Corporate Greed Used to Be a Bad Thing; What Happened?

In the 1987 movie Wall Street, Michael Douglas’s character, Gordon Gekko, utters the famous words, “Greed is good.” Twenty-seven years later, a great deal of the business world has seemingly adopted those words as a new mantra, and the results have been mixed.

For generations, companies were expected to act ethically and in a socially responsible manner. The common idea was that if they didn’t, then the free market would work its magic, and those companies would eventually be wiped out. These days, we have companies that are widely despised yet are seemingly untouchable due to their sheer size and power. Some businesses have foregone a sense of social responsibility in an effort to increase profitability, and it appears to be paying off.

The graph above displays the explosive growth of corporate profits over the past 60 years or so. Profits are at a record level, and with those increases in revenues have come increases in power and influence in both the political and social spheres. Getting to this level of profitability has taken a lot of work, fueled by plenty of drive and ambition. This is what Gordon Gekko was really getting at when he said that greed was good — it was a comment on how hard work and focus can pay off.

There are those who seemingly agree with Gekko’s philosophy and see that greed has, in fact, paid off for more than just big-business brass. One argument details that since corporate greed itself is not selective, workers win in the end, as companies are unable to hold wages down. By greedily expanding and taking on new markets, the need for new works expands. Thus, corporations will outbid other companies for employees.

couple of other examples come from Entrepreneur, including how performance-based compensation plans and profit-sharing systems, as well as corporate policies to donate a portion of the company’s profits to charity, can have a positive impact on the community.

Of course, being ambitious in your business practice is good thing. But is there a line? How ambitious is too ambitious, to the point where a pursuit for profit becomes reckless and damaging?

Greedy executives and unethical business practices used to be universally frowned upon, even from others in the business community. Now they are mostly viewed as being savvy. It seems that businesses can really do no wrong as long as they keep growing and posting profits. There seems to have been a drop-off in how seriously business takes social responsibility, and many people, government leaders included, are perhaps content with looking the other way in exchange for economic gains.

What happens when greed gets out of hand? Enormous harm can be done to the environment and economy. The entire financial crisis that was triggered by Wall Street could have been avoided, but there was a need for more profits, despite the fact that the firms involved were already raking in billions.

So what happened? How did the “greed is good” mantra become the overarching theme in big business?

The rise of investing and the stock market is a likely culprit. After all, when ownership and profits are split between hundreds, if not thousands, of investors, the need to produce results can quickly become more important than ensuring an organization is living up to the conceived responsibilities to society others have put upon companies.

“I don’t think the social responsibility issues override the importance of profitability from the investors’ perspective,” said Peter Gampel, director of business valuation at the accounting firm Fiske & Co. in an interview with Devex Impact. “There are dollar amounts for patents, licenses, customer relationships, trademarks, but we don’t usually try to assess the value of a company’s social responsibility. This is not quantifiable from a numbers point of view.”

That’s the important point: It’s about numbers. Investors — and many times, company executives and other higher-ups — are completely removed from unethical or questionable behavior. They want to see a return and continued, sustained growth.

While taking the quickest, and perhaps most socially damaging way to profitability, are businesses hurting themselves in the long run? How can companies maintain their customer base if they continuously are suffering from PR gaffes or firing up protest groups that object to their business practices?

They probably won’t be able to. This is one of the reasons we see so much risky behavior from CEOs, who are often focused on seeing a spike in profits in the short term, rather than suffer immediate setbacks for long-term sustainable growth. They risk losing their jobs if shareholders aren’t happy, and shareholders tend to only be happy when dividends go up.

“There is no question that companies that are the most effective in integrating sustainability in their values and strategy will be the most successful in increasing shareholder wealth,” said social responsibility consultant Alice Korngold to to Devex Impact. “Businesses that are the most innovative in finding solutions to global challenges — such as climate change and energy, economic development, education, healthcare, human rights, and protecting ecosystems — will be the most profitable.”

Korngold appears to have something to her arguments. By taking the behavior of businesses into question, consumers are able to make more informed decisions about where they spend their money. Studies have shown that as many as 84 percent of consumers are willing to spend more on goods and services if they feel the company selling them is socially responsible.

Think about it: Does a company like Comcast have customers because consumers love them? Or do people simply not have a choice in many situations?

As previously mentioned, shareholders and executives like numbers. Eighty-four percent is a figure that’s hard to ignore. A company can engage in all the wage theft, tax avoidance, and other socially irresponsible behavior it wants — eventually, the market is likely to catch up. If such a lopsided percentage of consumers would be happy to take their money elsewhere, given enough time or an opportunity, they will.

Can greed be a good thing? Definitely, as long as it is properly channeled and doesn’t overstep ethical boundaries. What those boundaries are, exactly, is open to interpretation. Of course, greed can also be a very negative thing, too. Things didn’t turn out so well for Gordon Gekko, after all.

More from Business Cheat Sheet:

More from The Cheat Sheet