On the Reputational Capital of a Business Leader on a Societal Stage

Is it better that companies be publicly or privately held? Such a question is of such magnitude that glossy, simplistic answers should be eschewed. This is not to say that the answer is situational in nature. Rather, it is more likely that each comes with pluses and minuses from the perspective of an economic system as a whole. As business “leaders” give their advice, it is important to keep in mind whether any personal or institutional conflicts of interest exist and thus could warp the space itself of the advice. Yes, I am intimating Einstein’s theory of general relativity here. Rather than provide an answer without having studied the matter sufficiently, I will provide a way to look at the advice given by Jamie Dimon, CEO of JPMorgan Chase.

The full essay is at "Reputational Capital of a Business Leader."

U.S. Anti-Trust Law: Applicable to Amazon?

In September, 2023, the Federal Trade Commission and seventeen states sued Amazon on ant-trust grounds for restraining trade and excessively raising prices on third-party sellers and consumers. Three months later, a leaked internal memo revealed Amazon’s anti-labor strategies of buying off local politicians and gaining reputational capital through well-publicized charitable work. Such work, as an anti-union strategy, demonstrates that the very expression, corporate social responsibility, is an oxymoron, or at the very least a misnomer (i.e., misnamed); a more accurate, and thus revealing, label would be corporate marketing. One effect of the “responsibility” connotation is that companies such as Amazon with mammoth market power could effectively hide strategic efforts in restraint of trade, and thus curtailing competition. Combined with feckless anti-trust prosecution, the result is an American economy that has not lived up to Adam Smith’s theory wherein competition via the price mechanism is necessary for individual self-interests to have beneficial unintended consequences systemically and thus in terms of the public good.

The civil case accused Amazon “of engaging in anti-competitive practices through measures that deter sellers from offering lower prices for products on non-Amazon sites.”[1] Amazon was being accused of deprioritizing listings of products sold at lower prices on non-Amazon sites, forcing merchants to raise their prices on Amazon’s platform and other sites “in order to keep their products competitive on Amazon.”[2] The customers suffer as relevant results of searches are replaced by paid advertisements that favor Amazon’s own brands. Also, the company was charging third-party sellers nearly half of their total revenue as fees for using Amazon’s platform, the result being higher prices for the consumers. The company was also compelling the sellers to use the company’s logistics service in order to qualify for Amazon Prime. With nearly 40 percent of the e-commerce market, Amazon was allegedly flexing its muscle at the expense of competition.

Yet the chairperson of the Federal Trade Commission, Lina Khan, was not asking the court to break up the mammoth company, preferring instead to limit herself to “liability.”[3] I contend that such an avenue falls short as a vehicle for instituting a competitive market. Firstly, a company with market power of nearly half of the e-commerce market can be expected to use its muscle in restraint of trade even while paying out liability claims because the oligopolistic excess-profits (akin to “monopoly rents”) more than compensate for the (tax deductible) expenses. Secondly, I submit that it is utterly unrealistic to suppose that a company with such overwhelming market power will not use it merely because of external disincentives such as civil fines. The use of “sticks” and even “carrots” to get such a company to not act as a profit-maximizer comes up short because such “motivating” tools are tertiary; they do not shake the fundamentals, whereby a non-competitive market is restructured to be competitive and thus composed of price-takers rather than a price-setter.

It is worth expanding on the tactics that an oligopolistic company can use to protect itself from extraneous attempts to fundamentally change the market. We get a glimpse of Amazon’s “play book” from an eight-page memo that reveals how one of America’s largest companies “executes on its public relations objectives and attempts to curtail reputational harm stemming from criticisms of its business. It also illustrates how Amazon [sought] to methodically court local politicians and community groups in order to push its interest in a region where [the company] could be hampered by local moratoriums on warehouse development, and [where the company was] facing resistance from environmental and labor activists.”[4] Knowing the company’s tactics in Southern California can give us an insight into how the company’s management blunts federal legislative action that could break up Amazon itself in order to create a competitive playing field in e-commerce.

In a nutshell, Amazon’s strategy was to create the illusion of on-going charity work and to pay off elected government officials to, among other goals, resist unionization of the company’s workforce and restrictions on where the company can build. Specifically, the management “’cultivated’ Michael Vargas, the mayor of the town of Perris, through pandemic-related donations” ostensibly to “support the region,” but actually to buy off his support for new warehouse construction.[5] This is proof that companies use money even aside from political campaign “donations” to get elected representatives to affect public policy favorably to the companies themselves. If this is so locally, we can be assured that companies as large as Amazon wouldn’t withhold the tactic from being used to buy federal lawmakers, whose power could include breaking up the company.

In regard to Amazon’s corporate “social responsibility” programs, the leaked document includes plans to have employees drop off food to the Los Angeles Food Bank “in big media moments that are broadcasted/posted.” The illusion of ongoing charitable work would of course work to the company’s advantage in public relations. As the “memo suggested curating similar moments during a back-to-school donation event and a [Christmas] toy drive, where drop offs occur and Amazon executives, as well as groups who receive grants from the company, ‘speak about Amazon’s impact” to the media present, even as the company planned on cutting off groups that “did not result in measurable positive impact,” charity was clearly viewed by Amazon’s managers as a promotional tactic.[6] The false societal image of a benevolent oligopolistic company could be expected to shield governmental efforts to break up the company and perpetuate the erroneous assumption that civil liabilities (i.e., verdicts against the company) are enough to safeguard consumers because the company’s management is benevolent.

In conclusion, the Federal Trade Commission shirked its governmental mandate to enforce the Sherman Antitrust law from the onset of the litigation, thus hampering the ability of the judiciary to order an effective remedy. In a large industry in which one company has 40 percent market share, and that company actively buys government officials and strategically uses public relations, the danger is not just to competitive markets, but also to American representative democracy and the rule of law itself. It is, I submit, no accident that the chairwoman of the FTC did not include breaking up Amazon as a remedy. We need only look at the company's strategially placed political contributions to surmise which elected officials might have put political pressure on the FTC. The company’s memo reveals that Amazon uses its extraordinary wealth to bend public policy away from the public good, like a black hole in space bends even space itself, to protect the company's viability by donating directly or indirectly to elected officials. I submit that plutocracy, rather than mob rule, is the greatest threat to American democracy.  At the very least, private wealth knows how to protect itself politically, and even how to cover its tracks under the patina of corporate social responsibility.

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1. Haleluya Hadero, “Amazon Sued by FTC and 17 States over Allegations It Inflates Online Prices and Overcharges Sellers,” APNews.com, September 26, 2023 (accessed December 7, 2023).
2. Ibid.
3. Ibid.
4. Haleluya Hadero, “Amazon’s Internal Plans to Advance Its Interests in California Are Laid Bare in Leaked Memo,” APNews.com, December 7, 2023.
5. Ibid.
6. Ibid, for the quoted material, which is both from the article and the memo itself.

Perception-Based Healthy Reputational Capital as a Strategic Competitive Advantage: The Case of CVS Health

In 2014, CVS drug-stores stopped selling tobacco products. The strategic choice rendered CVS Health more internally consistent on wellness. To be sure, the company continued to sell alcohol products, such as wine and hard liquor, which are harmful to human health. Yet the incremental correction was significant both in regard to the short-term hits to the bottom-line and the salubrious contribution to the health of customers. If the share of revenue (and profit) from the sale of alcohol increased in the meantime to make up the difference, the net effect on the bottom-line could have been zero or even positive, and the net impact on the health of customers and the company’s healthy image could also have been nugatory or even negative. Writing in 2019, however, Larry Merlo, President and CEO of CVS Health, saw a perfect convergence of the long-term bottom-line and making a contribution to society even at the expense of short-term revenue.

In his editorial at CNN, Merlo claims that an increasing number of businesses were “incorporating purpose into the values and operating models of their organizations.”[1] The implication that purpose only pertains to social performance ignores the fact that boards and managers act with purpose in manufacturing and selling widgets that are of value to customers. Presumably products and services are purchased because they reduce the suffering of customers or increase their happiness. What Merlo means by purpose is to have a positive societal impact (albeit by considering the best interests of stakeholders rather than society as a whole) besides the impact of the products or services sold. Hence balancing purpose and profit “can lead to better companies that are motivated to do what is right for all stakeholders—customers, employees, suppliers, communities, and, yes, shareholders.”[2] The owners of the wealth known as CVS Health (i.e., the company’s owners) come last on this list, but not least. Even so, if a management hired by stockholders (via their board representatives) unilaterally decides to orient the company to other stakeholders, the property right is subordinated and thus violated. Hence, the shareholders should decide whether their company’s mission is to be extended beyond the stockholder-default. Merlo makes no mention of any such stockholder involvement in the decision.

To be sure, the CEO points to the positive impact on the company’s brand as being centered on health. In his words, the sale of tobacco was “a barrier to the future growth of the company as a trusted health care provider.”[3] No longer selling tobacco products “helped validate CVS’s evolving role in the health care marketplace.”[4] In other words, the “fact that companies and consumers now see us as a convenient and affordable point of access for quality health care creates longer-term growth opportunities for our business,” Merlo claims.[5] This led to the company’s acquisition of Aetna. The combined company could have a competitive advantage that (presumably) a cigarette-selling CVS could not have. I’m skeptical on this point because CVS Health still sold alcohol and yet could acquire Aetna and claim to have a health-centered brand-image.

Not having analyzed it, I have no reason to doubt a 2017 study published in the American Journal of Public Health, which claims that “smokers purchased nearly 100 million fewer packs of cigarettes in states where a CVS Pharmacy had a 15% or greater share of the retail pharmacy market.”[6] Merlo cites this study to make the point that CVS no longer selling tobacco likely has had positive health effects societally (taken here narrowly as customers).  It is the purity of the company’s reputation for furthering health, and thus the impact of the reputation on the company being able to make forays further into health-care that I question. As a regular CVS customer over the years, I have noticed increasing shelf-space being devoted to the sale of alcoholic beverages. As of 2019, a customer could walk down an aisle—typically a front aisle—with such wine and liquor stocked on both sides, and see still more bottles near the cashiers’ area. In his essay, Merlo only lightly touches on the short-term hit to the bottom line. Perhaps CVS merely substituted one ill for another—perhaps with alcohol selling at a higher premium than cigarettes—such that only a slight drop in revenue during the transition was all that the company had to sacrifice in increasing its reputational capital? If so, the company could play off the societal perception that alcohol is less toxic than cigarettes.

To be sure, CVS became a less hypocritical company in refusing to sell tobacco products, especially relative to Walgreens, whose slogan “Wellness at Walgreens” near the pharmacy area was at odds with the liquor and cigarettes highly visible at the front end of the stores. Admittedly, such egregious hypocrisy may bother only the ethically-sensitive customer while leaving little or no financial trace because the vast majority of customers do not notice the hypocrisy or simply don’t care. An interesting question, however, is whether CVS actually reduced its hypocrisy if alcohol got more shelf-space (and was more profitable!) to make up for the loss of revenue from tobacco. The enhanced reputational capital could be based on an illusion, yet interestingly even that may helped the company acquire Aetna.

Of course, the hypocrisy may be in us; it may even be a societal norm. We may compartmentalize our healthy and unhealthy practices just as Walgreens had “Wellness at Walgreens” painted in very large print above the pharmacy area in at least some stores in 2019, while alcohol and cigarettes were salient in the front half of the stores. If so, customers would not even notice the store-level hypocrisy, so little benefit could come to the company simply by reducing the hypocrisy within a store. Instead, a company’s brand-image could be solidified by advertising nonetheless, and the resulting reputational capital could aid in attracting potential acquisitions.

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[1] Larry Merlo,”CVS Chief: Getting Rid of Tobacco Taught Us an Important Lesson. We Hope Our Journey Inspires Other Businesses,” CNN.com, November 5, 2019.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

The Gettysburg Address: Shaped by Small Pox?

By the time Lincoln was back on the train returning to Washington, he was down with a high fever from Small Pox. I’m thinking the illness did not grip the president the second he stepped on the train. Already distraught over Mary falling off a horse-carriage, his son Tad taken grievously ill, and the old, tired war, the president was almost certainly already stricken when he delivered the address and perhaps even when he wrote it the day and evening before. I suspect that the Gettysburg Address would not have been only 272 words long had Lincoln been well.
I make it point of getting a flu shot every year now. Contracting the illness was particularly costly academically when I was in graduate school. Typically, I would ration any accumulated energy to going to class. Back in bed, I found writing to be quite arduous, and sustained reading to be almost as exhaustive. In terms of writing, editing particular words or sentences was easiest, for it takes far less energy to think than to write on and on.
I suspect that Lincoln wrote such a short speech because thinking up just the right word or phrase was easier than writing a lot. Small Pox is much more serious than the common cold. Lincoln was likely already exhausted and feeling bad on the train to Gettysburg and in the bedroom that night before the day of the address. Lincoln’s emphasis on diction rather than length was likely a function of the illness rather than political calculus.

Lincoln's address was so short that the photographer only caught the president as he was returning to his seat. In the photo, Lincoln's head (below the leafless tree, just above the crowd-level, and facing the camera) is down, perhaps because he was already not feeling well. Image Source: Wikimedia Commons.

By the end of the twentieth century and into the next decades at least, U.S. presidents typically relied on a speech-writing staff to write many speeches, the vast majority of which being long. One effect of this trend is the shift in presidential leadership from broad principles to incremental legislative reform. In this context of technician presidents, the attendant speech-inflation resists any feasible restraint. Strangely, presidents overlook Lincoln’s short address as a precedent and act more like the famous orator who spoke for two hours just before Lincoln. In spite of the obvious lesson from Gettysburg, the notion that a very short speech can be more powerful than a long one has been lost on the American political elite.
The explanation may lie in Lincoln’s address being a function of him being ill rather than any political calculus. Even so, a discovery is a discovery, even if it comes about by accident. That the subsequent political success of the Gettysburg Address did not give rise to an ongoing practice in political rhetoric suggests that such a short, extremely thought-out speech runs against the current of politics at the moment and even out a year or two. Stature achieved by hard-thought reputational management literally by intensely investing in word choice, or diction, is of value nevertheless even within the space of a four-year term, especially if the incumbent has courageously taken on a few vested interests by moving society off a “sacred cow” or two. Even if neither statesmanship nor politics accounts for the severe brevity of Lincoln’s address, I contend that much political gold is waiting for the leader—whether in the public or private sector—who radically alters his or her rhetorical style and preparation.

How to Regain Reputational Capital: The Case of Wells Fargo

How does a firm rebound from the toll taken in reputational capital from a track-record of unethical practices? Paying $175 million to settle accusations without admitting any wrongdoing, such as Wells Fargo did in 2012, does not suffice, but neither does merely admitting culpability without real change going forward. The case of Wells Fargo may provide an explanation for how reputation recovers.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

FIFA’s Corporate Sponsors: Reliable Ethical Change-Agents?

In the wake of the U.S. Justice Department’s initial arrests of FIFA officials in May 2015 on corruption charges, could the public reasonably expect FIFA’s corporate sponsors to pressure the international governing body of footfall (soccer in the U.S., where “football” is reserved for “subconcussions being inherent to a sport”)? If so, would the pressure be sufficient to rid the powerful international organization of its squalid officials and practices? I contend that these questions come down to how the power was divided at the time between the sponsors and the organization, rather than to the sponsors’ respective ethical positions or even how strongly the executives feel about ethics in business, including FIFA.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

Presiding over a Debt Precipice: President Obama of the U.S.

In the context of a rapidly approaching deadline on increasing the ceiling on U.S. Government debt, Barak Obama found himself rebuffing pressure from anti-tax “Tea Party” Republicans in the U.S. House while needing enough non-partisan credibility for his warning of an impending economic catastrophe to be believed by the citizenry and Congress. That is to say, Obama’s failure to stand back as the Democrats and Republicans in Congress duked it out on spending cuts and tax increases mitigated his stature or credibility as Presider in Chief. An editorial in the New York Times refers to this role of the president as "the utimate guardian of the constitutional order."[1] To preside is to be oriented to the viability of the whole. This means stepping in when the system itself is at risk. Partisan involvement compromises the ability to function in a failsafe capacity, as the "ultimate guardian."

Concretely, as the deadline on raising the debt-ceiling approached, someone with credibility was needed to stand up and get the attention of the partisans to say: We are running out of time. You need to come to an agreement. Taking and advancing one of the sides of the dispute detracted from Barak Obama’s ability to act as the party oriented to the deadline itself. It left the deadline itself vulnerable because the role designed to protect it was also interested in advancing a certain agreement (and killing another). I contend, therefore, that Obama’s priorities were at odds with that of how his office is designed to function in the system. The system itself is left vulnerable.

By analogy, a fire inspector is hired to sit in a crowded theatre to keep an eye on the building in case one of the special effects of the play causes a fire. Keeping an eye on the theatre itself, including backstage and the balcony, is less interesting than watching the plot unfold on stage. Taking the side of the protagonist, the inspector is diverted from noticing the smoke at the back of the balcony. The theatre, and its occupants, are at risk because the inspector does not reach the stage in time. To be sure, watching a play is more interesting, but the inspector role is designed to look out for the people as a whole—indeed, the theatre itself. Now, say the theatre is host to a debate, and that the inspector steps on stage to take part in it. Not only is he or she distracted from keeping an eye out for sabotage, people in the audience favoring the other side on the debate might not believe the inspector’s eventual announcement that they must leave the building.

In 2010, Barak Obama had remarked to the press after a partisan meeting with Congressional leaders, “Being bipartisan cannot mean that Democrats give up everything they believe in, find the handful of things that Republicans have been advocating for, and we do those things, and then we have bipartisanship.”[2] Even as his statement sounds fair, to make it from a partisan position from the presidential podium undercuts the presiding nature of the Presidency. How might Republicans have reacted to the President had he then announced an emergency and indicated what needed to be done to avert disaster? While his detractors would probably not doubt his veracity, in the face of an impending disaster every bit of credibility that the Presidency itself is capable of is necessary.

In the context of the debt-ceiling showdown in July 2011, the president’s pushback against the House Republicans compromised his warning that “we are now in the eleventh hour; we don’t have time for smoke and mirrors.”[3] Whereas the warning is oriented to the deadline, the pushback was partisan in nature. What would prevent Republicans from assuming that the “smoke and mirrors” comment was just as partisan (and thus could be safely relegated or dismissed)? The president would have been better advised to let the Democrats in the U.S. Senate fight the partisan battle with the Republicans in the House while he, the presider in chief, saved his political and reputational capital to act as an alarm clock, for there is no other than the president. In effect, wanting it both ways (pushing one of two sides and sounding the alarm) is like putting a pillow over the clock. In the case of the debt ceiling, America could not afford sleeping in. In allowing our presidents to be so partisan, We the People rack up tremendous systemic risk without realizing it. It is as though we have forgotten the old question, Who is watching the store? We simply assume the status quo, wherein the store's very existence is not in question.

1, Eric A. Posner and Adrian Vermeule, "Obama Should Raise the Debt Ceiling on His Own," New York Times (July 22, 2011). 
2. Helene Cooper and Carl Hulse, “Two Parties Join Together, Then Resume Divided Ways,” New York Times, February 9, 2010. 
3. Eric A. Posner and Adrian Vermeule, "Obama Should Raise the Debt Ceiling on His Own," New York Times (July 22, 2011). 

President Obama's Role in Budget Negotiations: Undercutting His Role in Presiding

On April 5, 2011, President Obama observed, “We’re going to have some very tough negotiations. And there are going to be, I think, very sharply contrasting visions in terms of where we should move the country. That’s a legitimate debate to have.” (1) He sounded very presidential in making the statement because he was taking the perspective of the nation as a whole. Furthermore, he used that vantage-point to try to keep negotiations from falling off the track. “If they can’t sort it out,” he said, “then I want them back here tomorrow.” (2) In short, he was presiding, rather than being partisan in taking a side, as he framed the situation facing the union. 

                                             Doug Mills, The New York Times                 

However, even as the president was referring to the two sides sorting the budget out as “they,” he himself was on one of the sides. That is, even though he “sought to position himself above the nitty-gritty haggling going on in Congress, which . . . limited his influence on the process” yet distanced him from any blame, his taking a side in the dispute subtly worked against his attempt to preside to hold the process as a whole together. (3) 

The full essay is at The Essence of Leadership, which is available at Amazon in print and as an ebook.

1.   Gregory Korte, “Meeting Fails to End Impasse on Federal Budget,” USA Today, April 6, 2011, 2A.

2.  Naftali Bendavid, Jonathan Weisman, and Carol E. Lee, "Budget Talks Head to Brink,” Wall Street Journal, April 6, 2011, pp. A6.

3. Ibid.