Excerpt:
The Ben & Jerry’s story is but a small cautionary tale about the still-growing and already far-reaching field of “philanthrocapitalism.” This is the term that author Michael Edwards uses in his new book, Small Change: Why Business Won’t Save the World, to describe a wide range of activities. It includes Silicon Valley CEOs using “venture philanthropy” to fund new, business-minded nonprofits; stock market traders developing socially weighted investment funds; bankers extending microcredit loans to the poor; and “social entrepreneurs” aiming to simultaneously serve a “double bottom line” of positive public impact and shareholder return.

The activities covered under the umbrella of philanthrocapitalism are diverse enough to offer exceptions to any generalization about the category. But its practitioners would almost uniformly describe themselves as “results-oriented,” implicitly critiquing the ineffectiveness of existing nonprofits and voluntary organizations. Their unifying idea is that business is more efficient and outcome-driven than government and civil society, and that unleashing market forces is the best means of addressing entrenched problems such as poverty, malnutrition, preventable disease, and poor education.

In Edwards’ words, “the basic message of this movement is pretty clear: Traditional ways of solving social problems do not work, so business thinking and market forces should be added to the mix.” During his nine-year tenure as a director at the Ford Foundation, Edwards saw the popularity of this argument skyrocket. He writes, “if I had dollar for every time someone has lectured me on the virtues of business thinking for foundations and nonprofits, I’d be a philanthropist myself.”

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Photo by dbking

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Excerpt:
News outlets and the blogosphere are abuzz with reactions to Thursday’s Supreme Court decision that will allow corporations to fund political campaigns. The ruling, which overturns decades of legal precedent and legislation limiting the ability of corporations to influence the outcome of elections, may have broad implications for the political process in the U.S. News of the decision has drawn criticism from both the right and the left, many voicing the opinion that dramatically increased rights for corporations will significantly diminish the ability for individual citizens to have their voices heard.

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You may also find this article of mine to be of interest: “Capital” Punishment: For Corporations That Violate the Public Trust

You might think that board members overseeing businesses that cratered in the credit crisis would be disqualified from serving as directors at other public companies.

You would, however, be wrong.

Directors who were supposedly minding the store as disaster struck at companies like Countrywide Financial, Washington Mutual or Fannie Mae have not all been banished from other boardrooms. In many cases, directors just seem to skate away from company woes that occurred on their watch.

To some investors, this is an example of the refusal of those involved in the debacle to accept responsibility for it. Whether you are talking about top executives loading up on leverage, regulators who slept while companies took on titanic risks or mortgage lenders that made thousands of dubious loans, few in this crowd have acknowledged culpability. Taxpayers and shareholders, meanwhile, who had nothing to do with the problems, are left holding the bag.

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During the past year, the financial sector has done a lot of wrong. First, it nearly self-destructed. Then it engaged with a set of Washington elites to extract trillions of dollars of public funds to ease its pain. Now, it’s posting record bonuses on the back of that assistance, in a disgustingly entitled manner, as if its profits are based on sheer skill, rather than federal aid, accounting tricks, and regulatory indifference. What’s missing from this reckless scenario? Women.

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Enron was the financial scandal that kicked off the decade: a giant energy trading company that appeared to be doing brilliantly—until we finally noticed that it wasn’t. It’s largely been forgotten given the wreckage that followed, and that’s too bad: we may be repeating those mistakes, on a far larger scale.

Specifically, as the largest Wall Street banks return to profitability—in some cases, breaking records—they say everything is rosy. They’re lining up to pay back their TARP money and asking Washington to back off. But why are they doing so well? Remember that Enron got away with their illegalities so long because their financials were so complicated that not even the analysts paid to monitor the Houston-based trading giant could cogently explain how they were making so much money.

After two weeks sifting through over one thousand pages of SEC filings for the largest banks, I have the same concerns. While Washington ponders what to do, or not do, about reforming Wall Street, the nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.

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After three days of floor debate, the House voted 223 to 202 to approve the measure. It would create an agency to protect consumers from abusive lending practices, set rules for the trading of some of the sophisticated financial instruments that fueled the crisis, and take steps to reduce the threat that the failure of one or two huge banks or investment firms could topple the entire economy.
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The approval of the bill is the most significant step lawmakers have taken to confront the financial crisis since the $700 billion bailout package was rammed through Congress at the peak of the emergency more than a year ago. The bill represents an attempt to address comprehensively what many of its supporters have called the underlying causes of the collapse — reckless risk-taking unrestrained by regulation.

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This year, we have already learned about violations at two Nike factories that produce collegiate apparel in which fired workers have been denied owed pay. We cannot stand by as more workers lose their jobs because they stood up for their rights. But we cannot simply cut individual contracts and expect industry-wide reform. We successfully punished Russell’s labor violations last semester, but now we need a broader solution that will encourage fundamental change. We have the power to ensure no university clothing supports unethical policies that harm workers; we just need a way to use it more effectively.

The solution is the Designated Suppliers Program, a plan that would use the licensing power of this university to provide incentives for companies to respect workers’ rights. The DSP would help prevent companies from deserting unionized factories by requiring apparel companies to send a certain percentage of their orders to factories with fair labor practices.

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But in summary, Becker’s view of corporate morality is that the only ethical responsibilities of business executives are to obey the law, adhere to contracts (really just a subset of the first rule), and, most critically, to maximize the price of their companies’ shares. The first coherent statement of this moral view came from the economist Milton Friedman in a full-throated defense of capitalism with the brilliantly blunt title, “The Social Responsibility of Business Is To Increase Its Profits.” Now the bogeyman of creeping socialism that Milton worried about 40 years ago is long gone, as is Friedman himself, who died in 2006, but his contentious and now ossified principles live on in the writings of Becker, his most faithful student.

The Friedman-Becker moral theory has three virtues. The first is its simplicity; it reduces the whole tangle of moral issues to a simple bright-line test. The second is that it is able to justify most miserable behavior and even turn the tables on anyone who suggests, for instance, that companies should worry about the treatment of workers in Chinese factories or the fairness of offering subprime mortgages with usurious terms. To care about things like this is not only unnecessary, the theory suggests, but actually wrong because it betrays the interests of the shareholders who are the executive’s ultimate employers.

The third virtue is that it combines supremely well with the idea that senior executives should have pay packages that rely mainly on stock options and reward them for a single-minded devotion to the share price. The combination of the “shareholder value” theory and stock- and options-based compensation creates a beautifully virtuous circle. The profits of the shareholders are the CEO’s own interests, too, so if acting in the best interests of the shareholders (that is, raising the share price) is the CEOs main moral responsibility … well, gee, acting ethically means acting in his own best interest is always the right thing to do.

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Happy paydays are here again. On Wall Street, at least.

Compensation consultancy Johnson Associates last week forecast that Wall Street bonuses would rise 40% this year. At Goldman Sachs, average pay per employee is on pace for $658,000 this year—80% higher than a year ago. Generous pay guarantees for incoming executives and golden parachutes for departing managers are making a comeback at financial firms. And salaries are going straight up.

American Express Co. last month disclosed it recently raised the base salaries of its chief financial officer and two other executives by a range of 24% to 48% to offset 10% pay reductions they took earlier this year, before the credit card giant had repaid the government its $3.4 billion in bailout money. And new details on the $20 million exit package for President Alfred Kelly, who is leaving AmEx by April to search for a CEO post elsewhere, show his $9.7 million in severance will be paid fortnightly over two years, even if he lands a job at Bank of America or another big competitor. AmEx declined to comment.

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The United States spends twice as much per capita on health care as many other nations, yet achieves inferior outcomes by such varied measures as life expectancy, preventable deaths from specific illnesses, and infant mortality. Much of the performance gap stems from the fact that many of the nation’s 45 million uninsured fail to receive needed care.

The spending gap stems largely from a conflict inherent in how American physicians are paid. Elsewhere, most doctors are salaried. But under most American health plans, including Medicare and Medicaid, doctors are reimbursed according to how many tests and procedures they perform.

Most doctors undoubtedly recommend only those tests and procedures that they sincerely believe to be in their patients’ best interests. Yet those interests are seldom completely clear. And when doctors know that their incomes will be higher if they recommend additional procedures, many may tilt in that direction.

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The Obama administration is pushing House Democrats to spare small public companies the cost of complying with investor-protection rules imposed after the accounting frauds at Enron Corp. and WorldCom Inc., according to people familiar with the efforts.

Chief of Staff Rahm Emanuel is seeking the reprieve from audit requirements under the 2002 Sarbanes-Oxley Act, the people said. Representative Carolyn Maloney plans to add the exemption, postponing compliance fees for firms with market values of less than $75 million, to a bill overhauling financial rules.

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It’s one of those things that irks charitable givers no end — the high salaries paid to some nonprofit CEOs.

And a new study by The Chronicle of Philanthropy, released Monday, shows that the top pay at the nation’s largest nonprofits rose again last year, with some eye-popping results. But the survey also found signs that these high-dollar salaries may be starting to turn around.

Seven-Figure Salaries

Here are some of the more striking numbers: $2.1 million for the director of the Museum of Modern Art in New York; $2.7 million for the head of a health care group in Boston; $1.3 million for the president of New York University.

The survey found that many nonprofit CEOs earned half a million dollars or more last year, and that the median pay raise was 7 percent. But to be fair, says Chronicle editor Stacy Palmer, most of those salaries were set before charities and foundations felt the effects of the recession.

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But a study of changes made in pay practices by 191 of the nation’s largest companies this year shows that where pay is concerned, enlightenment remains a long way off. In other words, meet the new pay, same as the old.

The study was conducted by James F. Reda & Associates, an independent compensation consultant in New York, and it looked at proxy filings issued by almost 200 companies in the first half of 2009. The firm analyzed changes these companies made to their pay plans that take effect this year.

The biggest shock? Instead of seeing a greater reliance on long-term incentive programs, the Reda report found that changes in these companies’ plans made short-term incentive pay a bigger part of the compensation pie. Let me say that again: The plans — despite the calamities that short-term profiteering has visited on our economy — made short-term incentives a bigger component of compensation.

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INVESTORS everywhere should applaud the deal struck last week by the UnitedHealth Group to recover nearly $1 billion in pay from former executives involved in the company’s option backdating mess.

Not only is the number big and round — by far the largest giveback by corporate executives ever — but the recovery sets a standard of behavior for other companies and boards when performance pay is later shown to have been based on ephemeral earnings.

WASHINGTON: This Labor Day, it must not go unnoticed that Angelo Mozilo, chief executive of Countrywide Financial the company that has helped drive world markets into turmoil with its lending raked in $42.9 million last year.

The Nobel laureate Harold Varmus, chief executive of the Memorial Sloan-Kettering Cancer Center, was paid $2.5 million.

Roughly speaking, here is what their relative compensation means: We now value the contributions of someone who has left homeowners frantic about whether they will be able to keep a roof over their heads about 18 times as much as we do those of a brilliant scientist whose groundbreaking research on the genetic basis for cancer could save millions of lives

Can you imagine if the President had access to all the resources of the government to fund his re-election campaigns, and there was endless red-tape preventing others from challenging the incumbency?

What if, instead of voting to re-elect incumbent congressmen, we had the option of either voting “yes” or “abstaining”?

Welcome to the world of corporate governance in America. Our shareholder democracy has more in common with Saddam Hussein’s government than our own political democracy.

The basic premise of socially responsible investing is simple: If money makes the world go ‘round, greener, more humane investments can improve the way it spins. Want sustainably managed forests? Provide loans or capital to eco-minded timber companies. Want Monsanto to get out of the genetic engineering business? Buy Monsanto stock and put forward a shareholder resolution demanding the company cease and desist. This isn’t just wishful thinking; social investors can point to many positive efforts like these. And their strength is building. Yet before hailing a new era of green capitalism, it’s also important to understand some of its limitations.

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