10.16.2016 0

Sorry, Allstate CEO: Profit is the only responsibility of a corporation

By Rick Manning

As originally published at http://thehill.com/blogs/pundits-blog/finance/301126-sorry-allstate-ceo-profit-is-the-only-responsibility-of-a

Newsflash: The vice chairman of the U.S. Chamber of Commerce doesn’t believe that corporations’ reason to exist is to make a profit, and referred to Milton Friedman’s legacy of profit-driven progress as “dangerous” in a Washington Post op-ed.

The column by the chairman and CEO of Allstate, Tom Wilson, assailed the legacy of famed free-market economist Friedman as something that was “diminishing” the 21st century’s reconfigured definition of what a corporation should be.

“The emphasis on profits has widened the trust gap between corporations and society, resulting in an adversarial relationship between the private and public sectors,” Wilson wrote.

So let me get this straight: The guy who is the vice chairman of the U.S. Chamber of Commerce blames the profit motive for the clash between business and government regulators?

Don’t blame the Environmental Protection Agency (EPA) for attempting to destroy the coal industry; it is actually the coal company’s fault for wanting to be able to make a profit that is responsible for the clash.

Millions of small, independent businesspeople who work nonstop to build their dream must be the true root of the problem as they strive to make their ventures profitable, causing a clash with the government rule-makers who increase their costs without providing any additional ability to offset them with new revenue streams.

And the U.S. Chamber itself, with its great work of trying to protect its members against National Labor Relations Board and Labor Department rulings and regulations designed to disarm businesses’ ability to talk to employees about the consequences of a vote to organize, is clearly wrong because they are trying to protect the ability of a business to remain solvent and profitable against unionization.

The U.S. Chamber of Commerce extols itself as the defender of free enterprise, yet somehow Allstate’s Wilson identifies the profit motive — which is the foundation of capitalism — as being a problem in the 21st century.

Fuzzy-headed thinking like Wilson’s is what is truly the problem of the 21st century.

Pension funds that worry more about environmental and other social causes for their investments rather than the financial returns of a company put those who depend upon them for their future retirements at risk while they play social do-gooder.

Allstate itself depends upon a good, solid return on the investment of its reserves in order to meet needs when a disaster like Hurricane Matthew hits the Southeastern coastline. If Wilson’s Allstate is investing for social conscience rather than for profit with his shareholders’ reserve fund, the insurer will soon find itself hat in hand in front of the federal government, groveling for the rest of us to bail them out.

Stock market investors need to examine the wisdom of owning the stock of a company like Allstate when the CEO has made it clear that his first priority is not increasing or maintaining dividends or growing share price, but instead being personally accepted by the politically correct elites.

None of us have any business telling Wilson how to spend his own money, but if he follows his own rhetoric in his anti-profit Post column, Allstate’s board of directors should remove him immediately, and anyone with the misfortune of owning stock in the company should sell.

Think about the words written by Wilson when considering whether to buy, sell or even depend upon Allstate as a company: “We must broaden our evaluation of corporations beyond share prices to provide space, light and water for their role to grow,” Wilson wrote. “We must reject narrow definitions of what corporations can and should do — and get on with making the world a better place.”

As evidence of his company’s commitment to this “better place,” Wilson seized upon the minimum wage issue — a liberal rallying cry.

“This year … we raised Allstate’s minimum starting wage to the equivalent of $15 per hour because it was good business to do so,” he wrote.

Wilson neglected to mention that he pulled down $76.3 million in executive compensation between 2011 and 2015 — an average of $15.3 million per year. Had he foregone his salary this year alone, his company could have hired 490 new “starting wage” employees. Or it could have brought back several hundred of the call center jobs it outsourced to Bangalore, India over the last few years — another item Wilson neglected to mention in his make-the-world-a-better-place screed.

As much as flowery-tongued hypocrites like Tom Wilson would have you believe otherwise, corporations have one job: to produce profits, and when a corporate executive tries to tell you something else, run — don’t walk — away from the company he or she leads. It is destined for failure.

Manning is president of Americans for Limited Government.

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