Corporate Greed

Corporate greed is a phrase we all know, hear, and possibly even use. It seems as though, at every opportunity to choose between the public good and obscene profitability, corporations choose the latter.

But don’t blame the corporations, or their management teams; it really couldn’t be any other way. Let’s review history to clarify.

There was a time when our American forefathers in Europe had only two choices in life, they could either be born to a rich landowner, or they could spend their lives in utter poverty. The landowners held the majority of the wealth and there was really no legal manner for obtaining upward economic mobility. This began to change with the industrial revolution, but not in a major way. After all, building a factory required lots of upfront capital and only the landowners could really pursue such endeavors.

Enter the corporation. A new idea whereby a great many people could pool their paltry resources into a sizable lump sum and “incorporate”. In this way, they could jointly own a well-capitalized legal entity, share the risks and benefits of commercial enterprise, and compete with wealthy individuals to exploit new economic opportunities. Upward mobility at last!

A whole set of laws were written to describe how corporations are formed and managed. Those laws were (and still are) very clear about the purpose of a corporation. It is to maximize economic return to the shareholders who pooled their resources to create and own it. Remember, the concept of a corporation materialized solely for wealth generation.

Now, to be clear, there are times when bypassing some profit in order to benefit the public, will also increase the value of a corporation. Managers realize that a reputation as a socially responsible entity can help attract top talent while endearing a corporation to its customers. Corporate management teams constantly consider such cost-benefit trade-offs. However, in most cases, the argument for immediate, attainable profit is stronger than the argument for potential goodwill down the road. 

This is all very clear if you think about it from the perspective of the shareholders. At some point, shareholders have made a decision about what portion (if any) of their discretionary income they want to use supporting social causes, and what portion they want to invest for economic gain. For those who favor social good, a large portion may go to charities, but any funds ultimately invested in a for-profit corporation were clearly intended to realize an economic return, not to underwrite social programs. 

At the end of every day, maximizing economic returns is what shareholders (who own the entity) demand of management teams, and the managers hold a fiduciary duty to comply with ownership's wishes.

Of course corporations are greedy; accumulating wealth is why they exist.