on business ethics
The deal epitomizes what Zell always seeks: potential for great profit, acceptable risk, and an ingenious tax advantage. To quantify the risk, Zell evaluated each of Tribune’s assets and concluded that in a worst-case scenario the company was worth about fifty dollars a share. (Under the terms of the deal, Zell will pay shareholders thirty-four dollars a share.) Had Tribune’s employees been invited to assess their risk, they might have reached a different conclusion. If the company is unable to service its debt, it could go bankrupt. (Zell argues that employees’ jobs are already in jeopardy because the company’s revenues have fallen so sharply, and that, by taking the company private and removing it from the glare of public markets, he can reverse the decline.) In addition, the majority of company contributions to employees’ retirement funds will now be made not to 401(k)s but to the ESOP, in the form of company stock; many employees will have a less diversified portfolio, and one that is heavily invested in a company that is saddled with debt. Of course, if the company does well, its workers will profit handsomely. In an interview with several reporters for the Chicago Tribune last April, Zell summed up the arrangement with characteristic candor, saying, “It’s not going to change my life style, no matter what happens. It’s likely to change yours significantly.” (New Yorker, Dec 3, 2007)
That’s funny. Earlier in the same article,
Weinstein had opened the session to the public, and someone in the audience asked Zell whether, in the current environment, “where some seem to be doing almost anything to be profitable, does not the concept of ‘business ethics’ seem to be an oxymoron? And do you accept that there is a concept of greed? And how would you define it?”
“Jesus Christ!” Zell replied. “I mean, would you like a pulpit as well? I mean, when does the indictment come out? I mean, are people in the business community different from you, or you, or you?” He pointed angrily at the questioner and others nearby. “C’mon! We’re talking about weaknesses and we’re talking about strengths! Are human ethics an oxymoron? I don’t think so. Neither do I think business ethics are an oxymoron. It’s real fun to take a shot at the business community. After all, those motherfuckers are getting all the money, right? But let me tell you something: I’ll put my work schedule against anybody you know, including you, and I work my ass off every day! The idea that somehow or other the business community is full of all these greedy characters—you should see the greed in teachers’ unions! You should see the greed in any political organization! Business is made up of a whole group of individuals, and within that group there are straight people, there are not-straight people, and then there’s a whole bunch of us in the middle, who some days are straight and some days we’re not.”
Eh. The article basically says that Sam Zell went from pretty rich to fabulously wealthy by essentially:
- Being really smart, and charismatic (admittedly, non-trivial)
- Being in the right place at the right time (luck)
Calling such an arrangement with employees “in good faith” is probably a bit of a stretch; choosing between either (probable, immediate) unemployment or such a compensation scheme doesn’t seem very fair. Viewed this way, one could argue that betting other people’s retirement funds in order to minimize your (comparatively, minuscule) exposure to risk seems to be not only unethical but borderline psychopathic.
Basically, the lesson I’m drawing here is that it’s okay to be crooked.
