Great article

If anyone ever finds this post, send me an e-mail. I'm writing it on April 18th just because I really like this article, have tried to find it online a couple of times, and had trouble doing so. Rather than have trouble in the future, I'm storing it.

New York Times Magazine
June 6, 2004

The Irresponsible Investor

Plug into a Google search engine the words ''investors'' and
''corporate corruption'' and you could spend the rest of your life
reading about the many ways in which the former have been abused by
the latter. Plug the same words into the company Google and you'll get
a strikingly different result. In their recent letter to financial
markets in which they lay out the ground rules for their public-share
offering, the company's founders, Larry Page and Sergey Brin, insist
that Rule No.1 will be ''Don't be evil.'' This, they seem to think,
will strike their audience as a radical idea. That is because the
audience consists, mainly, of investors. Five long years in Silicon
Valley have apparently taught the Google founders a great deal about
the people who are about to make them billionaires. The rap sheet on
the American investor is long, but it can be briefly summarized:

1) The investor cares about short-term gains in stock prices a lot
more than he does about the long-term viability of a company. Indeed,
he does not seem even to notice that the two goals often conflict.
''Outside pressures'' from investors, write the Google founders, ''too
often tempt companies to sacrifice long-term opportunities to meet
quarterly market expectations.''

2) The American investor's short-term greed leads him to be more
interested in the appearance of a business than its substance.
''Sometimes this pressure has caused companies to manipulate financial
results in order to 'make their quarter,''' the Google founders write.
The investor, of course, likes to think of himself as a force for
honesty and transparency, but he has proved, in recent years, that he
prefers a lucrative lie to an expensive truth. And he's very good at
letting corporate management know it.

3) Investors, in their shortsightedness, encourage companies to
neglect their social responsibility. Actually, the view emanating from
the Google boardroom is harsher than that: the founders clearly
believe that investors require corporate executives to sacrifice their
souls. To save themselves, they've concocted an extraordinary plan to
contribute 1 percent of their company's profits to something called
the Google Foundation. The investor who purchases Google's shares will
find himself the owner of not just future profits from the search
engine but also a charity. ''We believe strongly that in the long term
we will be better served -- as shareholders and in all other ways --
by a company that does good things for the world even if we forgo some
short-term gains,'' the founders explain. To further prevent investors
from subverting their idealism, the Google founders have created,
unusually, two classes of shares: one, which investors will be allowed
to buy, will come with one-tenth of a vote; the other, controlled by
Google employees, will have full voting rights. To investors, Google
is as much as saying, ''We'll take your money and give you even more
back, but please keep your views and your values, such as they are, to

This otherwise innocent letter to stock-market investors turns on its
head the moral verdict of the Internet boom: in the world according to
Google, investors aren't victims but perps. The reader finishes the
thing with a novel thought: pity the poor corporate C.E.O.! He may
genuinely want to make the world a better place. He may genuinely
dislike his moral climate. But the atmosphere created by investors for
investors requires him continually to mollify these awful, greedy
little people who have done nothing but put up some money and who care
about nothing except next quarter's earnings.

This is new. Refreshing, even. The investor is usually treated like
the lovable new house poodle. No one holds him responsible for the
messes he leaves behind on the carpet. But why? The best thing to be
said about the typical investor is that, without actually caring very
much about anyone but himself, he helps to make us all rich. He
pursues the highest return without worrying too much about the moral
consequences of his actions.

Yet act he does; and he has options. There's an entire sector, called
Socially Responsible Investing (S.R.I.), that exists to create
pressure on businessmen to behave less like greedy automatons and more
like responsible human beings. But by the most wildly generous
calculation, only about 1 in 9 dollars is invested in S.R.I. funds,
and the vast majority of those merely seek to avoid tobacco stocks. Of
the roughly $19 trillion in American investment capital, in other
words, $17 trillion or so is invested with the implicit instruction:
''Just give me back as much money as possible. Gouge consumers, cheat
employees, poison the environment, lie to the public markets -- just
do it all sufficiently artfully that it doesn't dent my portfolio.''
Then, when the market falls and one of the people on the receiving end
of their beastly demands is caught behaving badly, investors collapse
to the floor in disbelief and bay for their money back. It is at that
moment -- and not a minute before -- that they discover the novel idea
that businessmen in possession of other people's capital should be
held to the highest ethical standards. But of course, now the idea

his sort of hypocrisy is woven deeply into the fabric of American
business life. But how deeply I didn't appreciate until I sat in on
some classes in ethics at the Haas School of Business at the
University of California, Berkeley.

The place is, you might think, the natural home for woolly-headed
business idealism. It is, after all, Berkeley. And the new dean, a
former Republican congressman named Tom Campbell, has made the newly
fashionable subject of business ethics something of a personal
obsession. When we met he was trying -- and failing -- to gain
entrance to a white-collar prison, so he could bring his students face
to face with real-life business crooks. The point, he said, was ''to
show the students that the businesspeople who wind up in jail aren't
really any different from them. They look like them, they talk like
them; they just made bad decisions.'' In the meantime, to help keep
his students out of jail, he had expanded the school's ethics

The course I sat in on had been introduced shortly before Campbell's
arrival. It was called Corporate Social Responsibility. As it
happened, the name was a bit misleading. The class might better be
titled How to Do Well by Doing Good. The professor, a 38-year-old
woman named Kellie McElhaney, has little professional interest in
goodness for goodness' sake. Corporate social responsibility, as
taught in business schools, is apparently all about using your
goodness to make more money. McElhaney's students don't just sit and
listen but hook up with actual companies to investigate how they might
increase their profits by improving their behavior. But the field is
sufficiently new that business executives do not always understand
what McElhaney, or her students, are up to. They assume that because
the professor is sweet-natured, works in Berkeley and teaches
something called corporate social responsibility, she must, like a
priest or a therapist, intend to hold them to some new, vaguely high
standard of behavior. ''I tend to inspire guilt in businesspeople,''
McElhaney says. ''I don't know what I like less about my job, the pats
on the head or other people's guilt.''

This spring McElhaney sent her students out to study a dozen or so
enterprises, among them the pharmaceutical giant Pfizer, the computer
company Hewlett-Packard and the Detroit Lions. In doing so she
revisited an old dichotomy -- boringly familiar to her but new to me.
Public corporations understood that their investors would endorse good
works only if they paid. The students who worked for them spent their
time grappling with not a moral but a technical problem: how do we
most efficiently use socially responsible behavior to increase our
profits? It was the students who went to work for private companies
who were far more likely to encounter the obvious moral question: Can
you truly claim to be doing good when the only reason you're doing it
is to make more money? No doubt private companies have their share of
executives uninterested in goodness for goodness' sake. But their
owners, lacking outside investors, were (like people!) more inclined
to see altruism-for-profit as a hypocritical sham. ''With many
people,'' McElhaney says, ''it's almost a religious thing. If you give
to receive in return, it lessens its meaning. And my research tells me
that family-owned companies, especially, are the ones that have
difficulty with the concept.''

To McElhaney -- who, oddly enough, is not selfish at all but open and
generous, or, at least, clever at seeming open and generous while in
fact pursuing a strategy of intense self-interest -- this points to a
weakness in private companies. ''I get very nervous when I hear people
say, 'We do it because it's the right thing to do,''' she says. ''At
some point this feeling-good stuff burns out.'' She is less interested
in motives than in acts, and for a company to perform socially
responsible acts it must survive. Any action its executives take that
makes survival even a tiny bit less likely -- like giving up something
for nothing -- is not good but bad. ''I don't think unprofitable
corporate goodness is sustainable,'' McElhaney says.

And she has a point. But her assumptions may also offer a clue to the
origin of a certain kind of business villain -- the kind who winds up
on the front page of the newspaper every time the stock market
collapses. Business executives acting on behalf of shareholders are
expected to behave in such a self-interested fashion that even their
good works -- philanthropy, environmental sensitivity,
greater-than-necessary concern for employees and so on -- must
generate profits. That's what they teach in business schools, because
that's the convention of the financial marketplace. Extreme
self-interest is what most investors demand from their corporations.
But if goodness for goodness' sake has no place in public
corporations, is it any wonder that the people who work for them
exhibit less-than-ideal ethical standards? For that matter, is it
surprising, given their necessarily relentless selfishness, that they
occasionally forget exactly for whom they are meant to act selfishly?
The pressure applied to people who run public corporations almost
requires them to forget how to be good.

one day this spring, two students from the Haas Business School,
imbued with the values of public corporate life, traveled to a small
private company to explain why it should reconsider its ways. The
company was Birkenstock Footprint Sandals, or, as the employees like
to call it, Birkenstock USA. Just to say the name, of course, is to
hear the sound of granola crunching and the rustle of female underarm
hair in the wind. The shoe company of choice for hippies is slightly
more complicated than its reputation. It was founded in 1966 by a
woman named Margot Fraser to sell orthopedic shoes manufactured by the
German shoemaker Birkenstock. In the beginning the only retail outlets
that would stock the sandals Fraser imported were health-food stores
(then novel), and so the company's first customers had a
countercultural flavor. The American distributor now sells many
different kinds of shoes, including a line for the striving office
worker. It has a strain of hippie in it, but other strains too.

At any rate, Birkenstock USA is still a private company, subject to
ordinary market forces but immune to pressures from outside investors.
When the Haas Business School students went into the company's
headquarters in Novato, Calif., they found something of a mess, at
least by public corporate standards. Birkenstock had been doing good
works, willy-nilly, for 30 years. It paid employees to volunteer and
gave away sacks of cash to worthy causes without telling a soul about
it. The company was reluctant to disclose the recipients of its
philanthropy; after all, wouldn't it violate the spirit of good works
to publicize them? But the business-school students were able to
uncover a few specifics. For instance, they discovered that
Birkenstock gave money to the Elizabeth Glaser Pediatric AIDS
Foundation. And that, from the investor-driven corporate point of
view, was a problem: sick kids are nice and all, but what do they have
to do with selling shoes, especially if you don't spend a lot of time
explaining to them why they should be grateful to you?

The students recommended that Birkenstock ditch most of their good
works and put all of their energy into a single very public act that
connected up naturally to footwear. They shrewdly recommended that
Birkenstock sponsor walks for causes. The cause did not matter so much
as the fact that potential customers would be walking many miles on
its behalf, and, somewhere along the line, encounter a giant sign that
said birkenstock.

The C.E.O. of Birkenstock, Matt Endriss, listened politely to what the
business-school students had to say. ''I wrestle with the words and
phrases they throw around,'' he said afterward. '''Formalize' . . .
'standardize' . . . 'best practices' . . . 'bang for your buck.' Those
words don't live in this organization on a daily basis. A lot of them
are words we try to abolish.'' He tells me, ''There's a lot of
discussion inside Birkenstock about 'authenticity.''' While that
concept is notoriously hard to define, its opposite is not. It is
inauthentic to seem not to care too much about making money in the
interest of making even more of it. It is inauthentic to go bragging
about corporate goodness, in hopes of selling more shoes. When you are
honest only because honesty pays, says Birkenstock's C.E.O., you risk
forgetting the meaning of honesty. When you are socially responsible
only because social responsibility pays, you lose any real sense of
what responsibility means.

Put another way: the instinct to give quietly to a pediatric AIDS
foundation is second cousin to the instinct not to use slave labor to
make your shoes, or not to manipulate your earnings. It is part of a
struggle against the market's relentless pressure on the business
executive to behave a bit too selfishly -- to become one of those
corporate villains whom investors can one day profitably sue. ''The
whole concept of marketing corporate social responsibility seems
odd,'' Endriss says. ''Hit folks over the head and tell them how good
we are and, in exchange, there's a monetary return for us.''

But the matter is clearly not so simple: the people on the receiving
end of Birkenstock's social conscience may be grateful, and there's no
law to prevent them from telling others what the company has done.
Word spreads. And it's possible that the brand Birkenstock is actually
strengthened by a less conventionally corporate approach -- that is,
that the company, in the long run, makes more money by doing its good
works on the sly. ''People subconsciously think that the company is
doing the right thing,'' Endriss says. ''But you ask them, 'Why do you
think it's a good company?' And they can't tell you.'' If it somehow
pays for Birkenstock not to publicize its good works -- if stealth
charity is just a clever strategy for marketing to hippies -- then the
company is simply strolling down a different path to the biggest pot
of gold. But if so, the path is long and poorly marked. ''We're not as
profitable as we could be,'' Endriss says, and then goes on to say
that if he wanted to maximize the company's earnings he would fire 60
percent of the workers (the ones who build long-term relationships
with customers and vendors) and jack up the price of the shoes.

''Maximizing our profits is not our chief goal,'' Endriss says. ''The
exchange of goods and services for money -- Birkenstock feels it's
here for different reasons.'' Those reasons can be summarized in a
sappy sentence: the happiness of employees and customers and a feeling
that it is contributing to the general well-being of the world around
it. Make money, yes, but don't make a fetish of it. ''If the company
were compelled to answer to shareholders,'' the C.E.O. says, ''it
would destroy us.''

This kind of talk is daft to most investors. Birkenstock USA has
existed for nearly 40 years, but it still has only about $120 million
in annual sales. It has grown slowly, generating steady but modest
profits and exhibiting no great ambition to grow a lot faster. Who'd
want to invest in that? To the financial market these guys are a bunch
of mediocrities. But that's the idea: when you make a point of
behaving extremely well you are unlikely to make as much money as when
you don't. A few highly desirable companies (Google?) might be able to
dictate morality to investors, but most cannot. The highest moral
standards have a price, and most investors do not wish to pay it. But
businesspeople who don't have distant, amoral shareholders to answer
to are able to pay whatever price they can afford, for the sake of
some other goal. And these goals can include behavior so admirable as
to make an investor weep.

Three years ago, the founder of Birkenstock, Margot Fraser, by then a
septuagenarian, realized that for her company to survive her it would
require another owner. She controlled 60 percent of the outstanding
shares, and the question was what to do with them. Rather than take
them into the public market and find the highest bidder -- who would,
of course, demand the fastest-rising share price -- Fraser decided
that she wanted to sell them all to the company's employees in a way
that turned just about every employee into an owner. To calculate the
price of her shares, the board, aware of the founder's desires, took
the current fair-market value, then reduced it as much as they could
without making the price so ridiculously low that it could be
construed as a gift. But when they presented her with a price for her
shares, Fraser's only question was, ''Why can't you make it lower?''

Michael Lewis is a contributing writer and the author of
''Moneyball.'' He last wrote for the magazine about a high-school
baseball coach in Louisiana.