When I read last month that James Rowse–the chairman of Veryfine Products Inc., the juice bottling concern, had died, I thought of how this man’s life embodied a much more enlightened era in the history of American business.
When Kraft purchased Rowse’s company in early 2004, Rowse set aside $15 million in proceeds that he then distributed to his company’s workers. He ensured that all of Veryfine’s 400 employees would keep their jobs, and that those with a minimum of 20 years experience would receive an extra year’s pay.
In a recent email, Scott Klinger, co-director of the Responsible Wealth project at United for a Fair Economy in Boston, cited other examples of enlightened business leadership. One of his favorites, he said, is Bob Kierlin, founder and recently retired CEO of Fastenal, an Ohio-based public company.
As Klinger wrote, Kierlin took justifiable pride in the fact “that many other employees made more than he did, but he paid employees’ stock options personally out of his founder’s stock. Kierlin also eschewed the palatial lifestyle…preferring to drive a few hours to visit customers, stay at budget motels, and, much to the chagrin of many colleagues, share a room with associates.”
Rowse and Kierlin are exceptions to the rule. We live in times when morality is disdained in corporate boardrooms. The social compact that rested on the idea that honest labor deserves a living wage has all but disappeared.
The Bush Administration and Republicans in Congress have formed an alliance with rapacious CEOs to foster an anything-goes atmosphere. Labor is devalued, fair play is dishonored and greed and corporate ethics have become synonymous. (Is it any surprise that in the 2004 elections, the largest corporate PACs favored Republicans over Democrats by a ten to one margin?)
It was recently disclosed that pharmaceutical giant Merck established a golden parachute for its 230 senior executives so if the company is bought, managers would be able to walk away with three years in salary and bonuses. And three years after the Enron debacle, business groups are fighting a pitched battle with state employee pension funds against reforms which would make future corporate looting of employee pensions much more difficult.
Part of “the problem,” as Klinger sees it, “is the stories that corporate executives tell themselves about their worth, relative to the rest of their colleagues. The ‘star culture’ has invaded many large company cultures. Executives are convinced that their work is what creates shareholder value and other employees are commodities to be acquired at the lowest possible cost.”
Klinger and Responsible Wealth co-director Mike Lapham “lay responsibility for the growing divide between workers and executives largely at the feet of Congress.” Congress has refused “to require stock options to be counted as expenses in corporate earnings reports.” It has “allowed lavish executive pay in the hundreds of millions per CEO to be deducted as a ‘reasonable’ business expense from companies’ taxes.”
Meanwhile, Congress hasn’t even held a vote to raise the minimum wage–stuck at a mere $5.15 per hour since 1996. “Since that time, they’ve raised their own salaries seven times and doubled the pay of the President,” Klinger pointed out.
Moreover, between 1970 and 2001, the top 100 executives’ median income increased from 35 times the average worker’s salary to 500 times what the average worker makes. In 2003, Bank of America cut 5,000 jobs from its payroll, while its CEO Kenneth Lewis took home $37.9 million.
Things are likely to get worse before they improve. The Bush Administration recently floated a proposal that would cut taxes on interest, dividends and capital gains and give additional tax breaks to big business. At the same time, the White House wants to eliminate federal tax deductions of state and local income taxes and to forbid businesses to deduct the value of health coverage from their tax bills. (Enacting the last change will be “the quickest way to create millions of uninsured people,” John Irons, a tax and budget analyst at the Center for American Progress, says.)
Changing the culture of greed and re-establishing a social compact that values work will require serious changes in key policy areas. First, Klinger says, “We need different people on corporate boards. The people responsible for overseeing executive pay are the very same people who themselves are receiving excessive pay.”
Second, the SEC should follow through on what it “proposed a year ago, opening up the corporate director election process by allowing shareholders to put forth competitive slates.” The idea became “the most commented-on proposal in the history of the SEC, receiving more than 10,000 public comments, over 90 percent of which were in favor. But, “the SEC has yet to issue a final rule because of behind-the-scenes belly-aching from corporate lobbyists,” who are threatening to sue the Commission. (“The Soviet Union,” Klinger adds, “used to put up one candidate for each elected office and it was thoroughly excoriated for it. Today’s corporate elections are no different, and yet we are told this is good governance.”)
Third, “the public should no longer subsidize unlimited executive pay.” Our laws state that corporations are allowed to “deduct ‘reasonable business expenses,’ so let’s define what that means,” says Klinger. “The Income Equity Act, introduced in the last several sessions of Congress, would allow corporations to deduct for tax purposes corporate pay up to 25 times the pay of the lowest-paid workers. Corporations could continue to pay whatever they wished, but shareholders would have to pay the full cost of huge pay packages.”
It’s also important, Lapham argues, to understand–and change–the fact that “we live in a winner-takes all society, where individual achievement is honored and concepts like teamwork and community are generally ignored. There is a myth in our society that certain individuals are smarter, more motivated, get up earlier, work harder, take risks…and thereby create wealth all by themselves…We often come across successful individuals saying with a straight face ‘I never got any help from anybody.'”
Such an idea, he says, is absurd. “This attitude discounts the role of society in helping create wealth.” It discounts “the role of public education” and “public infrastructure – roads, bridges, airports, etc…What about the role of government in maintaining a legal system and a system of contracts that makes business possible?” If America can form a different answer to the wealth-creation question, it “would lead to radical changes in pay structure, tax policy and health care policy.”
It would also go a long way to reclaiming the ideals of hard work and fair play that James Rowse fought to make into reality.