In the Name of Corporate Profitability, 1781 and Today

Corporate profitability is hitting record highs not seen since 1969, with margins for the S&P 500 (ex banks) exceeding 15% according to Moodys.   There’s no miraculous secret to how this is being accomplished, we’ve simply offshored every labor function that costs more than a penny an hour and laid off anything on US soil that even breathes.  For those corporate employees fortunate enough to still have a desk they can rest a picture of their kids on, salaries have stagnated to the point where “wages as a share of national income fell to 49.4 percent in the third quarter, the lowest since the government began collecting the numbers in 1948.”

But anything and everything is justified, so long as there is money to be made.  Today’s corporate managers are not Leaders of the Economy or Pillars of the Community.  In many cases, they are ruthless cost-cutters with zero regard for the country in which they do business.  Long-term strategic planning and thinking is subservient to making this quarter’s earnings per share number, no matter what. I suppose that this is why they get the big bucks – the average public company CEO is currently paid at a rate of 280 times the average worker.  You’d be able to say that this is justified because they are “serving the shareholders”, until you came to your senses and realized that the stock market is actually flat over the last decade and that, as a group, public company managers have accomplished very little.

I am of the opinion that capitalism is the best and most fair economic system known to man, but that sucking the nation dry and giving nothing back is not a good capitalist policy in the long run.  Even Henry Ford, a dyed-in-the-wool capitalist if ever there was one, understood this.  He once gave an unexpected and unasked-for raise to all employees across the Ford Motor Company.  When asked why, he responded that if he didn’t, then how could they afford to buy more cars?  It seems so obvious and yet this concept is more elusive to today’s American corporations than ever before.

Today in 1781, an act of shocking brutality and wanton disregard for human life was carried out in the name of corporate profits on a British ship en route to the New World.  I bring it up only as a very extreme example of where this type of corporate ethos has led to in the past.  It will forever be known as the Zong Massacre, let’s hear the story from Patricia Hysell of the Little Bits of History blog:

November 29, 1781: The Zong Massacre takes place. At the time, it was known as “The Zong Affair” rather than being labeled a massacre. Those who used the term “massacre” were thought to be “dangerous radicals” of the era. The Zong was a British ship owned by James Gregson. On this day, much of his “cargo” was destroyed. The Zong was carrying Africans captured to be sold as slaves.

The ship was originally Dutch and was called Zorg, but when the British captured her, she was renamed. She sailed from Liverpool and took on more slaves than she could comfortably handle. She sailed from Africa, heading for Jamaica on September 29, 1781. There was not enough food aboard and the Africans were crowded together. Due to malnutrition and overcrowding, death ran rampant aboard ship. Seven of the crew and approximately sixty of the slaves had died by this date. The trip was taking longer than expected due to bad sailing conditions.

Captain Luke Collingwood had so many sick slaves below decks that he was faced with an economic problem. If he delivered these sickly, weakened specimens and they died on shore, the company would be without funds from the sale of slaves. However, he reasoned that if the slaves were killed at sea, the insurance company would pay the jettison clause of £30 per head. The captain and crew decided to throw the sick overboard. On this day, the first 54 were sent over the rails. On the next two days, 42 and 26 more were sent to their watery graves.

There is a cost to being obsessed with cost, to fixating on profits only – no matter what must be done to obtain them.

Unfortunately, for every good corporate citizen like the Hershey Company, there are a hundred companies that are more concerned with this month’s cash flow target than the human cost of achieving it.  There is a question now about whether or not productivity gains and the ability to “remain lean” will allow Corporate America to maintain these historic levels of profitability.  I would answer that perhaps companies can keep this game going awhile longer, but at what cost to the country around them?

 

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.