The Ethics of “Greed is Good”
Gordon Gekko in his speech to the shareholders of Teldar Paper promotes greed as the means in which to save the troubling company. His argument begins with the assertion that the root of the problem is with the management of Teldar Paper. He notes that they have no stake in the company which he takes to be essential to the success of any company. When those in control of the company only own a small portion of the stock and yet it is everyone else who owns stock who owns the company there may be a conflict of interest. The potential conflict of interest here is that those who are in control of the small portion of stock in the company and yet control it may make business decisions which benefit another company which they may hold more shares in at the expense of Teldar Paper. Not only is there problems which may arise from the latter scenario but also with a minimum amount of shares in the company when those in management go on, as Gekko mentions, expensive business outings it is largely at the expensive of all the other shareholders and a real question arises if it is the best use of their money.
If the shareholders were fully informed as to exactly what their money was going towards, as Gordon Gekko attempts to do, a great deal of money would be saved. The money would be saved because as Gekko argues, the natural greed of all of the shareholders to want to maximize their own profit will minimize the seemingly frivolous expenditures of the excessively large managerial body of Teldar Paper. Greed would thus cut down the number of managers and the expense of the company outings both effective methods to save money for a failing business. The desire to maximize one’s own profit cuts through as many un-necessary wastages as possible and as Gordon Gekko phrases it, “captures the essence of the evolutionary spirit.” Not only does Gekko believe that greed will save the company but also that greed can promote the greater social good. The article “The Social Responsibility of Business is to Increase its Profits” by Milton Friedman deals with the issue of the ability for corporate greed to promote the greater social good.
There is nothing inconsistent with the idea of a company both being greedy and promoting the greater social good. Milton Friedman regards the moral obligation of managers to make as much profit for the company as possible and one method of doing so is through promoting the social good. A company situated in a small community for example which pulls its resources from the local population would in its own interest support many of the social goods of that community in order to keep them happy.
Companies, in general, find that behaving morally pays off. This has long been known through the use of brand names, which a lot of value goes into so that a positive feeling is passed onto the consumer when buying the product. The value placed on brand names is called brand equity and through it, if companies want to maximize profit, avoid unethical conduct. The reason being is that brand names are extremely vulnerable when it comes to bad publicity when information of unethical conduct emerges. A good example of this is with sweatshops. Companies such as Nike have a lot of brand equity in keeping the swoosh logo a “clean” logo. It is in the best interests of Nike to avoid using sweatshops because of the possibility of bad publicity associated with using one, which could potentially harm the company’s image. So in a situation, as just mentioned it is in the profit-maximizing interest of the company to avoid using sweatshops and actually pay the workers decent wages. In doing so they are still being greedy but at the same time, they are doing a social good in the area. So for the promotion of many social goods, there is no tension between social responsibility and profit maximizing. Smart businesses, in fact, should start to realize that the two go hand in hand. Friedman believes that a genuine problem occurs when it is profit maximizing to pollute and polluting is legal. This is when he thinks things must be discussed, whether corporations have any strong social responsibility or not. In other words, do they need to do anything more than that which coincides with maximizing profit?
Strong corporate social responsibility is the idea that corporations should sometimes lose money, forgo some profit, in order to do some social good. The objection to this is that it is costing money but not to the managers which are the ones making the decision to do the social good. Rather, it is passing the cost to either the customers or to the shareholders. This is objectionable because the managers are spending other peoples’ money without their consent, which amounts to a form of taxation without representation which is only acceptable when the state does so. It should be recognized however that it is probably the case that when managers of a company are spending money on social goods and forgoing some money in the short run, they are doing so because they are expecting greater returns in the long run, and so it is not as though they are completely ignorant of the need to maximize the profit of the company. An objection to the idea of managers spending shareholder money on social good in the short run for a social good, is that it is generally the case that managers have no expertise at social problems. It is thought that such work should specifically be left to those who do. In response to this though when profit is lost in the short run for profit in the long run, which can be the aim of strong corporate responsibility, it is not as though it is the manager who is doing the social good but rather simply it is the manager who looks at which social good it is important to invest in, and then leaves it to the social workers in that area to do what it is they need to do.
After looking at what Milton Friedman writes about on the issue it seems clear as to why it is that Gordon Gekko claims that his purchase of Teldar Paper would promote the greatest social good. It seems that what Gekko has in mind is to not only cut back on the costly expenditures at the top of the company in the form of the excessive number of vice presidents but also use the profit-maximizing strategy of promoting the social good in order to attract customers and avoid bad publicity both of which will increase the brand names equity.
In “Atlas Shrugged” by Ayn Rand’s a businessman by the name of Hank Rearden also promotes the social good but entirely as an unintentional externality. Hank Rearden was motivated by greed similar to Gekko and in the process was endangering peoples’ lives in pursuit of it. Rearden sees nothing wrong with this because he is dealing with mutual consent. Those who are buying something from Rearden are benefiting from it without having to make a sacrifice and Rearden is benefiting from the transaction without having to sacrifice his own interests. Both parties are working in mutual consent to gain mutual advantages. Through these mutual gains, Rearden is inadvertently creating well-being for the fellow man, even though it is not his main objective which is clearly profit. He believes it to be true that he need not worry about promoting anything more than is own well-being. This can easily be taken to mean that Rearden is a cold-hearted businessman, which actually does not seem to be the case. Instead, it seems that he is thinking that if each person were to maximize their own well-being it would naturally mean that the social good would also be taken care of. He does not feel that for there to be good anyone must have to fall victim to it, rather than it should be those who want to promote good are free to do so, and those who promote good only through unintentional externalities are free to do so and should not be hindered.
The unintentional externalities seem to be the greatest difference between Rearden and Gekko. While Gekko seems to want to promote the social good in knowing it will generate greater profits, Rearden takes a more hard-line approach and believes that profit is what will generate the social good not that one should do social good which they may not want to in order to get profit. It should be noted that neither Gekko nor Rearden are against social good which may be mistakenly taken to be the case, just that both of them have differing views on the role of social good in relation to profit.