The Editors' Blog

August 4, 2014

President Obama and those profit-maximizing CEOs

President Obama did not go to business school. Most of the CEOs he meets likely did. So while he hears them, he may not understand them.

In an interview with The Economist, President Barack Obama said this:

“The business community does have broader responsibilities to the system as a whole. And although the general view today is that the only responsibility that a corporate CEO has is to his shareholders, I think the American people generally sense--”

The president was interrupted and challenged on this by the interviewer; he went on to explain that CEOs meet with him at the White House and say “... we really care about the environment, and we really care about education, and we really care about getting immigration reform done—then my challenge to them consistently is, is your lobbyist working as hard on those issues as he or she is on preserving that tax break that you’ve got? And if the answer is no, then you don’t care about it as much as you say.”

Now, the president majored in poli sci at Columbia and earned a law degree from Harvard. A lot of the CEOs he meets likely went to business school.

What was pounded into many of their heads as students was that the overriding goal in business is to maximize shareholder value. I remember hearing this a lot as an undergraduate business student. Maximize, maximize, maximize.

So when the president criticizes the CEOs for putting profits first, he is challenging one of their core beliefs. For example, the president recently criticized businesses for using a legal strategy to shift income to lower-tax countries. From the CEOs’ perspective, they are doing whatever they can - legally - to reduce their corporate tax burden and, thus, maximize profits available to, say, pay greater dividends to shareholders.

I don’t think any CEO ever got fired for advocating insufficiently for the environment. It’s nice if they think about the environment, but they get fired for missing earnings targets. No matter what the president thinks he’s hearing from CEOs at White House lunches, they are primarily focused on the bottom line, because that’s how they have been trained and in our market capitalism system, that’s their job.

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