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Focus on Faculty: The Financial Crisis

November 18, 2013

Communications and Marketing
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The current financial crisis has caused many to point the finger of blame at specific people, companies, and government officials. There is a lot wrong with our economy and many people have suffered during its internal destruction, but is it really fair to heap all of our reproach on a few greedy bankers, lavish CEOs, and government bailouts?

John D. Rockefeller, of the Standard Oil Company, Henry Ford of the Ford Motor Company, and Thomas J. Watson, the founder of IBM, raised massive corporations out of nothing and never needed government bailouts to save their businesses. How in such a short time has so much gone wrong?

According to professor Dale Kuehne of the politics department and financial economics professor John Romps, the charges should be pinned on a change in mindset, from community to the individual.

Professor Dale Kuehne

Professor Dale KuehneWhat is the social purpose of a company in America today?

"Well, I can tell you they are no longer about the creation of jobs and wealth like the companies of old. The reality is that companies now only care about profit. They care about a return of profit for the shareholder and the completion of short term goals over long term goals. These at any cost! But business is so much more than just profit. A company is meant to employ, to create, and to put forward great products and ideas. It is an engine that can move our society forward in many ways and has a huge, important, essential role outside of profit."

Why is there such a focus on profit now?

"Such a focus on profit is due to the growth of the individual mindset. Many believe that they must make it by themselves and that they must reach their own short term self-interested goals. We went from a world where our actions impacted other people and were not completely independent of other people. The fact is that life is inescapably relational. We cannot have community success without teamwork, and we cannot have teamwork without trust. Democracy is not just a set of rules, and it is not just about elections. It is fundamentally about trust! It is about working together with other human beings to accomplish things for the greater good."

Can capitalism and democracy still work?

"Capitalism and democracy cannot function without trust. Democracy in America used to work because people did the right thing when nobody was watching. America is great because America is good. If America ceases to be good then it will no longer be great. Business will have no profit if we lose the social, relational, moral fabric that is the foundation of our system. The crisis of our day is not the crisis of a few selfish people in business, or politics, or finance. The more fundamental issue of our day is that the success of our lives has always taken place in a moral context of community. If that foundation of community dissolves then there are no rules or regulations to put it back together. We need more than rules or regulations to make ethical business decisions. It requires a moral relationship to one's community. The less we agree on what the good is morally, the more democracy and capitalism won't work."

Professor John Romps

Professor John RompsHas the method of teaching business changed over the years?

"I have taught financial economics at Saint Anselm since the fall of 1969. In all those years I have taught pretty much the same material. I have always stressed that to be successful in business you must maximize your profits for the long run. With all the changes happening in business right before our very eyes I wonder whether I have been expressing myself correctly. The economic information that we teach was written back in the late 18th and early 19th century. A lot has changed since then."

What sort of things have changed in the business world since then?

"Most businesses were run by families who put everything into their companies in order to secure their family fortune and provide security for generations to come. When businesses were managed by people with loyalty to the company they cared much more for the long term state of things. They were ethical because they wanted to keep their hard working employees and because they wanted to continue to grow into the future. During times of economic depression they did not lay off their workers. Instead they gave them stocks in the company or promised them higher wages when the financial situation improved. Nowadays, these businesses are no longer managed by the family because they have passed away, or sold their company to someone else, or no longer need to work, or can't work. Whatever the reason, they have brought in people to run the business whose loyalty is not to the company but to themselves."

Why has this change in leadership changed business so much?

"The owners of the company are a diverse board of stockholders and the controllers of the company are a board of directors. With the rise of the corporation in modern times the question becomes: do the directors of the company represent the owners interests? How does a business tie its directors to ownership so the controllers care about the longevity of the company? The answer to this separation between ownership and control was apparently stock options. This way if the stock does well everyone benefits. However, this takes away from long term planning and emphasizes the short term. Companies no longer care about what is good for them 30 years from now but rather what is good for them this quarter. This perspective is fine for directors and owners but not good for employees and customers. I have no solution. Business is not practicing what we teach anymore. Economics is based on what is beneficial in the long run but this is no longer the mindset."

Video: Just For Profit Seminar Calls For Social Purpose

This story was written by Michael Morse '14.

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