Native to Australia is the Koala Bear. Not really a bear, he is a marsupial, related to kangaroos and possums. Koala’s are furry and cute. You can see them when traveling Down Under, or else at the zoo. Toy stuffed versions are also available. The Koala’s diet is pretty boring: it eats nothing but eucalyptus leaves. If you are a dog owner, you know that dog food comes in limitless varieties. You are forced to choose. You could avoid this problem by switching to a koala.
Corporations are like koalas. Just replace eucalyptus leaves with cash. For koalas, there is no substitute for eucalyptus leaves, and for corporations there is no substitute for money.
Few corporate problems cannot be solved with enough money, and nothing can save one that runs out. This is not a criticism, merely a description of how they operate as human-created economic entities. Companies who can’t pay their employees or suppliers or lenders quickly perish.
Once we have internalized this point, other corporate behaviors become less mysterious. For example, you might read an article lauding a company as “a good corporate citizen”, or admonishing it to become one. However, being a good corporate citizen is only useful to the company to the extent that it helps sales or the ability to borrow. If there is a conflict between being a good corporate citizen and acquiring money, then its an easy call.
This preoccupation with money is inherent and unchangeable. This is similar to our own obsession with eating and drinking. Humans will continue this habit, and none of us expect that to change.
Corporations can pool capital to produce abundant goods and services or complete large projects. These capabilities we would be loath to abandon. And we don’t have to. We can’t change corps’ nature to put profits first, but we can control their behavior via our elected representatives.
Some day, the sooner the better, we will implement common sense principles, guidelines and rules to alter corporate behavior to be more in line with human well-being. This will be much easier once corporate personhood has been eliminated. In the words of Neil Young “should have been done long ago.” At that time, we will be able to curtail or eliminate corporate lobbying, and disallow corporate contributions to politicians and other government decision-makers. Corporations can continue doing what they do best, but with stricter rules. Policy-making will be left to us homo sapiens.
CORPORATE DECISION-MAKING
Consider the following scenario: There are competing companies A and B. Each has a smokestack that pollutes the air causing health problems for nearby humans. Suppose Company A’s management decides to do the “right thing” and install scrubbers on their smokestack, reducing pollution. We might admire this, but it could be a bad business decision.
Company A has just increased its costs, and is forced to increase prices, giving company B competitive advantage. However virtuous the social decision by company A, that decision could lead to its demise. In a competitive environment, companies who make too many such decisions wind up in the corporate graveyard.
The solution to the pollution problem is for a third party to require both companies to install the appropriate equipment. Then we have cleaner air without giving one competitor an advantage. The third party is called “government”, and the means of requiring is called “regulation”, known in some circles pejoratively as the “R” word. This particular scenario has in fact taken place in the United States. It is part of the Clean Air Act of 1963 / 1970.
HEAD-SCRATCHING ACTIVITY
The scrubbers noted above are an example of a company taking an action with no apparent financial return. Doesn’t that contradict the money- first principal? How to explain? There are many possibilities. Here are some. Partial list.
The pressure within a company to make money doesn’t mean it is impossible for executives to err. We admire the executives who made the scrubber decision, but the balance sheet is pitiless. A morally righteous action could be a business mistake. First example.
Second are bad marketing decisions. There was the intention of making money, but it just didn’t work out.
At the Dollar Store you will see both familiar and unfamiliar products from well-known makers. The familiar are usually damaged goods which can’t be sold at regular outlets. More interesting are the marketing errors. Perfectly good products that consumers never warmed up to. They are remaindered to the Dollar Store or similar retailers. Big companies, especially those selling food and other high-volume consumer products, are always experimenting with new lines. Some succeed, some don’t.
Third is PR. Donations to charity, for example, are made publicly, so all can observe the company’s virtues. Note that unless it makes an extremely unlikely major accounting error, charitable contributions will not cause the company any financial damage.
Fourth is when companies observe trends in opinions among potential customers. “Going green” is popular these days, so why not go green yourself, or at least pretend to.
If companies believe that particular corporate actions or statements, independent of their products, could cause customers to back away, they might decide to change the behavior in question.
Finally there is preemptive action taken when regulation is judged imminent. If a corporation or industry believes it cannot avoid regulatory constraints, that is, all its lobbying efforts to avoid them have failed, then it may ask congress to adopt a particular set of regulations, hoping to prevent stricter ones from being implemented later.
One could grow tired hearing of corporate lust for money. Sure they like money. just like all the rest of us. Most of us worry about money all the time, and never feel like we have enough. Aren’t they just the same as us?
Well, in some ways, yes, but with one big difference. If you were to take a piece of paper, and write down the things you would NOT do for money, you would produce a long list. Were a large corporation to be asked the same question in an honest moment, it would return a blank sheet.
This protracted discussion of corps and money has a goal: to adjust our thinking and enable us to answer the question: “Why is the company behaving as it does?”
So instead of pleading “How could they possibly do that?” while assuming they are some uniquely evil entity, or an outlier in the corporate world, calmly ask yourself “How does this activity result in profit?”, or in other words, follow the money. If you approach the question in this manner, you will get the right answer every time.
Money is indeed the decider for these non-fuzzy versions of Koala Bears.