Business Policy and Strategy Questions

The Nation. 22 June 27, 2011 country’s wealthiest corporate executives. By contrast, the gov- ernment allows firms to deduct the costs of pension or health- care systems as a cost of business only if the system covers nearly all workers. National policy should encourage incentive plans that offer an equitable distribution for nearly all workers rather than those that concentrate wealth among the very few.When Bill Clinton and Al Gore campaigned for the White House in the early 1990s, they launched a populist attack on excessive executive pay, arguing that corporations should not be allowed to deduct salaries over $1 million to help them reduce corporate income taxes. After the election , Congress and the administration turned the proposal into law. But the law allowed corporations to get unlimited deductions if they paid the top executives in “performance-based pay” over and above their yearly fixed salaries. That permitted firms to design plans for profit-sharing, gain-sharing (where, for example, executives get a share of increases in revenues), grants of company stock and stock options—and to get unlimited deductions for the entire cost of these programs. Corporations do not have to prove that these plans improve performance. The plans can reward executives for per- formance that had nothing to do with their decisions—for instance, the economic recovery following the 9/11 attacks. Has this deduction been costly to the public? You bet. The Treasury’s Office of Tax Analysis found that the number just for stock option deduc- tions for all employees more than doubled, from $49 billion in 1997 to $126 billion in 2000. Using figures from Standard & Poor’s ExecuComp database, we computed that the stock option deduc- tions averaged more than $50 billion a year from 2001 to 2007.

Simply for the top five executives of public companies, our best estimates are that these deductions ranged from about $5 billion to $25 billion each year from 1992 to 2009, and more than tripled over this period—but a definitive IRS study is needed. Studies of broad-based incentive systems show that when all workers are incentivized, company performance improves.

Studies of incentives limited to those at the top show that executives take home huge sums without necessarily improv- ing company performance. Many of the country’s top-performing corporations—such as Silicon Valley firms like Intel and Google, and firms like Procter & Gamble and Wegmans Food Markets—have broad-based profit sharing and employee stock-ownership plans. Changing the tax system to induce other firms to adopt similar plans can improve the economy and assure that more workers benefit from incentive compensation. If public companies want to pay a nar- row slice of their workers in this way, it is their right to do so— but taxpayers should not subsidize it. ■ Joseph Blasi and Douglas Kruse are professors at Rutgers University’s School of Management and Labor Relations. Richard Freeman is a profes- sor of economics at Harvard University. See the entire policy proposal at americanprogress .org/issues/2011/03/worker_productivity.html. A Richer Shade of Green by LESLIE CHRISTIAN A merican capitalism must resolve the dead-end clash between conventional economic growth and the limits of nature. The choice is not optional. Investors who ignore the challenge will eventually be crumpled by the consequences. Investors depend on perpetual eco- nomic growth to spur profits and raise stock prices. Economic growth depends on raw materials and energy from fossil fuels.

Raw materials and fossil fuels are not a growing part of the ecosphere. Therefore, investors cannot expect perpetual profits unless we figure out how to have growth without depleting natural resources. The need to put a premium on sustainability is not widely acknowledged in the investment community and certainly not among our elected officials, policy-makers and advisers. This presents an opportunity for astute companies and investors. In the long term, companies will benefit from aggressive action to dematerialize , substitute renewable energy for fossil fuel–based sources, increase energy efficiency, reduce water use and promote reuse, and tighten up sourcing and distribution channels. Investors with an eye on long-term gains will seek companies that are addressing these issues. Fund managers in the business of facilitating socially and environ- mentally responsible investments are, in turn, developing methods to gauge companies’ commitments to sustainability.

My firm, for example, avoids investing in companies like BP that insist on high-risk, fossil fuel–based growth. Instead we seek out companies like Itron, which helps utilities improve their energy efficiency; Ormat, which is developing geo- thermal energy; and Google, which is seriously addressing its biggest ecological risk —the cost and availability of electricity to power its servers. Conventional investors might argue that discounting traditional growth strategies is counterintuitive, if not counter productive. In the United States, growth has been the panacea—real or aspirational—for social and financial inequity, skyrocketing debt obligations and political stale- mates. Particularly when times are tough, it’s convenient to rely on old-fashioned growth—the kind that depletes natural resources, overtaxes ecosystems, fills the ecosphere with pollut- ants, erodes arable land and disrupts the climate. But according to the Global Footprint Network, it would take 1.5 earths to keep up with the present pace of human consumption. Any financial analyst should know that this kind of growth is a recipe for disaster. We cannot borrow another earth. So why not use technology and innovation to dramati- cally reduce consumption? This is exactly what we need to do, but it is not happening. According to William Rees of the University of British Columbia, between 1975 and 2000, The United States of America FIFTY DOLLARS $50 50 The Nation. 23 June 27, 2011 consumption increased 57 percent in the United States despite monumental technological breakthroughs and innovations.

On a per capita basis, the increase was 23 percent—partly the result of escalating consumption and partly because of population increases. This pattern is reflected on a worldwide basis: population is expected to surpass 9 billion by 2050, and emerging economies are striving to increase standards of liv- ing, which currently equates to increases in consumption.The combined pressures of population and consumption increases are stressing our natural systems, causing climate change and depleting resources. In the absence of concerted political will and commitment from government (which balks at any strategy that could slow GDP growth, even if only in the short term), the impetus to address the sustainability crisis rests with activists and corporations. Shareholder primacy and the drive for quarterly profits blind many companies to the long-term impacts of climate change and resource deple- tion, even though their companies’ profits depend on scarce raw materials, increasingly expensive energy and a permissive regulatory climate. In the face of such chronic short-termism, businesses that are incorporating environmental sustainability principles have a strategic advantage. They know that long-term survival depends on aggressive action today. Fortunately, their inter- ests are aligned with the common good—for once. ■ Leslie Christian is president and CEO of Portfolio 21 Investment (go to portfolio21.com).

Skin in the Game by VINCENT A. PANVINI JR.

T he US economy would benefit enormously if the values and self-discipline commonly associated with the own- ers of private family-owned businesses could somehow be implanted in the upper reaches of management of all publicly owned corporations. I don’t have any magic solutions except to suggest that the big boys should be required to have “skin in the game”: a significant personal stake in the companies they run. Americans are familiar with the celebrity CEOs who manage very large, far-flung public corporations—highfliers who col- lect huge bonuses even when these companies don’t do so well.

The other, largely uncelebrated kind of capitalists—developers, contractors, suppliers, manufacturers, auto dealers and many others—manage enterprises closer to home. They don’t have to answer to shareholders or stock market analysts because they own the companies, often businesses they started from scratch and built to success. For the past fifteen years, I have advised these entrepreneurs on how to exit their businesses and preserve and transfer their personal wealth. The differences between these two types of capitalism says a lot about what’s wrong with our economy. The system basically allows the most powerful players to evade personal responsibility for their decisions while the homegrown capitalists pay dearly From Jon Stewart, Jane Goodall, and David Simon to Nikki Giovanni, Louise Erdrich, and Howard Zinn, Bill Moyers Journal: The Conversation Continues, brings us the ideas that matter today. “[Moyers] has always been about something beyond the moment. Or put another way, while everyone else in the media has been exploring topography, Moyers has been exploring geology.” —Neal Gabler, Los A ngeles Times “I can think of no jour nalist, now or at any time across the annals of our past, who has contributed so much to democracy’s dialogue.” —Michael Copps, FCC commissioner “In an era of much instant and ephemeral talk, it is a plea- surable thing to hold this ‘book of ideas.’ These challeng- ing, engaged conv ersations reward the reader’s serious attention.” —P ublishers Weekly “Moyers probes with respect, intelligence, curiosity, humor, a nd graciousness. . . . This companion book recaptures those compelling discussions on issues that matter. ” —Booklist, starr ed review “Focusing on topics both timely and timeless . . . the insatiably curious M oyers prods disparate intellectuals into candid talk about their sphere of interest. [A] glittering array of dis- cussions.” —Kir kus Reviews As featured on The Daily Show , The Tavis Smiley Show , and Talk of the Nation THE NEW PRESS Celebrating 19 Years of Independent Publishing www.thenewpress.com THE NEW PRESS Available as an e-book Copyright of Nation is the property of Nation Company, L. P. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.