By David Grace (www.DavidGraceAuthor.com)

The justification for a corporation doing something harmful with the excuse that “It will increase our profits” or “It’s good for America for us to increase our profits” is a Big Lie.

There are at least two kinds of Big Lies:

  • The Outrageously False Statement, and
  • The Myth Everyone Believes To Be True But Isn’t

The Outrageous Big Lie

There are lots of examples of an outrageous Big Lie, but the one I think of first is Hitler’s:

“We Germans lost WW I because the Jews stabbed us in the back.”

This kind of Big Lie starts out 180 degrees off from the truth, is totally invented, and is central to the liar achieving his/her goals.

The Pervasive, Systemic Big Lie

A second type of Big Lie is of “The Emperor’s New Clothes” variety.

It’s a cultural, social or psychological myth that gets repeated so often for so long that people just believe it without even thinking about it.

It a pervasive Big Lie that contaminates an entire society.

Some of these kinds of Big Lies are racial:

  • “All black people have rhythm.”
  • “Jews are stingy.”
  • “Mexicans are lazy.”

Some are social:

  • “Poor people are poor because they’re lazy and they don’t want to work.”

Some are economic:

  • “Rich people getting richer is good for everyone.”
  • “Increasing corporate profits is always a good thing.”

I’m Not A Communist Nor A Bleeding-Heart Liberal

“Wait,” you say, “are you actually saying that higher profits aren’t automatically a good thing? What are you, some kind of a communist?”

I’m not a communist, socialist, or bleeding heart liberal. I’m a pragmatist and a capitalist.

Higher Profits Don’t Automatically Justify The Harm That Getting Them Causes

The knee-jerk assumption that higher profits are always a good thing is absolutely false.

Higher profits aren’t good when the benefits gained from those higher profits are outweighed by the harm the company does to get them.

It’s Not About Making Any Profit

Now, let’s be clear. I’m not talking about the value of making a profit instead of a loss. I’m not talking about operating in the red instead of in the black.

There are times when increased profits are needed for an important, specific, business purpose.

A company may need capital to build a new factory, develop an expensive new product, expand into a new market.

Usually it can sell additional shares or borrow to raise that money, but there are times when the company may need increased profits to make that happen. For publicly-held corporations though, that’s relatively rare.

I’m talking about what an already profitable company does to become even richer.

  • Carrier is not sending those Indiana jobs to Mexico because it’s losing money and can’t compete.
  • Carrier is not sending those Indiana jobs to Mexico because it is in danger of going out of business unless it cuts costs and lowers prices.
  • Carrier is not sending those Indiana jobs to Mexico because it needs to decrease the retail price of its products or because it desperately needs investment capital to develop a new product line.
  • Carrier is sending those Indiana jobs to Mexico only because doing so will make the company even more money than it’s earning today.

What’s The Benefit From An Increase In Profits?

Excepting a targeted capital event or a company struggling to move from the red into the black, what good comes from an increase in profits?

Raising The Stock Price

More profits will generally raise the stock price. The thing is, unless the company is in the midst of a public offering the company itself doesn’t get a dime from an increase in its stock price.

Outside of a public offering, all the sales of the company’s stock are by private owners between themselves and not one penny of that money goes into the company’s bank account.

“But,” you say, “the company’s shareholders will benefit because if the price goes up they can sell their shares at a profit.”

Not so fast. Almost all of the owners of the company’s stock purchased that stock from private owners, not from the company. Whether they make or lose money gambling on the company’s stock is almost entirely irrelevant to the company itself.

Yes, when the company has a public offering people buy the shares because they know that they can resell them on the public market. And their buyers also know they can re-resell them on the public market. And their buyers know that they can re-re-resell them on the public market.

But at some point, ten or fifty or a hundred transactions down the road the connection between the hundredth buyer and the original public-offering buyer has disappeared.

The guy who bought the shares from the company one-hundred transactions ago wasn’t concerned with whether or not a hundred transactions in the future the stock price would go up or down.

The sale price of the trades today, two, three, five years after the company’s public offering, is far too remote to have had any effect on the price the company received way back when.

In a very real sense, the sale price of the shares today is irrelevant to the people who actually put any money into the company’s pocket all those years ago. And most of the people who are affected by today’s share price are essentially gamblers who haven’t contributed one penny to the company’s coffers.

While that’s not a reason to wish them harm, it’s also is not a reason to care vary much, if at all, that they get any richer betting on the company’s stock.

Insider Benefits

In addition to the market gamblers the other group that will benefit from an increase in the price of a public company’s stock is company executives who’ve received stock options.

Executive Options

Essentially, the company grants CEO John Smith an option to buy a million shares at today’s price of $50/share, exercisable in nine months. If nine months from now the stock is trading at $55/share Mr. Smith borrows $50M from Big Bank and exercises the option. One minute after getting the stock Mr. Smith sells the stock for $55M, pays back the bank’s one-day $50M loan, and puts $5M into his pocket.

The company gets the $50M, the same amount it would have received had the profits not gone up at all. Mr. Smith puts five million dollars into his pocket, and the rest of the shareholders see their holdings diluted by the issuance of an additional million shares.

The principal results from the additional profits were:

  • The dilution of the holdings of the existing shareholders by one-million new shares
  • The enrichment of the gamblers who bet on the stock going up and who never put a penny into the company’s coffers.
  • The $5M enrichment of the CEO over and above his multi-million-dollar salary

Yes, the increase in profits could have been used to pay dividends, but most profits are not distributed to shareholders.

Dividends for S&P 500 companies vary year-to-year and industry-to-industry but are generally in the range of 30% to 35% of profits. So, if profits went up $100M this year over last year, that increase would likely only result in about $33M actually being distributed to the shareholders.

The truth is that a great deal of corporate profits are just put in the bank. It’s estimated that U.S. corporations have moved approximately two and one-half TRILLION dollars into overseas bank accounts in order to avoid paying U.S. corporate taxes.

What’s the net good that’s been achieved from the increase in profits by publicly-held U.S. corporations?

  • A relatively small amount is paid in dividends.
  • A big pile of money given to wealthy, insider executives
  • Profits for Wall Street gamblers who never gave a dime to the company itself
  • Billions stuffed into bank accounts.

The Downside — The Harm Companies Do In The Name Of More Profits

When Carrier decided to cut two thousand U.S. jobs and move production to Mexico the justification was that it would increase corporate profits.

In fact, every time any company decides to cut good-paying U.S. jobs and move production abroad the justification is always that it will increase profits.

When Frontier airlines fired all its baggage handlers its excuse was that it could make higher profits by outsourcing the jobs.

When a company lobbies against safety regulations or pollution controls the justification is always that stopping the regulations will protect profits.

When the airline industry or the trucking industry lobby against rules limiting the amount of hours a pilot or driver can work without being allowed to sleep the argument is always that stopping the new rules will increase profits.

When the mine owners fought the child labor laws the argument was that eliminating child labor would decrease profits.

Everything that costs a company any money will, of course, decrease profits.

Lots Of Good Things Decrease Profits

  • Higher wages decrease profits.
  • Higher quality products decrease profits.
  • Cleaner manufacturing processes decrease profits.
  • Building safer products decreases profits.
  • Charging lower prices decreases profits.

More For The Company = Less For Everyone Else

Almost anything and everything that makes life better for employees, vendors, customers and the public decreases profits.

Conversely, almost everything that makes life worse for employees, vendors, customers and the public increases profits.

Executives talk about higher profits as always being inherently a good thing without the slightest consideration of the negative effects they have on employees, vendors, customers and the public.

Executives begin and end with the assumption that none of those groups matter.

It’s like someone saying, “Doing this is good” when they’re really saying, “Doing this is good for me” with the assumption that no one else’s welfare even counts.

Why Claiming That More Profits Are Good Is A Big Lie

The notion that higher profits are always inherently a good thing, that anything that reduces profits is always a bad thing, is a Big Lie because it ignores the questions of who the additional profits are good for, and who they’re bad for.

It’s a Big Lie because it’s founded on the premise that the only people who count in the “More Profits Are Good” equation are the executives and the Wall Street gamblers who benefit from them, and that the damage that “More Profits At Any Cost” does to the employees, the vendors, the customers and the public is totally irrelevant.

The apologists for More Profits never say:

“We want to make our operations more efficient so that we can pay our employees more money.”

They never say:

“We want to make our operations more efficient so that we can lower prices.”

They never say:

“We want to make our operations more efficient so that we can afford to keep our company in the U.S. and continue to pay good, middle-class wages.”

They never say:

“We want to make our operations more efficient so that we can improve the quality of our products without raising the price.”

No, what they say is:

“We want to make our operations more efficient so that we can make more money, period, just to have it, just to put it in the bank, just to raise the price of our stock so that everybody who’s betting on that stock to make a quick buck can get a lot richer.”

The Benefits From Lower Profits

There are important good things that come from not increasing profits:

  • Better products,
  • Safer products,
  • Lower-priced products,
  • Less polluting production,
  • Higher middle-class incomes,
  • More living-wage jobs.

It’s easy to understand the value of better, safer, less polluting, lower-priced products made by employees who are paid enough to have a decent middle-class life.

Those products are good for the employees who build them, good for the customers who buy them, and good for the society where they are made.

That’s the foundation that capitalism is built on: more and better products at lower prices.

The Heart Of The Problem — More For The Sake Of More

Here’s the main element of the “More profits are always good” Big Lie — The idea that more just for the sake of having more is good.

That’s the justification for the guy who has five cars buying number six, the guy with four houses buying number five, the guy with twenty watches buying number twenty-one.

More for the sake of having more is not a virtue. Getting more for the sake of having more is not a valid justification for anything.

There is no justification for hurting your employees, your customers, your vendors or your society only so that you can go from having $100M in the bank to having $110M in the bank.

In order to justify what you’re doing to get that extra $10M you need to be able to explain how that extra $10M is going to make your life materially better.

More stuff just for the sake of having more stuff is not a good thing. It’s a bad thing.

There’s a word for it. The word is “Greed” and it’s a vice, not a virtue.

The Questions Not Being Asked

What is the important benefit that Carrier’s getting from this extra money that outweighs the shattered lives of its workers, the damage to the community’s economy and the damage to the American middle class?

This is a question that not only Carrier’s management isn’t asking. It’s a question that its management considers irrelevant if not downright subversive.

“How dare you question the concept of More? We have a fiduciary obligation to our shareholders to always, ALWAYS, get MORE.”

In Corporate America’s Mind There Is No “Enough”

If you ask those executives how much more is enough, they will tell you that there is no ENOUGH. Ever.

No matter how much money Carrier makes, it’s never going to be enough. In their minds there is no limit to more.

That idea, that there is never enough, that more for the sake of more is all that counts, is the foundation for the Big Lie that more profits are always a good thing.

You see, in the world of today’s corporate executives more for the sake of more is a First Principle.

It’s a stipulated truth. Unquestioned and unquestionable.

A living wage? Sacrificed on the altar of More.

Less polluting manufacturing? Sacrificed on the altar of More.

Better, safer, lower-priced products? Sacrificed on the altar of More.

The Emperor Has No Clothes

The next time some company justifies increasing its fees, opposing raising the minimum wage, fighting safety regulations or pollution controls, or firing its U.S. employees because doing so will increase their profits, I would ask you to consider the proposition that more for the sake of more isn’t a good reason for anything.

 By David Grace (www.DavidGraceAuthor.com)