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Seriatim relief, seriatim dismay. Relief if you're a chief executive officer whose televised inquisition by Congress just ended. Dismay if you're a citizen watching one titan of industry after another show feet of clay.
The lack of socially responsible—and sometimes even ethical—behavior by far too many CEOs, especially highly visible and prominent ones, at this time of pervasive economic distress is one of the unspoken tragedies of the Great Recession. Now is especially when we need the nation's business leaders to be particularly sensitive to balancing what's right for their shareholders and corporate results with what's right for their employees, the legions of consumers who buy their products and services, and the nation.
Some people say that it is naïve to expect CEOs to act other than in their and their companies' short-term interests. Some even say it is unwarranted. All are wrong. While there have always been scoundrels, there was also decade after decade in which U.S. CEOs for the most part had a very broad sense of their responsibilities.
From the end of World War II until the mid 1980s, prominent public- and private-company CEOs almost universally viewed their responsibilities as being diverse—and to constituencies other than just shareholders. This view became so widely and comfortably held that in 1981, the Business Roundtable, the key public policy arm of the nation's largest public companies and their CEOs, publicly endorsed a policy that said shareholder returns needed to be balanced against the interests of employees, customers, and the nation.
I wrote a book about CEOs' virtues and our need for CEOs to be not just responsible corporate leaders, but national ones, too. In it, I prominently featured Reginald Jones, CEO of General Electric (GE) before Jack Welch, for it was Reg (who later became a cherished friend) who more than anyone else was responsible for that action by the Business Roundtable. Reg had started this process in 1972 when, in his maiden speech as GE's new CEO, he said that henceforth he had equal and concurrent responsibility to shareholders, employees, customers, communities, and the nation. Reg knew then, as we should know now, that the very best thing for American business is a large and robust middle class that grows from the bottom up.
Having been fortunate in my career to be around distinguished CEOs such as Reginald Jones, I had hoped that in this Great Recession, we would find countless examples of balanced, inspired business leadership of the sort critical to our well-being as a society and a nation.
Unfortunately, this has not happened.
While we know we can't appeal to every CEO's "better angel," we as a nation can't tolerate any further continuation of the overly laissez-faire regulatory and political environment that helped spawn the past 25 years of narrowly defined (and often selfish) corporate responsibility. To change the way CEOs think about and act regarding the broader community and the nation, these are actions that government should take immediately:
Congress needs to make sure that shareholders have the rights to call shareholder meetings, vote out directors, and render advisory votes on executive pay. Congress also needs to require corporations to include easily understandable information in their annual reports regarding stock options, deferred compensation and pensions, golden parachutes, and personal benefits.
Using changes in tax policies as the mechanism, especially the deductibility provisions, Congress needs to ensure that CEOs and other executives are not overcompensated, compared to their average employee. Congress must also ensure that CEOs and other executives are taxed at the same ordinary income tax rate as other workers in the country and without deferrals that grant them unfair advantages.
Congress needs to better protect workers' right to organize, through the Employee Free Choice Act, while at the same time greatly strengthening employee-safety regulations and their oversight. With the percentage of unionized workers in the private sector lower than at any point in the 20th century, we need to declare that expanding union membership is integral to regrowing our middle class from the bottom up and lessening income inequality. And as has been made clear by the reprehensible actions of Massey Energy (MEE) in Montcoal, W.V., and by BP (BP) in the Gulf of Mexico, unionized workers with strong representatives are often much safer workers.
These remedies won't be enough. We also need countless more of the nation's CEOs—and the private sector they lead—to fully commit to and engage in our nation's economic recovery if we are ever to create the 22 million new jobs needed to reach near-full employment in real terms. That number is unprecedented in size and scope in the history of American business.
In past recessions, the courage and convictions of successful CEOs gave them the certainty and confidence to move forward. This recession, however, is so acute and pervasive that CEOs need and are entitled to certainty of the sort that can only be generated by large-scale, Keynesian-type government intervention that sustains job creation.
There are four government policy initiatives that would almost immediately restore CEOs' confidence and bring back to them a sense of optimism. The Administration and Congress need to:
Embrace an all-of-government, fully empowered manufacturing and jobs policy that seeks to quickly double the number of non-service workers and their contribution to gross domestic product. As it is, we've hollowed out the manufacturing base of this country and with it, large swaths of the middle class. No nation as large and diverse as ours can sustain a healthy economy and job growth with only 11.5 percent of its GDP and 8 percent of its labor force associated with manufacturing. This doubling could result in as many 12 million more workers being employed directly in the sector, and as many as 30 million more indirectly.
Take every reasonable action to exchange our nation's current "free trade only" policies for "fair free trade" policies that are as neomercantilist in every aspect as the policies of our major trading partners—China in particular. With free-trade-only policies, we have lost millions of jobs, stagnated the ones left on our shores, sapped the purchasing power of most consumers, and crippled our economy with a massive ongoing trade deficit.
Adopt "Buy American" requirements related to federal government procurement that mirror those of our trading partners. No single stimulus effort would more quickly resuscitate U.S. employment, especially manufacturing employment, on the order of 2 million new, permanent jobs. Given $3 trillion in annual government expenditures—i.e., 20 percent of the nation's GDP—an easy and conservative estimate of new jobs created by this policy change is 2 million.
Fund a 10-year program of significant public investment to upgrade and rebuild our nation's major infrastructure, including a new National Infrastructure Bank and incentives for private funding of public infrastructure. Provided that the bank is subject to Buy American requirements, each billion dollars invested in public infrastructure would create on average 25,000 permanent new jobs.
A robust middle class has always been the foundation of business prosperity in the U.S. Enlightened CEOs who understand and are committed to this premise are key. CEOs need to be going to Washington as constructive participants in policy debates, rather than to fend off reasonable regulation. They have every right to anticipate government actions and policies that pave the way for their companies' successes. First, for the good of society, today's CEOs need to acknowledge and embrace—as their predecessors did—equal and concurrent responsibilities to shareholders, employees, customers, communities, and the nation. It's very good business, as we were taught years ago.