Showing posts with label James Dimon. Show all posts
Showing posts with label James Dimon. Show all posts

Tuesday, August 20, 2019

Why Shareholder Value Never Actually Mattered. William Michael Cunningham, Creative Investment Research

The Business Round Table (BRT), a group of the largest corporations in America, declared recently that "profits for shareholder are no longer the only purpose of a corporation." This profits-first strategy, known as “shareholder wealth maximization,” has been the guiding philosophy for much of American business since 1619.

It was always the wrong goal. Some, mainly those excluded from fully participating in the economy, knew this to be the case. Martin Luther King, in a sermon given on November 4, 1956, warned that "material means have outdistanced spiritual ends, that mentality has outdistanced morality, and that civilization has outdistanced culture." More specifically, King, in a September 1, 1958 essay, wrote that “We are prone to judge success by the index of our salaries or the size of our automobiles, rather than by the quality of our service and relationship to humanity.”

Even Robert F. Kennedy, the wealthy scion of an influential family, declared, at the University of Kansas on March 18, 1968, that for:

"too long, we..have surrendered personal excellence and community values in the mere accumulation of material things...Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them.  It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts..the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play.  It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile."

As shown, Kennedy's comments had their origin in the Black Community.

Both men knew "maximizing only shareholder value" was never a reasonable goal. It was an excuse, and, by 1968, a response to increasing ethnic and gender diversity. It was an effort to keep "the other" out. It worked: "income inequality in the United States increased significantly since the 1970s."

More rational corporate goals, like "delivering value to customers, investing in employees, dealing fairly and honestly with suppliers, supporting communities and protecting the environment" may now become the focus of the competing, sometimes conflicting ambitions that corporate management will pursue. This requires maximizing social and financial return. We have shown, over 30 years, that it can be done. It is not, however, easy.

Given the extreme social volatility the US has experienced in the years following the financial crisis of 2008, (a crisis created, in part, by current BRT members), income inequality, and the hatred and instability it generates, will soon reach the point where they threaten the entire US economic system.

We can only hope BRT's change of heart is genuine, and that it is not too little, too late.

Time will tell.

Thursday, February 12, 2009

Summary of House Committee on Financial Services Hearing (Tian Weng, Debby Su)

1. Topic: TARP Accountability: Use of Federal Assistance by the First TARP Recipients
2. Date and Time: Feb 11, 2009, 10:00 am – 1:00 pm
3. Place: 2128 and 2172 Rayburn House Office Building
4. Chairman: Mr. Barney Frank, Chairman of the House Financial Services Committee
5. Witness List:
Mr. Lloyd C. Blankfein, Chief Executive Officer and Chairman, Goldman Sachs and Co.
Mr. James Dimon, Chief Executive Officer, JPMorgan Chase and Co.
Mr. Robert P. Kelly, Chairman and Chief Executive Officer, Bank of New York Mellon
Mr. Ken Lewis, Chairman and Chief Executive Officer, Bank of America
Mr. Ronald E. Logue, Chairman and Chief Executive Officer, State Street Corporation
Mr. John J. Mack, Chairman and Chief Executive Officer, Morgan Stanley
Mr. Vikram Pandit, Chief Executive Officer, Citigroup
Mr. John Stumpf, President and Chief Executive Officer, Wells Fargo and Co.

Eight bank CEOs from companies receiving the first TARP funds testified before the House Financial Services Committee. All testified that they distributed fund received in a manner that they thought would increase financial market liquidity, expand credits and lending in either residential or commercial loan markets, and generate enough revenues to allow them to return money to investors and US tax payers. All cited figures to confirm that they were distributing funds to the places they intended to. They denied TARP was used for dividend distributions or employee compensation.

Mr. Pandit, of Citigroup, pledged to cut his salary to $1 a year until the bank returned to profitability and took personal responsibility for the “mistake” of even thinking about buying a new $50 million private jet after getting government financing.

Mr. Lloyd C. Blankfein, Goldman’s chief executive, acknowledged “public anger at our industry.”

Mr. Lewis, CEO of Bank of America, who occasionally grew testy and red-faced at questions about lending, told lawmakers that his bank had “every incentive to lend.”

In the end, they all agreed to greater accountability on how they are spending money from the $700 billion fund.

Lawmakers struck hard on the lending issues, describing situations in which their constituents could not get loans and situations in which the rates for certain types of loans, such as credit card business and car loans, increased after the injection of the government funds intends to solve the liquidity problem. Several asked the bankers why there seemed to be a disconnect between their lending figures and the hundreds of ordinary people who continue to line up for loans. Some criticized bailout recipients like Bank of America and Merrill Lynch, who have continued to lobby--through trade associations--to block consumer protection measures, predatory lending regulations, and the Employee Free Choice Act, a measure that would ensure workers the freedom to form a union for a voice for improved wages, benefits, and working conditions.

Beyond the Troubled Asset Relief Program (TARP), some bailout recipients--who have failed to provide affordable healthcare or a living wage to their employees--are dipping into federal coffers through the backdoor, forcing thousands of employees to seek healthcare through taxpayer funded programs like Medicaid and forcing employees to apply for food stamps.

One lawmaker even suggested that banks paid fees to themselves for receiving TARP funds. Mr. Pandit denied such fee transaction. Another lawmaker pointed to the fact that top management at Bank of America received huge bonuses for the Merrill Lynch merger, when they were, in fact, actually responsible for losses that resulted from or were necessitated by the merger.

Tian Weng, Debby Su
George Washington University
Washington, DC