While we are guided by our beliefs, please do not let time’s pressure hasten our appropriate actions. Let us act based on knowledge (or beliefs verified with truths). Do not take actions based on beliefs alone because that have led us to conflicts and future problems.
The link to many issues we face today relate to how we view “companies” that started with a history of corruption like the 17th–19th century British East India Company and Dutch East India Company (or VOC). Companies have been risk-sharing entities for investors who focus on higher profits using continuous improvement methods (i.e. innovations). Even before we treated “companies” as legal entities, ancient civilizations had monopoly practices for several thousands of years where the “victims” have been the general public. In the USA, Rockefeller’s Standard Oil Company was broken up 100 years ago. Today, OPEC (as an oligopoly) has been transferring trillions of dollars of wealth to the (mostly Muslim) oil producing nations, and Bill Gates’ Microsoft created the world’s wealthiest person (and now a Foundation that is the largest shareholder of ExxonMobil) for decades. There have not been sufficient considerations for anything not related to generating higher profit which is the difference between sales revenue offset by expenses such as labor, material, and taxes. Higher profit can be achieved by a combination of higher revenues and/or lower expenses.
To generate higher revenues, we sell products supported by advertisement and marketing. For example, Marlboro Man and Virginia Slims encouraged cigarette smoking that we have learned over the last 30 years could be harmful to our health. The Chinese are still smoking 2.3 trillion cigarettes a year, or 8 times that of the USA on a per capita basis (1800/year/person, or 5/day/person). It is important that we organize efforts to fight intentional unethical practices while respecting regional differences. Instead of confronting the Chinese by imposing ill-defined human rights practices, we could help the Chinese save many more lives by sharing our experience on the future health care burden from smoking.
Let’s address the expenses by their major components: Labor, Material, and Taxes.
To reduce labor expenses, we have squeezed the US middle class with alternatives such as globalization which started with manufacturing (and continuing with services today). The top 1% of Americans has not been affected because 1) they benefit from the resultant higher profits, and 2) the CEOs and a few other executives have not been squeezed. Let us illustrate with a public company that trades at 10 time Price/Earnings ratio. The company can transfer an operation (say from USA to China) to release 100 “middle class” US employees at a salary of $40,000 per year and hire 300 Chinese employees at $5,000 per year. This would save $2.5 million per year for the company, but the CEO gets $25 million credit towards his/her bonus (calculated from $2.5 million per year times the P/E ratio of 10). The worst part of this scheme is the fact that the CEOs walk away with big severance packages if anything goes wrong. We know that Mr. Akerson left General Motors and the new CEO Ms. Barra is addressing the faulty GM products that have killed customers during Mr. Akerson’s (and his predecessors’) tenure(s). Usually the beginning of the change of command carries continuous improvement or innovative ideas, until the change of command is no longer new, when the focus turns to the big severance package(s).
Under normal circumstances, there is not much savings on material expenses, especially if we focus on comparable quality of materials. Often the savings relate to logistics expenses like transportation and customs expenses. However, the assumption of comparable quality of materials cannot be taken for granted, as there have been false claims to quality (e.g. Chinese baby milk with toxic melamine).
To reduce taxes, there is an army of experts to address a wide variety of tax issues especially for globalized businesses. This is partly why the manufacturing economy has shifted to the services economy – because logistics, financial reporting, treasury, taxes are all services to support globalization.
Moral Innovators seek knowledge of where we are in the world. We do the rights things to make the world a better place. The right thing to do, in this context, is to know this process, and reward appropriate value add contributors. Should CEOs get credit for higher profits when they are not held responsible for the delivery of higher profits? Should governments be responsible for the “victims” of achieving higher profits driven by the CEO? Should governments subsidize failing companies (e.g. GM, Chrysler, Citibank, Carlyle, etc.) when the CEOs continue to receive incentives in the form of bonuses and severance packages? Can we count on our faith (e.g. US Christians) to deliver the appropriate moral foundation to support doing the right thing?
This process partially explains why the wealth gap in the USA has widened to support the super-wealthy 1% while the middle-class (the 100 jobs eliminated in this illustration) has been squeezed.