There is a growing consensus among my peers that the inequity of income between the infamous “top 1%” and the rest of us is creating economic conditions that are becoming progressively more dire by the day. The poor continue to get poorer and the rich continue to get richer. Sure, some feel a deep sense of self-preservation, and adopt the position of one man for himself. Can these individuals live with the reality that innocent children will starve?
There is another circumstance obliquely related to the above that is oftentimes not mentioned. It’s the current method of sustenance of large corporations in the Western World. On a fundamental level, a public company needs to maintain a certain level of earnings to satisfy its owners (the stockholders). The CEO is typically paid based on his/her success in accomplishing this task. Simultaneously, as a company grows to a certain size, allocating revenue towards capital investment becomes more and more imposing on the same earnings that these CEO’s are trying to maximize. As a result, making this investment towards capital investment becomes a risky strategy for the CEO, and only the bravest will be willing to take this critical step needed to improve the infrastructure of a large organization. These CEO’s are, by design, put in a position to focus on net earnings first, then capital growth in order earn their anticipated bonus. In other words, it’s all about the bottom line-the bottom line of the company, and indeed, the bottom line of the CEO. What are the implications of this type of mentality?
Without capital growth, operations become progressively less efficient, thereby requiring more human capital to compensate for this inefficiency. Congruently, since these same CEO’s are trying to maximize earnings, they must minimize expenses, which translates into less pay per employee. As this dynamic continues to develop and the human capital (i.e. employees) must continue to increase to offset the deficiency in capital investment, employees must get paid less and less and less. Hence the correlation between an absence of long-term investing in corporate America and the inequity in income.
I guess my question is, when will a CEO come along that will be brave enough to look beyond the bottom line and emotionally invest in the overall health of a corporation? It seems so simple. Yet the leaders remain elusive.