It’s not the corporations; it’s the CEO class that runs them

I’ve written about this before, but the thoughts have usually been embedded in another article. I want to pull concept out on its own. The question: What is a modern corporation, and what is its relation to its owners in practice, the CEO class?

(The source of the following text is here; the subject of the original article was, how should we understand why oil corporations are taking the planet down? What is driving them? The answer, of course, is their CEO class, which led to the following reflections. I’ve reparagraphed this excerpt, since our columns are now wider.)

It’s not the corporations; it’s the people who run them

… I want to make a few points about corporations. The points may be obvious, but it’s useful to keep them in mind. They are:

(1) Corporations are not people, and they don’t have ideas or will. They are empty vessels. If you took a neutron bomb to the home office of MegaCorp.com and let it rip, the building, filled to the brim with inventory and IP, would be empty of humans and a dead thing. You could wait for weeks for the offices to act; they wouldn’t.

(2) This is especially true today, since the corporation now serves a different function than it was designed for. At first, a corporation served to make its stockholders moderately wealthy — or at least wealthier.

Modern corporations serve one function only — to make the CEO class obscenely rich, even at the expense (that’s a Bain link) of the corporation itself (yes you, Carly Fiorina). Thanks to the incentives in the post-Reagan tax code and the capture of Boards of Directors by the CEOs themselves, controlling the modern corporation — being the Jack Welsh of your world — is a straight path to big-league power and wealth. You’ve arrived.

As I’ve said many times in a number of ways:

Corporations loot the nation.
CEOs loot the corporation.
CEOs then buy everything on earth they want or need.

In the western world, the corporate controlling class lives higher than the kings and presidents who serve them. That’s not invective, but a simple fact. Call it my Flow-of-Funds Rule. Money flows right through the corp into CEO pockets, just like warm beer flows through you on a night of heavy drinking. Your body retains only what it needs. The receptacle gets the rest.

(3) Thus the modern corporation is no more than a power-extender for its hosts, the CEO, CFO, COO and so on, who use it to feed on all the wealth of the world. A perfect image of the relationship between CEO and corp is Ripley and the powerloader from the film Aliens:

alien_ripleypowerloader

The modern corporation serves no other function for its controlling class than to allow that class to live like this (h/t Paul Krugman):

“It’s incredible, right?” shouts Jeff Greene over the roar of the two-seater dune buggy’s motor. “It’s 55 acres!”

Still in his whites from this morning’s tennis match, he’s giving a personal tour of his Sag Harbor estate, barreling at 30 miles per hour through the vast forest of scrubby pines and soft moss of its gated grounds.

“Beautiful nature here!” A blur of deer goes by, and the trees break to reveal the summer sun glinting off a grassy lagoon. Greene slows by its shore.

“This is our swan pond, and this is our private beach,” he says, gesturing toward a slip of white sand encircling the edge of the North Haven Peninsula. “It goes all the way to the ferry. Three thousand feet of beach,” he adds, a smile spreading across his tanned face. …

“I’ve got a huge, huge position in mortgage-backed securities,” he says. “I started accumulating them in 2009, when the market was really down and things were really scary.” That’s also when he picked up this property for around $40 million (half the 2007 listing price), which he and his wife have christened “Greene Haven.”

“I wish we could spend more time here,” he says. “Honestly, we have so many great homes.”

This is why they exist, what they live for. This is victory, what is good in life. The purpose of the powerloader is to extend its master’s reach. The purpose of the corporation, the same. Ask yourself — if the CEO of Chevron could triple his personal wealth in a day by burning the corp to the ground and salting its earth, would he do it?

Why would he not?

This is the modern corporation. As I wrote above — Money flows right through the corp into CEO pockets, just like warm beer flows through you on a night of heavy drinking. Your body retains only what it needs. The receptacle gets the rest.

Don’t think of a corporation as acting. Think of its CEO as acting through the corporation. Thanks to the Reagan Era tax system — and the tax system of every era since, Democratic and Republican — it’s more profitable for a CEO to loot his or her corp than to plow the corporation’s money back into it, as used to occur.

This is a fundamental truth, one I frequently refer to. This is the post that I will point to in the future when noting that fact. Welcome to the modern world. This is why we are ruled by barons. There’s no other reason.

(Update: As a perfect example of what I’m talking about, read this comment by judybrowni. Thanks for posting it.)

GP

To follow or send links: @Gaius_Publius


Gaius Publius is a professional writer living on the West Coast of the United States. Click here for more. Follow him on Twitter @Gaius_Publius and Facebook.

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  • starskeptic

    I worked in a hospital laboratory that was run along the same lines; when I asked “when does the edict come down from Pharaoh’s overseers to start making the bricks without straw?” – nobody got the joke. Can’t imagine that no one there had never seen the “Ten Commandments” – it’s a Catholic hospital.

  • harvey

    There are about 1300 entities which own more than 60% of the world’s assets, according to a Swiss study of 2011.

    And its always the owners that have the power in any enterprise. They are the ones who hire and fire.

    Before the era of big corporations, it was nation rulers who called the shots. And they always allowed their lieutenants to loot when they overran another country. As still happens today in Africa.

    Its the same for corporations. The owners let the underlings (CEOs) loot what they want, to maintain loyalty. Twas ever thus.

  • wrylyfox

    Interesting and on point.

    But do psychopaths have wisdom or are they just good at all kinds of games and sports?

    http://www.scientificamerican.com/article.cfm?id=wisdom-from-psychopaths

  • UncleBucky

    Karmanot, please say more. 25 words more or less, on how Peter Drucker fits here. I have read a book, by him, but I didn’t get it. I know I can wiki or google it. But please give the pointers or links between Drucker and what Gaius et al. are saying. Thanks!

  • Sweetie

    Corporation, n. An ingenious device for obtaining individual profit without individual responsibility. – Ambrose Bierce

  • Sweetie

    Hell, like karma, is just fairy tale nonsense.

  • judybrowni

    I’ll never buy an HP product again: the laptop I bought during Fiorina’s tenure ($1,000!) blew up in a matter of months. And then I spent three months begging to get my (repaired?) computer back from the company.

    Finally, they sent me a “replacement”: which died in three weeks. The next “replacement” I handed over to a disabled neighbor with the time to deal with HP’s shitty customer service.

    Never again an HP product, and you can bet your bottom dollar I fought that bitch becoming Governor of California.

  • Kim_Kaufman

    I’m ready to start talking solutions. Strategies. I think we all understand the problems by now, at least judging from the comments here so far. The next two months is going to be critical. I still think a lot of people don’t understand just what happened in the so-called “fiscal cliff” deal — how they were screwed. I don’t think this should be forgotten and put to bed so quickly. It should continue to be written about because when folks find out what is in it they will get mad — and realize it’s a giant foreshadowing of what is going to happen next.

  • drdick52

    It is not even neo-feudalism. Under feudalism you had to at lest make a pretense of giving something back (courts & laws, military protection, etc.). The current model is all taking and no giving, which is what makes capitalism a more efficient rent extraction machine.

  • http://www.facebook.com/people/Melvin-Dean-Baker/1345608091 Melvin Dean Baker

    We all have stories like these. So the great question of our Gilded Age 2.0 is what can be done? There are unlikely to be any simple solutions, but it’s time to start figuring out how we can realistically work to prevent the 21st Century aristos from destroying our believed in meritocracy. If not, then one day they may find that history repeats itself and the “Best of times, worst of times” will end in its own “Tale of Two Cities” redux.

  • Bill_Perdue

    Ownership of the commanding heights of the economy is what gives the rich their power to get richer at the expense of workers by owning political parties and the political prostitutes who run them. There is no way to defeat them in the political arena of modern capitalist ‘democracies’ because they control the media and write the laws that limit the political process to events and outcomes they have absolute control over.

    That’s been the Marxist or socialist view since the Das Kapital (1) was published.

    Corporate looting of the economy by multinationals depends on the inventiveness of CEO’s in refining looting practices and busting unions. They’re the highest paid corporate workers workers but even with bloated salaries and golden parachutes their wealth, except for certain run corporations doesn’t even begin to approach the wealth of the .0%. For example “Walmart CEO Michael Duke’s $35 million salary, when converted to an hourly wage, worked out to $16,826.92. By comparison, at a Walmart store planned for the Windy City’s Pullman neighborhood, new employees to be paid $8.75 an hour would gross $13,650 a year.” (1)

    By contrast “Vermont Sen. Bernie Sanders, an independent who caucuses with Democrats, tweeted a startling statistic to his followers on July 22, 2012: “Today the Walton family of Walmart own more wealth than the bottom 40 percent of America. ,,, Six members of the Walton family appear on the Forbes 400 list of the wealthiest Americans. Christy Walton, widow of the late John Walton, leads the clan at No. 6 with a net worth of $25.3 billion as of March 2012. She is also the richest woman in the world for the seventh year in a row, according to Forbes. Here are the other five:
    No. 9: Jim Walton, $23.7 billion
    No. 10: Alice Walton, $23.3 billion
    No. 11: S. Robson Walton, oldest son of Sam Walton, $23.1 billion
    No. 103: Ann Walton Kroenke, $3.9 billion
    No. 139: Nancy Walton Laurie, $3.4 billion
    That’s a grand total of $102.7 billion for the whole family.”
    (2)

    That, $35 million vs $23 billion, is the difference between being a very highly paid employee and a member the looting class, the ruling class.

    The best strategy for the left is to help organize the two newly radicalized layers of working people represented by the growing left wing of unions and radicalized, unemployed or underemployed and marginalized workers represented by the Occupier movements. Many of the Occupiers are people who once supported but now reject Obama and the Democrats.

    The two main parties, in spite of all their anti-democratic laws, beginning with the Electoral College, their control of the media and their access to unlimited funds from the looter classes are in trouble. They’re splintering internally and the level partisan rancor they exhibit makes it difficult for them to rule. Both, in my opinion, should change their names to the Whig Party. Like the Hapsburg’s and the Romanov’s, they no longer possess the ability rule effectively in sense of solving questions like war and prosperity.

    (1) http://www.marxists.org/archive/marx/works/1867-c1/

    (2) http://abcnews.go.com/Business/walmart-ceo-pay-hour-workers-year/story?id=11067470#.UOnz8G_AeSo

    (3) http://www.politifact.com/truth-o-meter/statements/2012/jul/31/bernie-s/sanders-says-walmart-heirs-own-more-wealth-bottom-/

  • http://adgitadiaries.com/ karmanot

    Check out Michael Hudson’s article in Counterpunch on this very topic….

  • condew

    I think this whole fleecing of the middle class kicked into overdrive with the fall of the Soviet Union.

    While they feared Soviet communism, the CEO class needed a population of happy workers ready to send their sons to their deaths to defend capitalism.

    China learned.

  • condew

    There is also the Enron model. You can make more engineering a shortage than by keeping up with demand; and when the whole scam collapses, make sure your employees can’t sell their stock until it’s worthless.

  • http://www.rebeccamorn.com/mind BeccaM

    I’ve been working in technology industries for over three decades, and your brother’s experience sounds absolutely typical.

    Up until the early 1980s, there were still corporations where a regular employee really, really wanted to be hired, because once there, you were home. A decent pension. Amazing benefits packages. Good wages for both hourly and salaried employees. Chances for advancement. (I remember being super impressed with a campus tour I got during an IBM interview, and being disappointed when they didn’t make me a job offer.)

    The notion of valuing employees was thrown out with the advent of the leveraged buyout / junk bond era. Solvent companies sitting on capital or with significant capital investments became targets for pillaging, often over and over. Capacity to assume crippling debt became an asset itself. And throughout it all, we peons were told that executives needed their bloated salaries, bonuses, and ridiculous compensation packages to be ‘retained’, whereas we had to suck up the loss of bonuses, no raises, and deep cuts in personnel. Apparently, retaining us wasn’t a priority. I remember my first team going from two managers and about two dozen employees down to one manager and perhaps 15-16 — but being told we had to keep up the same amount of work. (A few years later? The group had been moved from a corporation-owned facility to a rented building, and was down to around 10 people, plus a couple contractors, one of them me. Eight months later, we contractors were let go and there was another round of layoffs. A couple years later, they were shut down and dissolved. At no point did executive salaries and benefits see the least cutback.)

    Then there were companies that supposedly really valued their employees. I remember one where I worked as a contractor, where lots of their people did extremely well during the dot-com boom. Expensive cars in the parking lots, people with nice homes bought with stock option money. Then when things went bust, what happened? We contractors were let go, then employees were laid off. The remaining people’s bonuses dried up, wage freezes instituted, and more work expected from fewer people, meaning ever increasing uncompensated hours for salaried ‘exempt’ employees. But the Vice President and up class? Oh, they needed their incentives to be retained, so their salaries, bonuses, and options packages kept getting sweeter, even in the midst of corporation-wide austerity measures.

    Last I checked with the friends I still have working there, it’s become a hellish grind. Fewer and fewer people doing more work. No raises, no bonuses, and constant threat of new rounds of layoffs euphemized as down-sizing and out-sourcing.

    Until the new peasant class realizes their new lords and masters aren’t politicians, but the plutocratic oligarchs — who now have already broken the boundaries of traditional nation-states, becoming multi-national concerns with loyalty to no one but themselves, no accountability to anyone… well, we’re all frogs in a pot that is slowly reaching the boiling point.

    The upside, in a way, is given human history, the breaking point always does happen. Eventually.

  • http://blogvader.tumblr.com/ Blogvader

    The company I work for had its first ever layoffs in 2010, insisting that they were necessary to stay profitable. Six months later our local paper ran an article on our president taking an 80% pay increase, whereas my merit raise for the last two years has been three percent and I now pay for my own health care, which I never had to do prior to 2010.

    He just retired a few months ago taking with him around 21 million dollars.

    To put it simply, these people are parasitic, selfish, and evil bastards.

  • http://blogvader.tumblr.com/ Blogvader

    When I was watching Meet The Press this morning, I threw up a little in my mouth at the sight of Carly Fiorina insisting that entitlements need to be cut, when she was one of the worst CEO’s in history and still took home 40 million bucks.

    It’s not grandma, or single mothers, or kids on food stamps that are killing this economy. It’s assholes like Carly Fiorina.

  • http://adgitadiaries.com/ karmanot

    WAL*MART is the reigning business model now. In so many words, it is neo-feudalism.

  • http://adgitadiaries.com/ karmanot

    Two words: Peter Drucker

  • Kenneth C. Fingeret

    Hello Judybrowni,

    May all of the CEO ilk rot in Hell with their sycophants and all of the others who benefit from their actions.

  • http://www.rebeccamorn.com/mind BeccaM

    That’s just the thing: The pillaging won’t stop until we reach the pitchfork & guillotine stage of civil unrest.

    Capitalism without limits regresses inevitably to a form of plutocratic feudalism.

  • judybrowni

    In the company my brother worked for, the CEOs looted, and over the years, more and more actual workers were lopped off to make it ever more profitable for those at the top.

    When you would think the thing was too top heavy, the CEOs would lop again (the company was bought and sold three times, and each time heads would roll.)

    Finally, in the last year of 17 in which my brother worked there (and was the last of the original executives), the current CEO refused to give up one of his redundant Vice Presidents: so cut 32 of the work force was let go to retain a 1% fool.

    32 middle class jobs gone, so one could wallow in the wealth, perks, etc.

  • drdick52

    Excellent! Mature capitalism (as opposed to the emergent form studied by Adam Smith) is primarily a more efficient rent extraction mechanism. Since the late 70s, the corporate managers have displaced the stock owners as the controlling interest and major beneficiaries to a large extent. While there is tension between the two groups, they have largely colluded to rob workers, suppliers, customers, and the general public for their own enrichment. This is clearly reflected in soaring corporate profits and executive compensation, along with declining labor share in profits and ever greater income disparities.

  • Drew2u

    Same thing with superPACs to expedite the process. Not only is this demonstrated through Rachel Maddow’s brilliant journalism of Dick Armey’s scam, but also Teabagger SuperPACs admitting FOX mouth-breathers getting paid upwards of $1M from the SuperPACs. And of course Newt Gingrich’s personal trophy scam and book-selling.

  • Indigo

    They CEOs have yet to learn that there’s more to feudalism than a private life of luxury.They have piracy as their model but that can’t last and once it’s over, they’ll hang from a yardarm.

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