Since Reaganomics, American businesses have paid less tax, produced lower quality products, reduced or minimized increases in worker salaries and benefits, and outsourced jobs overseas. Their profits, on the other hand, have skyrocketed and CEO salaries have increased ten times faster than inflation. Rather than being the foundation for economic opportunity and growth, big corporations have been a drain on American society. Just think of WalMart.
Sinceslicedbread.com is sponsoring a contest to identify ideas that will improve the economy and help American families have better lives. This is an expanded version of one of those ideas.
What would our Founding Fathers have thought? In their time, corporations had charters that limited the scopes of their activities, geographic reaches, and life spans. A strict interpretation of the Constitution and the times during which it was written shows that the intent of our founders was contrary to the rights and societal power that were bestowed on corporations in the 1800s by the judicial branch of the government. That's right, corporations were granted the rights of
persons not by legislation or a Presidential order, but by activist judges.
Individuals have rights but also responsibilities. We have to abide by society's laws, pay our taxes and other debts, and be loyal to our country. We have to work hard for our employer and cooperate with our coworkers. We have to be good to our friends, cordial to our relatives, and civil to our neighbors. We have to have all kinds of insurance in case something bad happens. Above all, we have to care for and support our families. Individuals are expected to at least try to do all these things. When they don't, they are frowned on, criticized, fired, shunned, fined, and even incarcerated. Consequences for inappropriate behavior can be harsh.
What about corporations? You would expect that they would abide by society's laws, pay their taxes and other debts, and be loyal to our country. You would expect that they would be good to their customers, cooperative to their suppliers, and supportive of their employees. You would expect that they would work hard to ensure the quality of their product or service and pay dividends to their shareholders. But they don't. Most publicly-held businesses follow a one-dimensional strategy of maximizing profits. And what happens when corporations violate environmental, financial, or other regulations? They pay a fine. What if they sell defective products? They pay a fine. What if they lay off employees and outsource jobs. They not only don't pay a fine, they are praised for maximizing profit. And if something really bad happens, the government is there to bail them out and prohibit lawsuits.
Imagine this. An individual releases a deadly gas in a neighborhood and kills 20,000 people outright and harms over 100,000 others. He's caught and found guilty. What happens? Life in prison if not the death penalty. But if you're Union Carbide and you released methyl isocyanate in Bhopal, India, you and your insurance company pay off the claims and you continue operations.
Corporations aren't affected by criticism unless it affects their profits, which is hard to do even with an organized boycott. Corporations aren't affected by fines, which usually are insignificant compared to their profits. Corporations can't be incarcerated at all. In fact, there are few consequences commensurate with unacceptable corporate behaviors that don't fall primarily on employees, stockholders, suppliers, or customers. It is as if your neighbors, friends and family were forced to pay the penalty for a crime you committed while you go scott free.
The myopic strategy of profit-above-all-else sounds good in business school but has wrecked havoc on society. It should be clear to any sensible person that a paper entity like a corporation is not the same as a living biological organism. True, corporations are run by biological organisms, but so are automobiles and nobody thinks a Ford Focus should have the right to free speech. But corporations do have rights, and unless that changes, they should also be expected to fulfill responsibilities to society and the entities they deal with. There needs to be new paradigm guiding American businesses.
Businesses should be held accountable for FIVE dimensions of performance:
- Shareholders -- dividends, stock price, other financial indicators, etc.
- Products -- improvements in products made or services provided, ISO9000, patents, percent of products made in US, etc.
- Employees -- salary, benefits, training, working conditions, EEO, OSHA, difference between staff and executive compensation, etc.
- Customers -- customer-business interactions, customer satisfaction and loyalty, complaints, etc.
- Society -- environmental compliance, charitable works, layoffs and outsourcing, unfair competition, relationships with suppliers, etc.
The idea would be to use available data compiled by businesses and the government agencies that already monitor them to assess the performance of US companies. There would be no new huge bureaucracies to create and monitor SPECS. The system would be created largely from the consensus of the business community, academia, and the public with only the facilitation of government. The same huge bureaucracies that already monitor and regulate business would monitor SPECS implementation. More importantly, the public would easily be able to identify which companies are good to work for and which products come from responsible American companies. Businesses that follow SPECS and benefit the growth and well being of the country would be rewarded with tax breaks and other preferences.
SPECS would be developed and implemented in three phases.
- Planning - 5 years
Begin the planning process by setting up a small office in the Executive Branch of the Federal government to initiate a national dialogue on what elements should be included in SPECS. The role of the office would be to facilitate and focus discussions and publicize results, but not sway opinions. Begin the discussions in business schools and expand to unions, trade associations, and other interest groups. As the dialogue grows, add needed specialists to the office to plan and facilitate events and assist in conflict resolution. Hold regional and national conferences to focus discussions and include the public. Create an independent ad hoc multi-agency advisory group to add the perspective of Federal government agencies. Invite states to create advisory groups of their own or participate in compacts. Move the discussion on to how the important business elements should be measured, and develop trial scoring formulas for the five components of SPECS to summarize the performance of companies. Develop some standardized graphic to depict scores. At the end of the planning period, prototype formulas and graphic would be available for testing.
- Testing - 5 Years
Require all publicly-held companies to calculate their SPECS scores and prepare the summary graphic. Provide guidance and assistance as needed. Encourage the companies to include the graphics on their advertising, websites, and other public releases. Open comment periods on the scoring formulas, graphic representations, and other aspects of the SPECS program. Revise the scoring system as needed. Extend requirement to calculate SPECS scores to all privately-held US companies above a certain size (e.g., over 500 employees). Begin a campaign to educate the public on how individuals can interpret SPECS scores to make informed decisions on purchasing, employment, and other aspects of their lives. At the end of the testing period, the scoring formulas and graphics should be finalized and all US companies (except businesses defined as "small") should be able to calculate their own SPECS scores.
- Implementation - 10 Years
Require companies to update their SPECS scores at least annually and place them on all their advertising, websites, and other public releases as well as any submissions to the government. Work out plans, guidance, exceptions, schedules and other items needed to implement the following by the end of the 10-year implementation period:
- Inclusion of SPECS graphics on products above some price threshold sold in the US.
- Development of websites and other communications devices to educate the public on changes in SPECS scores.
- Providing preferences in competitions for government contracts to companies with high and balanced SPECS scores.
- Provide tax breaks for businesses with high, balanced, or improved SPECS scores.
The SPECS graphic would illustrate how well a corporation performed and balanced the five dimensions. For example, consider these hypothetical graphics. The blue star represents the hypothetical best performance on the five SPECS dimensions. The blue star shows balanced performance because all the arms of the star are the same length. The white icon inside the blue star represents the company's performance. The closer the icon is to a star shape, the more balanced the company's performance is between the five dimensions. The longer an arm of the white star, the better the company's performance is on that dimension.
The hypothetical SPECS graphic for WalMart shows that the corporation makes a lot of profit for their shareholders, treats their customers well, and has sophisticated computer systems to manage their products. But they are below average in their support of society because of their role in destroying small town business districts and poor on their support of employees because of their low wages, refusal to pay benefits, and anti-union policies.
The hypothetical SPECS graphic for Ma&PaMart shows that the corporation doesn't make a lot of profit for their shareholders, but sells good quality products, treats their employees and customers well, and is active in supporting the local community. The red wavy lines inside the white star indicate that products sold at Ma&PaMart are made in America.
So, imagine you've just moved into a new neighborhood and have to find new places to shop. Maybe you go to the closest store, or the cheapest, or maybe you go to the store that has the best SPECS score for your community. Or, imagine you run a very competitive business in a town. Your product is the best but your business is falling off. Then you look at the SPECS scores of your competitors and find that you may have the best product but your customer and society scores are lower than any other similar business in the area. It may be a good idea to hire customer reps and maybe sponsor the local softball team.
So this new paradigm for business could have great advantages for the American people and the economy. Government wouldn't be burdened any more than it already is. The public would have more information presented in a simple way to make purchasing decisions. American businesses would also benefit by having many more ways to differentiate themselves from foreign or even local competitors. Nevertheless, this would be a massive paradigm shift for those CEOs that have only had to think in terms of dollar signs. Their jobs would become much more challenging.
An abridged version of this idea was originally posted on Since Sliced Bread as idea 9164.