I mentioned last year a story about how former GE CEO Jeff Immelt not only flew around the world in a private plane, but had an another empty private plane follow him around just in case something happened to his main plane. This was all paid for with shareholder funds at a time in which GE was underperforming.
This is the type of corporate misbehavior that’s been fueling animus against capitalism by the youth. Another example might be the case of Tronc chairman Michael Ferro. Tronc owns the Chicago Tribune, LA Times, etc. Tronc instituted major newsroom cuts at the LA Times, then had the paper sign a $5 million consulting contract with Ferro’s firm. In effect, the LAT appears to have fired reporters in order to cut a huge check to the firm’s chairman.
However, in the last year I’ve noticed a major change in messaging by many large corporations. Apparently stunned by Trump’s presidential win, and wishing to avoid attracting his ire, they are taking great pains to speak loudly about their commitment to doing business in America and benefitting American workers.
For example, in the wake of the tax bill, many corporations like AT&T and Comcast announced they would be using their windfall to pay bonuses, give raises, set a $15 minimum wage for their employees, and/or hire more people. I believe somewhere around 50 major corporations have made these kinds of announcements.
Now, it’s not clear how substantial these are. Wal-Mart announced it was raising its starting wage and giving out some bonuses. It did this the same day it closed 63 Sam’s Club stores. Apple also made a splash with a major announcement that it would be repatriating its overseas cash pile and making many domestic investments. However, other than the repatriation and resulting $38 billion tax bill, it’s not clear how much of this is actually new vs. things they already planned to do. For example, they talk about 20,000 new jobs, but it’s not clear whether this is net hiring or merely gross hiring.
Regardless, this concern for, at a minimum, the optics of how they are conducting their business is a positive development. To the extent that there’s substance here, that’s great too. Let’s hope abusive management and executive self-enrichment at shareholder expense also start falling off.
Cover photo by Mike Kalasnik from Fort Mill, USA – CC BY-SA 2.0
Count me among the cynics. This is 70’s Wharton School stuff, recycled.
If repatriated cash is used for the purpose of buying back shares on the open market, it is often touted as “returning money to shareholders”, which it is not…dividends are returns to shareholders.
Share repurchases in large amounts have the effect of increasing earnings per share by decreasing the number of shares outstanding, whether or not total earnings actually increase. Generally this causes a rise in stock price. In many cases, this triggers executive “performance” bonuses, whether or not the corporation actually makes more money. Then some of the repurchased shares are given out in payment of those “performance” awards.
So the effect is that top management uses shareholder money to buy shares for themselves. This is how CEOs like Immelt retire with a net worth in the hundreds of millions after overseeing the long-term decline of their employer.
“Repatriation” of foreign profits could have happened under Obama but he insisted on keeping the tax on foreign profits at 55% of which the US government would get the lion’s share of 35%. Of course, “repatriation” is a misnomer since the money was never here in the first place, and thus, it is not being brought back home. If we used this type of misleading terminology, then DACA was repatriating youth Mexicans — that would have made more sense since the DACA kids were here. Anyhow, it’s a BS name game we use to avoid discussing facts and reality. The only reason GOP do not want DACA here is that the GOP has treated Mexicans etc like crap and the GOP knows that the DACA kids will vote Dem. Of course, the GOP could have listened to W and treated people decently.
No one wants to talk about the change from a worldwide tax system to a territorial tax system. Actually, I did mention this to a high level old Clintonite, but my phone connection was so bad, I could not tell what he said. Some with that one exception, other than Steve Mnuchin, I have yet to encounter a single person who will discuss the change from a worldwide to a territorial tax system in a rational manner.
It’s vampire squids all the way down. 🙂
Yes. Any time you read or hear about “unlocking shareholder value”, mentally add the implied “for my benefit” in regard to whomever is promoting it.
Also interesting in corporate messaging was all the “woke” Super Bowl ads. Budweiser, instead of having horses fart, touted their efforts to bring water to hurricane victims. Even the woefully misguided Dodge ad with MLK’s speech was clearly some effort to show that We Love Everybody And We’re All In This Together. Of course, like Wal Mart announcing bonuses on one hand and chopping stores with the other, it’s a little hard to take “woke” corporations seriously when you know they’re still cutting checks — individually or as a company — to the likes of Trumpian super PACs and ALEC.