After a recent performance of “Othello,” the audience was invited to say what they thought Shakespeare’s play had to offer today’s society. A teacher sitting next to me offered this supposition: People who “play by the rules” get beaten down by a cynical society that has no compunction against sowing untruths to advance their selfish interests, often destroying lives in the process -- exactly what happened to Othello in this 400-year-old play.
A Moor and a seasoned military commander, Othello marries a senator’s daughter and is then undone by a calculated web of untruths. While I don’t want to spoil the ending for people who haven’t seen the play, suffice it to say that things go badly for Othello -- a man who had played by the rules.
Nothing makes that teacher’s point better than what we learn while watching John Stumpf, Wells Fargo’s chairman and CEO, being eviscerated by Sen. Elizabeth Warren during the Senate’s probe into the bank’s bogus accounts scandal.
Warren was the architect of the Consumer Financial Protection Bureau but was denied the opportunity to head the agency she started, so she sought and won a seat in the Senate. A Google search will show her in action. The testy exchange with Stumpf, to put it mildly, illustrates how senior officials at Wells apparently looked the other way as employees were fired for not meeting sales quotas or for criticizing a corrupt phony marketing process. Meanwhile, the outsized compensation and bonuses for those ultimately responsible just kept coming. Stumpf’s compensation, in increased stock value, jumped more than $200 million since he learned the bank’s problem existed.
The Wells situation, involving millions of fraudulent accounts, shines a light on several components of the business world that impact American investors today. First, we should recall that public companies are owned directly or indirectly by us. Average American citizens are the primary beneficiaries of ownership through pension funds, college endowments, 401(k) plans, IRAs and countless other forms of ownership of these public companies. We have a perfect right to make and enforce corporate governance rules.
The problem began years ago when major companies segued from family ownership to public stockholders, with teams of professional managers at the helm. In his 1956 book “The Power Elite,” C. Wright Mills wrote about the extent to which the “owners” lost control of their managers as American businesses underwent this transition -- which set the stage for some companies to run roughshod over those who “played by the rules.”
Society has been paddling upstream ever since in an effort to curb the excesses that have cost so much money and heartache over the years. Can anyone control a bank with 265,000 employees? Did it ever make sense for investment banks to have 3 percent of their own money invested while borrowing the other 97 percent -- as we wonder why they were all wiped out?
Do senior executives of American corporations have to be paid eight- and nine-figure incomes, for reasons having little to do with their individual performance and more to do with the rising tide of all stock prices along with the momentum of a huge company? Don’t these companies have deep benches with hundreds of qualified people willing to step in at a fraction of what the current CEO receives? We are unique among industrialized countries to the extent that we deify senior executives and shower them with money that could have been reinvested or paid in dividends -- to us owners.
Unrestrained free markets might make sense on paper, but we have long been aware of the havoc they create. The Securities Exchange Commission was given expanded powers by the Dodd-Frank Act to demand “clawbacks” of compensation from company managers held responsible for corporate malfeasance, but so far, just 40 cases have been filed -- with successful results in 18. At least it’s a start. Warren Buffett, corporate rectitude personified, is a director and major Wells Fargo stockholder, but he has been uncharacteristically silent to date. When we do hear from him, I’m guessing that he will be on our side.
So, when it comes to “Making America Great Again,” it’s encouraging to see Elizabeth Warren leading the charge. A glimpse at the list of accomplishments of her consumer protection brainchild (just another Google search away) will illustrate what may be our best hope for reigning in the same duplicitous and self-interested cynicism that is a stain on the otherwise spectacular success story of American business. In other words, “We can be even better.”