Wealth Shift: The Decline of Ethics in America
Back to Table of Contents

What’s Going On Here?

Reading these three contracts back-to-back, we have to ask ourselves, “What’s going on here? How is it possible that our working environment has become so incredibly screwed up?”

Looking more closely at the pre-Baby Boomer contract, it seems intuitive to believe that such an environment (with a few adjustments to accommodate the modern two-income household) might have continued to thrive indefinitely. Workers cared about the company and, in exchange, the company cared about the worker, which, in hindsight, resulted in a highly-functional ethical symbiosis. But that’s not what happened. Instead, both sides consistently chipped away at their part of the bargain until now there is no bargain at all. Instead, the house once built upon a foundation of community and cooperation now lacks structural integrity to such a degree that we are tearing it apart for wood.

It is regrettable, really, but there is no use focusing on what-ifs. However we might wish it otherwise, the opportunity to grow the pre-Baby Boomer contract into something strong and lasting passed us by a long time ago. Now companies and the people who work for them no longer operate within any sort of mutually agreed-upon ethical framework. Rather, we have substituted a situationally-motivated phenomenon that I have termed “Wealth Shift”.

The basic premise of Wealth Shift is as follows: Instead of operating ethically and taking as our compensation only a package of salary and benefits that has been fairly determined in a reasonable, arm’s-length, and appropriately-negotiated way, we now look around and make our own judgments as to whether our compensation package is adequate or not. We poke our heads out of our offices, cubicles, or other work areas and compare our compensation to that of other people in our company, our peers, and society in general. From time to time, we may get angry and confront the powers that be, but mostly we just end up thinking, “To hell with it. If this company isn’t going to compensate me the way I think I should be compensated, then I’ll just find ways to compensate myself!”

Employees at all levels have found incredibly creative ways to Wealth Shift that are as diverse as the people themselves. Some Wealth Shifting ideas are exceedingly complicated and require a tremendous amount of effort, collusion, and shareholder apathy to execute, while others are merely spur-of-the moment, situationally-motivated decisions. For example, an executive might Wealth Shift a totally mind-boggling compensation package for himself by using his relationships with the people on the company’s compensation committee and the stock voting power of apathetic shareholders and his personal inner circle to implement his Wealth Shift plan. By contrast, a fast-food worker might Wealth Shift by pocketing a cheeseburger or two on his way out the back door. While these two incidents might seem completely different, ethically they are exactly the same – both the executive and the worker have found ways to appropriate wealth for themselves at the expense of the company – all without active approval.

Those of us in a position of power find ways to take what we want outright, while those of us who are not so lucky adopt passive-aggressive behaviors and sneak what we believe we deserve. Either way, we close our eyes, rationalize our actions in a thousand different ways, and forget about what Wealth Shift costs us in terms of self-respect and the respect of others. As a result, trust between co-workers is destroyed -so much so that we can now barely stand to be in the same room with one another, much less work together to achieve our agreed-upon goals.

Despite the fact that Wealth Shift costs companies upwards of $400 billion a year, we haven’t done much about it. You do it -I do it -we all do it, who cares? Well, it may have been one thing to take our Wealth Shift lumps and look the other way while the economy was going strong, but it is quite another to simply ignore it now, when tough and rocky times are upon us.

Here’s why: In companies that are profitable, Wealth Shift is funded by the shareholders. This may be something that shareholders don’t particularly enjoy and should possibly address, but at least it doesn’t threaten the very existence of the company. This is not true in companies with year-over-year losses, however. There, Wealth Shift is most often funded by an increase in debt rather than an infusion of additional capital, and this burden of debt (on top of the company’s losses) is ultimately what kills the company. In extreme circumstances, even the government (and, by extension, the taxpayer) must get involved to bail out the company and prevent an economic melt-down (think automotive, airline, farming, and, most recently, the financial (and automotive, again) industries).

When hard times hit, individuals aren’t the only ones who Wealth Shift. Desperate companies find ways to Wealth Shift, too. Perhaps they load up on debt. Perhaps they terminate employees they really need and/or further reduce employee benefits. Perhaps they falsify their financial statements and/or make deceptive statements to the public that only serve to erode their credibility. Perhaps they cut corners on quality. Perhaps they forget just how important the customer really is and fail to keep their promises regarding warranties and customer service. And when these things happen, let’s not kid ourselves. It isn’t a desire to return to profitability that motivates this kind of decision-making – it’s Wealth Shift. Decisions made to shore up share price which are not in the long-term best interest of the organization are simply one more way that captains of industry have found to keep their companies afloat long enough to cash in their enormous stock option portfolios and abandon their ships in their own personal “life yachts” before any of the passengers catch on.

Let me illustrate. Of the Fortune 500 companies that made the list for 2007, the following is a sampling of 10 companies that sustained a major loss (the list specifies the amount of loss and also includes the name of the company’s CEO and his 1yr/5yr pay). I want to point out that merely sustaining a loss while simultaneously paying out high executive compensation does not necessarily mean that all of these companies and/or CEOs are Wealth Shifters. On the list below, a full 70% of these CEOs haven’t held their position with the company for five years (some not even one), so it’s probable that at least some of them inherited the mess their company is in (quite possibly from a Wealth Shifting predecessor). But some of these companies are in hard-hit industries – failing industries – and yet, somehow, these CEOs have found a way to never take a hit themselves. These companies are hurting terribly, but the CEOs are not.

While I am not here to point fingers and judge who is guilty of Wealth Shifting and who is not, each of us should always be willing to hold the mirror up for someone else to peer into. Except for in extreme, grossly unethical cases, Wealth Shift isn’t something for the courts to judge. It’s about keeping our own private scorecards and making our own hard judgment calls about what we do and why we do it. If you are one of the CEOs on this list (or in any unprofitable company) and consider yourself to be ethical, you should certainly be willing to check your motives in the mirror. If by looking in the mirror you find you are suffering from “jackpot” mentality – and by this I mean that your true motive for doing your job is to take the big money and run – then you need to stop Wealth Shifting right now and turn the reins over to someone who is willing to take a hit to his own compensation in order prove his determination to cast his lot alongside the company’s shareholders, lenders, and lowliest of employees.

Fortune 500 Companies Sustaining Significant FYE2007 Losses (Including CEO and His 1-yr/5-yr pay)

General Motors – $38.73 billion loss (G. Richard Wagoner, Jr. -$2.05/$25.24 million)
Sprint - $29.58 billion loss (Daniel R. Hesse - $3.85/NA* million)
Merrill Lynch - $7.77 billion loss (John A. Thain - $15.75/NA* million)
Freddie Mac - $3.09 billion loss (Richard F. Syron - $3.4/NA* million)
Delphi - $3.07 billion loss (Rodney O’Neal - $3.72/NA* million)
Ford Motor - $2.72 billion loss (Alan Mulally - $12/NA* million)
Fannie Mae - $2.05 billion loss (Daniel H. Mudd - $8.79/NA* million)
Lennar - $1.94 billion loss (Stuart A. Miller - $9.28/$73.07 million)
Charter Communication loss - $1.62 billion (Neil Smit $5.63/NA* million)
Schering-Plough - $1.47 billion loss (Fred Hassan - $25.38/$36.22 million)

*Indicates a tenure as CEO of less than 5 years

Previous | Next