How Corporate America Is Damning Itself

Are Americans just venting? Or is a seismic shift occuring in their attitudes toward big business?

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For the last couple of years, many business leaders have complained about President Obama bad-mouthing their efforts and creating an anti-business climate. But lately, corporate America hasn't needed many critics, because it's become its own worst enemy.

Even though it hasn't been the source of many new jobs recently, big business remains extremely important to the U.S. economy. Firms with more than 1,000 workers employ about 40 million Americans, nearly one-third of the U.S. labor force. Big companies are the vanguard of the U.S. presence in overseas markets, which is essential if America as a whole is to benefit from globalization. Strong corporate profits have been one of the few bright spots in a stagnant economy, and robust spending by business has helped offset a downturn in consumer spending that seems likely to persist for years.

[See 12 ways to thrive in a stagnant economy.]

Yet America's big companies increasingly seem to represent a kind of distant elite that's at odds with mainstream America--even though many middle-class families earn their livelihoods from those same companies. The Occupy Wall Street protests, and the broader "99 percent" movement that's developing online, are fueled at least in part by anti-corporate sentiment. Polls show that trust in big companies has been consistently falling and is at or near record lows. In one Gallup survey, confidence in big business is second-lowest among 15 institutions, ahead of only Congress. Confidence in banks is the worst in the modern era. And these numbers could go lower, thanks to recent developments, such as:

The MF Global fiasco. The mid-sized brokerage firm declared bankruptcy recently after a months-long battle with regulators who wanted to rein in risky trades on things such as volatile European debt. The firm and its once-influential CEO, Jon Corzine, apparently persuaded regulators to back off—then promptly ran out of money. The victims include some smart-money investors who should have known what they were doing, but also some farmers and food-industry businesses that used the firm to hedge against fluctuations in commodity prices. Fishy handling of some of the money in customer accounts—which is supposed to be protected—suggests a startling lack of accountability.

[See why a growing economy is leaving many behind.]

This comes, of course, on the heels of the worst financial meltdown since the Great Depression and a series of gargantuan taxpayer bailouts for the financial sector. The Dodd-Frank regulations passed in 2010 were meant to fix the problems that caused the crisis. Yet Wall Street and big-business groups like the U.S. Chamber of Commerce have complained vociferously about being shackled by the new rules, while seeking to water down the regulations through their Washington lobbyists. MF Global, apparently, was just an irrelevant outlier.

Tax avoidance. Business leaders regularly kvetch about the U.S. corporate tax rate, which, at 35 percent, is in fact one of the highest in the developed world. But hardly any company pays taxes at that rate. A recent study by Citizens for Tax Justice found that after deductions and exemptions, the effective federal tax rate on 280 big companies between 2008 and 2010 was 18.5 percent—barely half the official rate. Some companies paid no tax, even though they were profitable. Most companies still fork over payroll taxes, plus various state or local levies. And it's hard to blame companies for taking advantage of tax loopholes that they're legally entitled to exploit. But the huge gap between the tax rate that's on the books and the one that applies in reality clearly contributes to perceptions of a rigged system that favors the rich and the well-connected.

[See 11 things wrong with Congress.]

Riches for CEOs. Median income stagnated in the decade leading up to to the recent recession, and since the downturn began, incomes have fallen by nearly 10 percent. Put more simply, many Americans are falling behind, with no relief in sight. But top executives have been largely immune to that trend. While CEO pay dipped during the recession, it rose 12 percent in the most recent year, according to one survey of 200 big companies. Average pay for that group of CEOs was $9.6 million. The AFL-CIO says the average big-company CEO earns 343 times the pay of the average worker, up eight-fold from the level in 1980.

To some extent, CEOs today are reaping the rewards for having kept their companies profitable during a bruising recession that crushed many weak or over-indebted firms. And it's no simple thing to say what "fair" pay for executives ought to be. But it's destabilizing when pay for the wealthy is going up while mostly everybody else's pay is going down. When income inequality becomes too severe, it tends to generate a political backlash that can lead to heavy-handed government, protectionism, and other policies that harm the economy more than they help it.

Corporate job cuts. Despite their large economic footprint, big companies aren't helping much with job creation. The most recent government data shows that companies with more than 1,000 employees shed about 3 million jobs between 2008 and 2010. Job cuts in big companies occurred at about the same pace as reductions in smaller companies, but big companies seem less likely to hire people back as the economy grows. Recent data, for instance, shows that mid-sized companies—those with 50 to 999 workers--have done most of the hiring in the tepid recovery, with bigger firms accounting for a tiny portion of new jobs. Where many Fortune 500 firms are hiring is overseas. What their U.S. employees tend to notice, meanwhile, is slimmer benefits, declining job security and more part-time and temporary workers in the office.

[See why the GOP's "job creators" are hard to find.]

Banks behaving badly. Banks have the right to be profitable. But consumers have the right to despise how they do it. The brouhaha over debit-card fees that Bank of America and several competitors tried to charge, then rescinded, was a populist backlash over tiny fees that many bank customers wouldn't even notice. It was significant, however, because it revealed the genuine hostility Americans seem to feel toward the financial industry. A much bigger problem is the foreclosure crisis, which might ultimately affect 10 percent of all U.S. homeowners—while also leaving stark impressions on everybody they know. In many cases, it's not the bank's fault that homeowners got in over their heads. But banks were there handing out the cash, and now it's the banks that are showing up to take away the keys. It's hard to imagine a worse way to win friends and influence people.

Business leaders have a way of reassuring themselves that all of the bad feelings will blow over, and that many Americans will come back around to the idea that business is a force for good. Maybe. But corporate bosses ought to be paying close attention to signs of a seismic shift in the nation's attitude toward business. In one of the recent GOP presidential debates, for instance, the candidates vilified big banks nearly as fervently as they attacked their one common foe—President Obama. And Republicans are supposed to be the business-friendly bunch.

[See why banks have axed one fee—but others are coming.]

To many Americans, big banks are synonymous with big business. The last time financiers and their corporate cousins came under mainstream attack was in the 1930s. Back then, the nation's problems were obviously more grave than they are today. Yet it's worth recalling that FDR's war on business generated an onslaught of regulations governing corporate behavior, including some that persist to this day. In fact, some analysts feel that the 1999 repeal of the 1933 Glass-Steagall Act, which prohibited certain types of risk-taking at banks, directly contributed to the 2008 financial crisis.

A few CEOs seem to be mindful of their negative image—and the need to do something about it. Citigroup CEO Vikram Pandit recently proposed a standardized way for all banks to be more forthcoming about the risks on their books, which in theory would bring a new level of transparency to banking, and increase confidence. The odds of it catching on seem doubtful, but it's refreshing to see an insider propose reforms for once, instead of fighting them. Starbucks CEO Howard Schultz is mounting a different kind of campaign, urging fellow CEOs to stop donating money to political candidates, until Washington solves its own fiscal problems and helps get the U.S. economy back on track. He's pointing the finger at somebody else, but it does make big business look virtuous by comparison. It's a better hearts-and-minds campaign than the rest of corporate America seems to have in place.

Twitter: @rickjnewman

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