getting worse, not better. In 2000, Enron was the 7th largest company in America, with revenues of $111 billion and over 20,000 staff. When the company collapsed in 2001, due to various fraudulent activities fuelled by a culture of greed, the average severance payment was $45,000, while executives received bonuses of $55 million in the company's last year. Employees lost $1.2 billion in pensions; retirees lost $2 billion, but executives cashed in $116 million in stocks.

At the end of 2007, just before the crisis went public, Lehmans’ CEO Fuld and president Joseph Gregory paid themselves stock bonuses of $35 million and $29 million respectively. At the time, Fuld lived in an enormous Greenwich mansion, over 9,000 square feet, valued at $10 million. He had four other homes and an art collection valued at $200 million. Hardly a picture of responsible restraint.

Taken on their own, these executive pay packages are outrageous enough. But the extent of creeping executive greed comes into even sharper focus when we look at trends in relative pay. In 1965, U.S. CEOs in major companies earned 24 times more than a typical worker, a ratio that grew to 35 in 1978 and to 71 in 1989. By 2000, it had hit 298, and despite falling to 143 in 2002 (after the post-Enron stock market slump), it bounced back again and has continued rising through the noughties (2000s).

The Institute for Policy Studies Executive Excess report reveals that the 2010 ratio between average worker and average CEO compensation leaped to 325-to-1, up from in 263-to-1 in 2009. Among the nation's top firms, the S&P 500, CEO pay last year averaged $10,762,304, up 27.8 percent over 2009. Average worker pay in 2010? That finished up at $33,121, up just 3.3 percent over the year before.

According to Fair Economy, the average U.S. worker's salary could pay for 10 months of health insurance, 5 months of college tuition, and buy 10 percent of an average home. On the other hand, the average Fortune 500 CEO's salary could pay for 300 years of health insurance, 200 years of college tuition and buy 34.5 new homes.

But at least these CEOs are contributing through taxes, right? Wrong. In fact, corporate tax dodging has gone so out of control that 25 major U.S. corporations last year paid their chief executives more than they paid the U.S. government in federal income taxes. Citizens for Tax Justice, as part of a study on tax avoidance among the Fortune 500, has identified 12 corporations that have paid an effective rate of negative 1.5 percent on $171 billion in profits.

It is easy to go cross-eyed or brain-fried when confronted by a barrage of numbers like that. And yet, there was one particular number that shocked me so much when I read it that it stuck in my mind. I believe I read it in Body Shop founder Anita Roddick’s wonderful and feisty book, Body and Soul. She claimed that it would take one Haitian worker producing Disney clothes and dolls 166 years to earn as much as Disney’s then president, Michael Eisner, earned in one day.

Reflecting on this, I wrote in my book Beyond Reasonable Greed: ‘rather than spreading around the wealth for the common good, it seems to us that Adam Smith’s invisible hand has a compulsive habit of feeding itself’. If decades of inaction by governments on executive pay is anything to go by, then we should not wait for our elected politicians to put restraints on the market’s invisible hands.

So that leaves us – civil society. And that is why I believe the Occupy Movement is a revolution whose time has come. But they need our support; they need our determination; they, even need our outrage. If they don’t get it, we will stand by shaking our self-righteous heads and watch as another generation of Wall Street fat-cats gets fatter at the expense of Main Street alley-cats – that’s us by the way: we, the middle class; we the people who create the real wealth of nations; we who need to say ‘enough is enough!’

About the author

Dr Wayne Visser is Founder and Director of the think-tank CSR International and consultancy Kaleidoscope Futures Ltd. He is the author of thirteen books, including The Age of Responsibility: CSR 2.0 and the New DNA of Business (2011), The World Guide to CSR (2010) and The A to Z of Corporate Social Responsibility (2010). He is the author of over 180 publications (chapters, articles, etc.) and has delivered more than 170 professional speeches on in over 50 countries in the last 20 years. In addition, Wayne is Senior Associate at the University of Cambridge Programme for Sustainability Leadership, Visiting Professor of Sustainability at Magna Carta College, Oxford, and Adjunct Professor of CSR at Warwick Business School, UK.

Is Greed Still Good?

By Dr. Wayne Visser

Quest for CSR 2.0 Series No.2

If CSR isn’t working, could it be because it pales into insignificance in the face of a much more pervasive force at work in business and society, namely greed? After all, “greed is good!” So declared the fictional character Gordon Gekko in Oliver Stone’s 1987 film, Wallstreet. “Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind.” I wonder if today, nearly 25 years and a $7 trillion global financial meltdown later, we are finally ready to lay this powerful myth to rest?

We have lived through an Age of Greed and come out the other side bruised and battered, disillusioned and angry. But are we any wiser? Ever since the first financial derivatives were traded on the Chicago Mercantile Exchange in 1972 and the casino economy really got going, it seems like ‘greed is good’ and ‘bigger is better’ became the dual mottos underpinning (at least one popular version of) the American Dream. The ‘invisible hand’ of the market went largely unquestioned, despite its self-pleasuring habit. Incentives – like Wall Street profits, traders’ bonuses and CEO pay – became perverse, leading not only to unbelievable wealth in the hands of a few, but ultimately to global financial catastrophe.

With the world still reeling from the ensuing global recession, and threatening to slip into the ‘double-dip’ doldrums, I find myself compelled to ask many difficult questions: Was this, as Lehman Brothers trader Larry McDonald suggests in his book of the same name, just ‘a colossal failure of common sense’? Was it the greed of ‘bad apples’ like Lehman’s CEO Dick Fuld, or the banks and their insatiable bonus-driven traders? Or was it the pervasive culture of greed in Wall Street as a whole? What about the greed of politicians and governments who were happy to benefit from growth-on-steroids? And what about Main Street? Wasn’t the public – we, the people – more than happy to greedily lap up those subprime loans?

All this begs the larger question: Is capitalism itself fundamentally flawed? Are we really talking about endemic greed, built into the free-market system – a system which not only allowed, but encouraged the fantasy of double-digit profit growth and an endless bull market? Will capitalism, with its short-term, cost-externalization, shareholder-value focus always tend towards greed, at the expense of people and the planet? Will the scenario of ‘overshoot and collapse’ that was computer modelled in the 1972 ‘Limits to Growth’ report (and reaffirmed in revisions 20 and 30 years later) still come to pass? Has Karl Marx been vindicated in his critique (albeit not in his solution) that, by design, capitalism causes wealth and power to accumulate in fewer and fewer hands?

Perhaps the trillion-dollar question for me is not whether capitalism per se acts like a cancer gene of greed in society, but whether there are different types of capitalism, some of which are more benign than others. To date, the world has by and large been following the Western, Anglo-Saxon model of shareholder-driven capitalism, and perhaps this is the version that is morally bankrupt and systemically flawed.

Interestingly, a 2010 Pew poll of the American ‘millennial generation’ (currently aged between 18 and 30) showed that just 43% still describe capitalism as positive, while the same percentage now describe socialism as positive. Management guru Charles Handy seems to agree. Speaking to me, he confessed:

I’ve always had my doubts about shareholder capitalism, because we keep talking about the shareholders as being owners of the business, but most of them haven’t a clue what business they’re in. They are basically punters with no particular interest in the horse that they’re backing, as long as it wins.

If we can learn one thing from the Age of Greed, it is that we have immense power to make change happen on a monumental scale, and with lightning speed. Greed has proved to be a high octane fuel in the rocket engine of globalization. But ultimately, it was an economic missile without a moral guidance system. I am under no illusions that the Age of Responsibility will vanquish greed. No doubt, the selfish gene will continue to spark our evolution. And yet, if we are successful, the Age of Responsibility will provide capitalism with that much-needed moral compass and Transformative CSR (more about that later in this series) will provide business with a mission-critical social purpose.

So what do you think, can we collectively give up our greed addiction?

Source

Welcome to this international dialogue, Quest for CSR 2.0, with Dr Wayne Visser, pioneering author, academic and social entrepreneur. The dialogue, hosted by CSRwire Talkback, is based on his groundbreaking book, The Age of Responsibility: CSR 2.0 and the New DNA of Business. For the next several weeks, Dr Visser will summarize the main points and key lessons of each chapter of his book, exploring why CSR 1.0 has failed, the 5 Ages and Stages of CSR, the 5 Principles of CSR 2.0 and how to make change happen. Readers will be invited to share their views on each posting. This exciting new series is co-published by CSRwire and CSR International.

Original link on CSRwire

The Age of Greed

By Wayne Visser

In my view, the Age of Greed began when the first financial derivatives were traded on the Chicago Mercantile Exchange in 1972 and peaked when Lehman’s collapse in 2008. It was a time when ‘greed is good’ and ‘bigger is better’ were the dual-mottos that seemed to underpin the American Dream. The invisible hand of the market went unquestioned. Incentives – like Wall Street profits and traders’ bonuses – were perverse, leading not only to unbelievable wealth in the hands of a few speculators, but ultimately to global financial catastrophe.

The word ‘greed’ – from the old English grædig – has etymological roots that relate to ‘hunger’ and ‘eagerness’. This is similar to the older word, avarice, coming from Old French and Latin (avere), meaning ‘to crave or long for’. Those are characteristics that Larry had in spades. The Greek word for greed – philargyros, literally ‘money-loving’ – also has a familiar ring in the Lehman's story. The trouble is that capitalism in general, and the American Dream in particular, has tended to interpret this as a healthy trait. Traders at Lehman Brothers didn’t believe he was being unethical, or doing anything wrong. They were playing the game – extremely well – and being rewarded handsomely.

Perhaps we would do well to revive the German root of the word for greed (habsüchtig), which means ‘to have a sickness or disease’, for greed acts like a cancer in society, an essentially healthy cell in the body, which becomes selfish and ultimately destroys its host. The enabling environment is as important as the greedy cell itself. After all, as I argued in my book, Beyond Reasonable Greed, a certain measure of selfishness is natural, but it needs to be moderated by norms, rules and cultural taboos that keep its destructive tendencies in check.

It is worth reminding ourselves what the consequences of those destructive tendencies can mean in the lives of millions of ordinary people. The financial cost of cleaning up after the global financial crisis – which ultimately gets translated into a tax burden on the public – was estimated by the IMF in August 2009 at £7.1 trillion, enough to finance a £1,779 handout for every man, woman and child on the planet. The gargantuan sum includes capital injections pumped into banks in order to prevent them from collapse, the cost of soaking up so-called toxic assets, guarantees over debt and liquidity support from central banks.

And then there is the human cost of unemployment. In January 2010, the International Labour Organisation released figures showing that global unemployment rate for 2009 was 6.6%, which translates into 212 million people, an increase of almost 34 million over the number of unemployed in 2007. In the US alone over 100,000 businesses filed for bankruptcy in 2008 and 2009. At the same time, the World Bank estimates that the financial crisis will left an additional 50 million people in extreme poverty in 2009 and some 64 million in 2010 relative to a no-crisis scenario, principally in sub-Saharan Africa and Eastern and South-Eastern Asia.

The Age of Greed was not something ‘out there’. It was not the preserve of a few rogue traders. We were all caught up in its web. It is in fact a multi-level phenomenon, incorporating executive greed, banking greed, financial market greed, corporate greed and ultimately the greed embedded in the capitalist system. These different facets of greed are each explored in turn in the sections to follow ...

---

This is an extract from Chapter 2 of The Age of Responsibility: CSR 2.0 and the New DNA of Business

For more information and ongoing updates, follow the The Age of Responsibility Blog

Copyright 2010 Wayne Visser