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CAPITALISTS ARISE
2 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
We Must Preserve Free Enterprise Capitalism
3 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
FREE ENTERPRISE CAPITALISM
• Made America the dominant economic and military power in the world
• Built America’s Middle Class as the largest economic market in the world (1945–1975)
• Miraculously, lifted hundreds of millions from abject poverty to a more humane standard of living
Our Heritage (1945 – 1980s)
5 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
THE FUNDAMETAL BUSINESS GOVERNANCE 1945 – 1982
1. The Customers 2. The Employees 3. The Shareholders 4. The Corporation Itself 5. The Communities/Nation
1980 Chamber of Commerce definition of the role of business includes: • Creating Jobs • Paying Employees fairly • Act as a good citizen
6 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
CREDO
We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who
use our products and services. In meeting their needs everything we do must be of high quality. We must
constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced
promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit.
We are responsible to our employees, the men and women who work with us throughout the world. Everyone must
be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of
security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We
must be mindful of ways to help our employees fulfill their family responsibilities. Employees must feel free to make
suggestions and complaints. There must be equal opportunity for employment, development and advancement for
those qualified. We must provide competent management, and their actions must be just and ethical.
We are responsible to the communities in which we live and work and to the world community as well. We must be
good citizens – support good works and charities and bear our fair share of taxes. We must encourage civic
improvements and better health and education. We must maintain in good order the property we are privileged to
use, protecting the environment and natural resources.
Our final responsibility is to stockholders. Business must make a sound profit. We must experiment with new ideas.
Research must be carried on, innovative programs developed and mistakes paid for. New equipment should be
purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse
times. When we operate according to these principles, the stockholders should realize a fair return.
7 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
PROSPERITY CAPITALISM
EARNINGS GROUP 1945 – 1981
TOP 1% 29%
NEXT 9% 103%
BOTTOM 90% 77%
REAL EARNING GAINS BY INCOME GROUPS
SOURCE: IRS.
Contemporary Version of Capitalism Governance
(1980s – Today)
9 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
TODAY, THE FREE ENTERPRISE ENGINE IS AT RISK
The Modern American Tragedy The Zip Code America
11 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
Income and Wealth Inequality How Real, How Big?
12 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
AFTER TAX MONTHLY SURPLUS INCOME BY DECILE, 2017
-$1,386.58
-$771.67
-$635.92 -$356.58
-$159.83
$41.42
$534.00
$914.25
$1,432.25
$4,459.58
-$2,000
-$1,000
$0
$1,000
$2,000
$3,000
$4,000
$5,000
1 2 3 4 5 6 7 8 9 10
SOURCE: CALCULATIONS BASED ON BLS CES 2017
13 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
SOCIAL / ECONOMIC INSTABILITY
SOURCE: CORAK 2011, OECD, CEA ESTIMATES
14 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
SOCIO ECONOMIC CONSEQUENCES
• Disastrous Education (Real Estate Taxes)
• Dropout Rates/Poor Preparation for College/Cortisol
• Virtually Non-Existent Early Education
• We’ve achieved complete segregation by income
• Lack of education and low income has lead to breakdown in family structure
• Single Parent Homes
• Lack of support for youth’s ambition and hard work
• Drug/Alcohol Abuse/Gangs/Crime
• Lack of Jobs/High Unemployment
• Anger, dissatisfaction, humiliation even for many employed but who cannot attain a decent standard of living
• The creation of a grossly undereducated citizenry. Bad news for democracy
• Loss of hope. Opiate epidemic. Suicide epidemic.
• Dramatic drop in life expectancy—15 years difference between the top and bottom 1%
15 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
• Wage increases for most employees continue at, or under inflation levels (Exception: impact of minimum wage legislation.)
• Total consumer debt (incl. credit card debt)—near all time high
• Education debt over $1.5 trillion
• By 2020 some 50% of US workforce (82 million) estimated to be “contingent” workers
• Medical insurance lost to 8-10 million people; costs up 20% plus
• The top 400 richest Americans pay a lower tax rate than the bottom 90%
• For most Americans, the economy is weak
TODAY FINANCIAL STRESS:
16 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
For Most Americans the Economy is in Real Trouble
• Major measurements today do not reflect the health of the nation (2018 vs. 2017)
• GDP growth applies only to the top 25% of plutocratic America
GDP = C + GI + BI + NET TRADE = 100%
CONSUMPTION (70%)
BUSINESS INVESTMENTS (20%)
GOVERNMENT/MILITARY (15%)
NET TRADE (-5%)
17 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
FOR MOST AMERICANS THE ECONOMY IS IN TROUBLE
GDP- CONSUMPTION GROWTH BY
INCOME BRACKET (2018 VS 2017)
TOTAL INCREASE. + 3.1%
TOP 25% BY INCOME. +140%
BOTTOM 75% BY INCOME.
* CONSUMPTION AVERAGES 70% OF TOTAL GDP
18 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
THE OFFICIAL UNEMPLOYMENT RATE IS MISLEADING
PERCENTAGE OF MALES AGED 25 TO 54 WHO ARE NOT WORKING
THE NEW YORK TIMES | SOURCE: ST. LOUIS FEDERAL RESERVE
Males aged 25 to 54
Official Unemployment
Labor Force
Non-participation
19 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
The Stock Market 84% of the value of the U.S.
stock market is owned by the top 10% of the population
MAJOR MEASUREMENTS TODAY DO NOT REFLECT THE HEALTH OF THE NATION
20 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
STOCKS ARE WAY UP. FOR MOST HOUSEHOLDS, NET WORTH IS NOT.
CUMULATIVE CHANGES IN THE WILSHIRE 5000 TOTAL-MARKET STOCK
INDEX AND IN MEDIAN HOUSEHOLD NET WORTH, SINCE 2000.
ADJUSTED FOR INFLATION. STOCK INDEX INCLUDES VALUE OF REINVESTED DIVIDENDS. BY THE NEW YORK TIMES | SOURCE: MOODY’S ANALYTICS.
21 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
IN SUMMARY
• Middle Class is gone; Upper Middle Class barely hanging on
• An India-style Caste System for the Two Americas
• At the top: A classic plutocracy (20%)
• The Net Result: The creation of grossly unequal opportunity for most of our citizens
• Loss of hope. Gone is the American Dream for most Americans
• Will and Ariel Durant in the 1960s: The Inequality Problem Always gets Resolved:
– Punitive Taxation—Redistribute Wealth
– Social Unrest—or Extremists through the ballot box: Redistribute Poverty
• Business better act now
– It has the financial capacity
– Government paralysis
– Tragically, the major economic indicators for our economic health are totally misleading (GDP growth, the stock market and unemployment rate). They do not reflect the economic reality of 70% of America
Contemporary Version of Capitalism Governance
(1980s – Today)
23 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
• Technology (friend and foe: Walmart and Amazon)
• Globalization (friend and foe)
• Poor Education/Support for the Young
• Decades of Unwise Political Decisions
• Loss of Union Bargaining Power
• Failure of Unions to Stay Relevant
• Financial Crisis: Loss of Jobs
• Shareholder Primacy
CAUSES OF INEQUALITY
24 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
• Shareholder Primacy becomes the new business governance (maximize short-term shareholder value)
• Shareholders have no legal, practical, or moral obligation to protect/support the interests of the companies in which they invest: — Limited liability — Sell shares at will
• Business and society now totally separated
• Business becomes a major contributor to income inequality
FREE ENTERPRISE CAPITALISM GETS HIJACKED
25 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
EVIDENCE OF THE FAILURE OF SHAREHOLDER PRIMACY
CORPORATE PROFIT MARGIN AT ALL TIME HIGHS
26 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
PRODUCTIVITY AND WAGES (THE GOOD AND THE UGLY)
GROWTH OF REAL HOURLY COMPENSATION FOR PRODUCTION/
NONSUPERVISORY W ORKERS AND PRODUCTIVITY, 1948 -2011
NOTE: HOURLY COMPENSATION IS OF PRODUCTION/NONSUPERVISORY WORKERS IN THE PRIVATE SECTOR AND PRODUCTIVITY IS FOR THE TOTAL ECONOMY.
27 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
LABOR LOSING OUT VERSUS CAPITAL
SOURCE: BUREAU OF LABOR STATISTICS, BUREAU OF ECONOMIC ANALYSIS
CORPORATE PROFITS VS.
EMPLOYEE COMPENSATION 1968–2020
28 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
EMPLOYEE ENGAGEMENT (All U.S. Companies)
ENGAGED DISENGAGED SERIOUSLY
DISENGAGED
32 52 16
GALLUP RESEARCH
29 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
PRODUCTIVITY GAINS HAVE BEEN SLOW
SOURCE: BUREAU OF LABOR STATISTICS; NOTE: SHADED PERIODS REPRESENT RECESSIONS
PRODUCTIVITY 1956–PRESENT
30 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
BUSINESS INVESTMENT (AS % OF GDP)
CONFERENCE BOARD: 40% OF CEOS REPORTED THEY FOREGO R&D,
TRAINING PROGRAM, ETC. TO MEET QUARTERLY EARNINGS
AS OF SEPTEMBER 2014, SOURCE BEA
31 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
SHARE OF US COMPANIES PUBLISHING NEW SCIENTIFIC RESEARCH
SHARE OF US COMPANIES PUBLISHING NEW SCIENTIFIC RESEARCH
SOURCE: OECD: DUKE UNIVERSITY
32 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
CHANGE IN BUSINESS EXPENDITURES ON R&D 2009–2013
Calculated in constant dollars and adjusted for
purchasing power parity
CHANGE IN BUSINESS EXPENDITURES ON R&D
SOURCE: OECD: DUKE UNIVERSITY
33 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
AT A MACRO-LEVEL TODAY’S TSR (earnings/share) IS ENGINEERED
• Stock Buybacks
• S&P companies study (2006–2015) — 54% of net income — $4 Trillion
• Prior to 1982: Market manipulation
• Excessive Dividends — (36% of Net Income)
• Hoarding Cash
34 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
SHAREHOLDER ACTIVIST ANALYSIS: POSITIVE ROLE
• A vital governance role to correct under-performing companies
• Work constructively with managements
• Warren Buffet: Our favorite holding period is forever
• In rare occasions: Takeover: Fix and hold
35 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
THE NEGATIVE ROLE OF ACTIVIST TERRORISTS (THE BUSINESS TERRORISTS)
Strip and Flip
Message to Management: “Manage Like an Activist”
36 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
JUSTIFICATION FOR SHORT TERM SHAREHOLDER VALUE MAXIMIZATION
Shareholders are a
Corporation’s owners and entitled to maximum returns
at any time (Quarterly)
37 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
BUT, IS THE SHAREHOLDER AN OWNER?
• Most Shareholders behave like renters
• Shareholders immune from all corporate liabilities
• No law suggests the shareholders are owners of a corporation (they, or course, have rights)
• Preponderance of legal opinion: The Corporation Owns its own assets (Lynn Stout, Joe Bower & Lynn Payne)
38 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
SUMMARY SHAREHOLDER PRIMACY CAPITALISM
WORKS FOR SHAREHOLDERS
• 90% plus of operating profit goes to shareholders
• Helped by aggressive tax incentives shareholders benefit disproportionately
• Corporations hoarding cash overseas or on balance sheet, avoiding US taxes
• Hedge fund activists and sell-side analysts terrorize business to drive shareholder value
• 2018 saw share buybacks and dividends at all-time highs
• The last 4 decades saw the greatest wealth transfer in modern times: from the poor to the rich
39 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
PROSPERITY CAPITALISM
Source: IRS.
EARNINGS GROUP 1945 – 1981
TOP 1%
29%
NEXT 9% 103%
BOTTOM 90% 77%
REAL EARNING GAINS BY INCOME GROUPS
SOURCE: IRS.
40 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
PROSPERITY VS. ENRICHMENT CAPITALISM GOVERNANCE
REAL EARNING GAINS BY GROUP & PERIOD
EARNINGS GROUP 1945 – 1981 1981- 2014
TOP 1%
29% 176%
NEXT 9% 103% 48%
BOTTOM 90% 77%
-3%
SOURCE: IRS.
The Path Toward Inclusive, 21st Century
Stakeholder Capitalism
42 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
THE WAY FORWARD FOR BUSINESS
In Order to Preserve Free Enterprise (Market) Engine:
• Change the behavior and culture of shareholder primacy
• Management and board fiduciary responsibility must optimize the interests of all vital stakeholders
43 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
BUSINESS ROUNDTABLE August 2019
The Purpose of the Corporation is to Serve Multiple Stakeholders
• Value to customer
• Investing in employees
• Dealing fairly and ethically with suppliers
• Supporting communities
• Generating long-term value to shareholders
EACH STAKEHOLDER IS ESSENTIAL
44 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
THE EMERGING BUSINESS GOVERNANCE
STAKEHOLDER CAPITALISM
• Customers
• Employees
• Shareholder
• Corporation
• Environment/Climate Change
• Communities/Nation
A VIRTUAL CYCLE OF MUTUAL SUCCESS
45 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
THE WAY FORWARD: EMPLOYEES (The Critical Starting Point)
• In the 21st Century, employees rather than capital are the critical value creators. They drive innovation and productivity.
• They need to be engaged and motivated. They must:
— share in the incremental value of innovation and productivity increases
— make a living wage (by region, based on CPI/other)
— be treated with respect and dignity to reverse the current level of disengagement between employees and corporations
— be empowered and rewarded to “delight” customers
46 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
2014 – Today (Russell 1000 Index)
JUST CAPITAL A MAJOR FORCE DRIVING STAKEHOLDER CAPITALISM
Most Just Companies:
13.6% Return
The Other 797 Companies: 9.9% Return
47 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
ENLIGHTENED BUSINESSES LEADING THE WAY
48 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
SUMMARY
• Stakeholder Capitalism must replace Shareholder Primacy
• Business must act with urgency
• Recognize that employees are today’s value creators
• Paying people fairly leads to increasing economic demand
— Sustained GDP growth
— Rebuild a viable middle class
• Investing in R&D and basic research leads to:
— More jobs
— Increased competitiveness
• Use technology to help people and to create more jobs
— Not just fire people
— Continuous training/retraining of employees
49 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
SUMMARY (continued)
BUSINESS IN PARTNERSHIP WITH GOVERNMENT
• Long term education change/improvement:
— Today—Completely segregated by income
— Make available early education from 3 years old for all kids
— Improve all secondary schools to Best in Class in the world!
— Trade schools/college by merit must be available to all
— Learn from other nations’ best practices (Germany)
— Business training/retraining
• Government to invest in future and relevant basic research
— Infrastructure, AI, clean energy, sustainability, nanotechnology, other
— Past successes: Space exploration, healthcare
• Government to use tax policy, enact legislation & regulation to encourage, incent, support, beneficial society efforts by business
© 2020, PETER GEORGESCU — ALL RIGHTS RESERVED CAPITALISTS ARISE 50
A Collaborative Effort to Make Change Happen:
CEOs
Boards of Directors Equity Holders Pension Funds
Enlightened Labor Leaders Media
51 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
AN IMPORTANT NEW PRINCIPLE EMERGES:
Business Success and “Community/Nation” success must be connected
The sustained purpose of business growth must ultimately result in an increase in the
quality and availability of solutions to human problems
The Ultimate Goal: Equal Opportunity
“The American Dream”
52 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED
• Business acts now, with urgency to adopt Stakeholder Capitalism
• Business and Government collaborate to create a more just, more fair, more productive society
• Business stands for human values, morality and truth
• Then, Democracy can be preserved and strengthened
• America’s best days are ahead
THE FUTURE
53 CAPITALISTS ARISE © 2020, PETER GEORGESCU — ALL RIGHTS RESERVED