MFRConsulting Corporate Investment, Innovation, and Job Creation Martyn Roetter, 144 Beacon Street, Boston, MA 02116; +1 617 216 1988; [email protected]

MFRConsulting

Corporate Investment, Innovation, and Job

Creation

Martyn Roetter, 144 Beacon Street, Boston, MA 02116; +1 617 216 1988; [email protected]

U.S. Corporations in the Recovery and Beyond

April 22-23, 2010

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Corporate Investment, Innovation, and Job Creation: Institutions, Motivations, and Perspectives

TWO QUOTES FROM THE EXTREMES:

“ Government Work is God's Work” - Statement inscribed in English on the Karnataka State Legislature Building, Bengaluru, India

“.. just a banker doing God's work” - Lloyd Blankfein, CEO Goldman Sachs, in interview with London Sunday Times, November 8, 2009

“Have you no sense of decency, sir, at long last? Have you left no sense of decency?" - Joseph Welch to Senator McCarthy, U.S. Senate 1954 Army-McCarthy Hearings

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Institutions, Motivations, and Perspectives

people interact with each other in two separate modes. One mode is governed by primarily social influences and the other by basic market forces

What Influences Choices of U.S. Corporate Investments - and will they change in the recovery and beyond?

Shareholder versus Stakeholder Perspective

The Globalization of Globalization

Oscar Wilde: A cynic is a man who knows the price of everything but the value of nothing

.

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Perspective: Shareholder Value (Stock Price)(note the singular)

Purely economic measures of corporate performance trump every other consideration

A corporation's purpose is defined by those who control it – even if they are not completely blind to demands placed on it by others

Management of stakeholders is only a means to maximize measures such as share price, dividends, profits

Society is served best by for-profit organizations pursuing first and foremost their economic self- interests

Key Question: Are any initiatives by corporations that will enhance their apparent economic performance (sometimes very temporarily) unacceptable because they harm other stakeholders – even if they may be legally permissible according to the current letter of the law, and if they are not

then the corporations will (should?) try to change the law to legitimize them?

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Perspective: Stakeholder Values(note the plural)

Responsibility towards all stakeholders is important as well as profitability

Success is measured by the satisfaction of all involved parties

Management of stakeholders is both an end as well as a means, and demands normative behavior in the pursuit of actions to create shareholder value

A corporation is a coalition between multiple contributors and suppliers of resources - it is more than an instrument of shareholders

Key Question: How can one ensure that innovation and entrepreneurship are not stifled by influential, currently entrenched interests that are threatened by the forces

of desirable or even necessary change?

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Perspective: Globalization

1. Throughout most of the 20th century globalization was a phenomenon driven primarily by initiatives from companies based in “developed” countries to exploit low cost labor and natural resources available in other parts of the world, so as to maximize these companies' competitiveness and profits in delivering products and services designed and sold in “developed” markets.

2. In contrast the more recent and current “globalization of globalization” involves:

(a) Recognition of the “developing” world as important markets and sources of innovation for products, services and business models in their own right

(b) Emergence of companies based in “developing” economies as global competitors, selling in “developed” as well as “developing” (both domestic and foreign) markets.

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Where Do We Stand Today?

During the 1980s and 1990s the failures (economic, moral, intellectual, institutional, political) of centrally directed planned economies (aka real socialism) became apparent, stimulating fundamental reforms (varied in both form and timing) in countries as diverse as China and India, and in regions from Eastern Europe to Africa and Latin America

In the first decade of the 21st century the limitations (economic, moral, intellectual, institutional, political) of the triumphalist “free market” ideology have become equally apparent, and tarnished the “exceptionalist” image of the U.S. as a shining “city on a hill” for others to emulate

The most fundamental challenge1 for U.S.-based corporations - and the broader U.S. polity - in the recovery and beyond is much more than purely economic, but touches a broad set of cultural and ethical choices which, if genuine change is to occur, require a realignment of values and perspectives that will (should?) affect corporations' investment priorities and the relationships between corporate executives, employees, customers, shareholders, and other stakeholders

Will the share of the financial and human resources of the U.S. absorbed by Wall Street continue to be disproportionately (and unproductively) large? Will the potentially mutually reinforcing roles of Government and the private sector be acknowledged and acted upon, or frustrated by a sterile and selfish ideology?

1. To avoid or at least mitigate future financially-driven meltdowns and “bubbles” within the next decade and stem and reverse the further erosion of U.S. competitiveness

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Restoring the Balance

To fix the economic imbalance on a lasting basis the power structure must be rebalanced:

Absence of or bad regulation, and/or regulatory/legislative capture are core parts of the problem - effective regulation alone is insufficient, but without it there can be no solution

Currently there are strong incentives or rewards for making business choices which either create no value or cause grievous harm to others, while penalties for failure or even illegal behavior are relatively trivial.

Some key questions for the Tea Party (see Alice in Wonderland) and others:

Should/can very powerful companies be trusted to treat customers and others fairly and reasonably if there is no independent supervision of their behavior, and enormous rewards for their leaders whatever they do, while the major consequences of their failures are borne by others?

Should our health care operate so that: (a) Many (most?) people run the risk of bankruptcy from unexpected health problems or accidents if they or a family member loses a job (or even if they have one), and (b) Significant numbers of the population without access to timely preventive or affordable health care constitute a pool of potentially contagious contacts to endanger all of us? Will government bureaucrats and politicians act in the public interest if their financial futures and positions depend on companies affected by the regulations they administer and the laws they enact? Oscar Wilde: “I can resist everything except temptation”

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people interact with each other in two separate modes. One mode is governed by primarily social influences and the other by basic market forcesAPPENDIX: A Few Statistics for Thought

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FINANCIAL SECTOR PROFITS AS SHARE OF U.S. BUSINESS PROFITS

45%

35%

25%

15%

5%

200%

160%

120% 80% 40%

PAY PER FINANCIAL WORKER AS % AVERAGE COMPENSATION

PROFITS OF FINANCIAL SECTORR AS % TOTAL BUSINESS PROFITS45%

35%

25%

15%

5%

200%

160%

120%

80%

40%

Source: Economist, February 27th, 2010

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Economist Special Report: America's Economy, April 3rd, 2010 Issue

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Economist Special Report: America's Economy, April 3rd, 2010 Issue

Documents

MFRConsulting Corporate Investment, Innovation, and Job Creation Martyn Roetter, 144 Beacon Street, Boston, MA 02116; +1 617 216 1988; [email protected]