Milton Friedman 1 asserted in his 9.13.1970 NYTimes opinion piece that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”2 Within a decade this mantra, combined with changes in laws and regulations of corporate behavior, unleashed the financialization of corporations. Now, it is clear that the only duty of top management is to maximize financial returns to shareholders and themselves in the shortest possible time.
One of the most troubling features of this regime of money immediacy is how it completely co-opts the attention of top management with a very compelling system of providing them with “skin-in-the-game.” Their compensation is now a combination of salary plus bonuses and stock options routinely driven by performance against quarterly and annual corporate profits. This presents an overwhelming conflict of interest for top managers. Gone are the traditional management responsibilities for long-term (3- to 5-year) planning, a focus on customers, product and service development, workforce retention and development, supply base health, and more.
From the Institute for Policy Studies, “Executive Excess 2024 –The “Low Wage 100” corporations are enriching CEOs at the expense of workers and long-term investment:“3
“The average CEO-worker pay ratio at Low-Wage 100 firms narrowed from 603 to 1 in 2022 to 538 to 1 in 2023, but median pay levels remain extremely low.”
“From 2019 through 2023, the Low-Wage 100 spent $522 billion — over half a trillion dollars — on stock buybacks.”
“From 2019 through 2023, nearly half of Low-Wage 100 companies — 47 in all — plowed more corporate cash into buying back their own shares of stock than investing in capital improvements.”
Lowe’s led the Low-Wage 100 share buyback charge. The company spent $42.6 billion on buying back its own shares, a sum large enough to have given each of the firm’s 285,000 global employees an annual $29,865 bonus for five years. In 2023, Lowe’s CEO Marvin Ellison enjoyed total compensation of $18.2 million. The retailer’s median annual worker pay: a mere $32,626.
Home Depot ranks second in our Executive Excess buyback rankings. The big box chain spent $37.2 billion on share repurchases between 2019 and 2023. That outlay would have been enough to give each of Home Depot’s 463,100 global employees five annual $16,071 bonuses. Home Depot median pay stands at just $35,131.
From 2019 through 2023, nearly half of Low-Wage 100 companies — 47 in all — plowed more corporate cash into buying back their own shares of stock than investing in capital improvements.”
The study also includes a number of policy recommendations to reduce these excesses.
Footnotes
- Friedman was a famous economist from the 1960s through the end of the 20th century. He was a founder of the Chicago school of neoclassical economics and a leading conservative voice
- https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html
- Who are the Low Wage 100? The 100 S&P 500 corporations with the lowest median wages.
