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The New York Times: Holding Up the Shareholder | Cypress Semiconductor

The New York Times: Holding Up the Shareholder

Last Updated: 
May 24, 2012

The New York Times: Holding Up the Shareholder

T.J. Rodgers

Colin Powell is exhorting the rich and powerful assembled at the Presidents' Summit in Philadelphia to recruit individuals and corporations for a "war" to save "at risk" children who "don't believe in the American Dream." President Clinton, Vice President Gore, ex-presidents, governors, mayors, Fortune-500 CEOs -- and Oprah -- will sign up to save inner-city youngsters. What substance will come from the politicians and glitterati?

Well, those "at risk" children intuit well: the American Dream is dead, or at least in a 20-year slumber. Blame the wrecking crew now gathered in Philadelphia. Democrats and Republicans alike, those well-meaning utopians are prepared to coerce us into adopting their newest idea. Ignoring their consistent failures from the Great Society onward, they call for yet another big-bang program, this time promising that can-do corporations will succeed where government has failed.

Expect much company-bashing. General Powell says he would "like to give them a guilt trip" in a Newsweek cover article that characterized corporate icons like Jack Welch of General Electric and Bill Gates of Microsoft as "take-no-prisoner types" motivated by "fear, combined with greed." The article did concede that the assets of the country's charitable foundations have tripled since 1980, but "for reasons having to do more with the stock market than the magnificence of the human spirit."

Apparently, Mr. Gates and Mr. Welch shouldn't be given credit for the quarter-trillion dollars of wealth they have created for their shareholders (many of them charities) because their motives are not pure.

Critics of corporations should realize that it is precisely the focus on profit that creates wealth, the engine of giving. Those charitable foundations enjoying big capital gains should cheer on men like Bill Gates and Jack Welch. The price/earnings multiplier provides charitable foundations with a $20 gain every time General Electric or Microsoft reports an additional $1 in profits.

Subordinating shareholder value to "social responsibility" invariably cheats both shareholders and society at large. Consider the so-called ethical mutual funds that condition investment on criteria like corporate giving, employee entitlements and environmentalism. In the last 12 months, the $4.1 billion managed by such funds returned 5.65 percent, as opposed to the 20.65 percent gain of the Standard & Poor 500, according to Lipper Analytical Services. The "ethical" funds thus lost $615 million for their investors in the name of the "higher good."

Yet last year, President Clinton supported a Senate proposal that would have raised taxes by 50 percent on companies not meeting mandated "social responsibility" criteria. The bill is now on hold, but expect it to return, with volunteerism added to the list of responsibilities.

I manage a $1.2-billion asset. My schoolteacher mother's retirement fund owns our stock. A Dartmouth classmate of mine recently wrote me that his son's college fund holds our shares. Chief executives manage their investors' life savings and are morally obliged to do what's best for them, hence Milton Friedman's maxim that the social responsibility of business is to increase profits. In addition, and contrary to the general criticism directed at high-tech companies, our company contributes heavily to the local hospital for the poor and pays employees for time spent volunteering.

Colin Powell aspires to rescue the American Dream, but forgets that free markets and limited government drove the Dream for 200 years. Only in the past 20 years during the tenure of the wrecking crew has government meddling metastasized to the point that business can no longer provide workers with ever-higher wages -- the foundation of the American Dream.

When good works cease to be voluntary and become compulsory, charity becomes confiscation and freedom becomes servitude. Philanthropy is a byproduct of wealth, and wealth is best created in free markets whose workings embody a fundamental and true moral principle long forgotten in Washington. Let's not let the crowd in Philadelphia con us into giving it more than the 40 percent of the economy it already controls.

- Courtesy The New York Times. © Copyright The New York Times Company