Published in CommPRO.biz 2014.01.16

The Earnings Culture

Public companies are driven by the need to show earnings. The path they follow to that end determines their corporate culture. Horace Greeley, the dominant editor and publisher of the 19^th century, commented, “The darkest hour in any man's life is when he sits down to plan how to get money without earning it.” Problem is, some corporate leaders see any action to increase “earnings” as fully justified. Too many CEOs seek “earnings” by any means. They look at the fines and legal penalties incurred as -“oops”- no more than the cost of doing business.

Investors too often are not concerned how “earnings” are achieved. While the ethical business model is the proven best source of high earnings, some see the concern for employees, communities, vendors, and the environment that model requires as taking money out of their pocket. Some even see a focus on treating customers fair and square as a missed opportunity to increase profits.

We saw this in the run up to the current recession. The monster banks pushed the pipeline to produce more and more mortgages, ignore the details, don’t fret about income verification. Once in hand they threw together these shaky mortgages (“Crap” was the term they used), put a few good ones on top of the pile and sent them off to the rating agencies. The bankers were not hesitant to point out that as paying clients, the rating better be AAA.

These bundles of sure-to-fail “crap” were sold as if the triple A ratings were real. Adding insult to injury these banks placed bets that the “crap” they created and sold would fail. They bet against their own customers. They made money coming and going; money they called “earnings.” The shareholders loved it. J.P. Morgan Chase, Goldman Sachs and a handful of monster banks deliberately created financial products designed to fail.

When they were caught off guard by the collapse of their whole scheme, they turned to the taxpayers for help. While necessary, the bailout was designed by Bush Secretary of the Treasury, Hank Paulson, former CEO of a monster bank. He gave his mates the needed money but failed to attach any conditions. We the taxpayers continue to provide interest free funds to these banks believing that they will lend it to small businesses and create jobs.

Wrong! They are back to gambling with our money, this time boosting prices on basic commodities that folks strapped for cash have enough trouble paying for. As long as the banks’ “earnings” look good, the stock market booms. We are hard pressed to see these “earnings” passing the standard Horace Greeley set. The bank CEOs’ plans are obviously designed to get money without earning it. They set the culture and drove it down through the ranks. The people paid mightily these last five years for the sins of these arrogant banksters. They, however, are above the law. At least the Attorney General of the United States says they are.