Premium Essay

Profit Without Prosperity

In: Business and Management

Submitted By charleshys
Words 5707
Pages 23
HBR.ORG

THE BIG IDEA

Profits Without
Prosperity
Stock buybacks manipulate the market and leave most Americans worse off. by William Lazonick

SEPTEMBER 2014
REPRINT R1409B

The Big Idea

PHOTOGRAPHY: ELISE

FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG

STOCK BUYBACKS Five years after the official end of the Great Recession, corporate profits are high, and stock market
MANIPULATE THE booming. Yet most Americans the not sharing inis are the
MARKET AND LEAVE recovery. While the top 0.1% of income recipients—
MOST AMERICANS which include most of the highest-ranking corporate executives—reap almost all the income gains, good
WORSE OFF.
BY WILLIAM LAZONICK

jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid.

COPYRIGHT © 2014 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

September 2014 Harvard Business Review 3

THE BIG IDEA PROFITS WITHOUT PROSPERITY

Corporate profitability is not translating into widespread economic prosperity.
The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market.
Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.
The buyback wave has gotten so big, in fact, that even shareholders—the presumed beneficiaries of all this corporate largesse—are getting worried. “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” Laurence Fink,…...

Similar Documents

Premium Essay

Profit Versus Not-for-Profit Hospitals

...Profit Versus Not-for-Profit Hospitals In Partial Fulfillment of the Requirements for Health Services Systems HSM 541 Blaise X. Schmidt DeVry University Keller Graduate School of Management September 2012 1.0 Purpose The purpose of this paper is to conduct a comparative analysis between for-profit hospitals and not-for-profit hospital. It will discuss the characteristics of each as well as factors affecting the operations of both systems. Additionally, it discusses potential areas of improvement and some of the challenges associated with each relative to finance and operations. 2.0 Comparing Not-for-Profit and For-Profit Hospitals Not-for-profit hospitals are organized under the Section 501 (c)(3) of the Internal Revenue Service (IRS) tax code, and as such, are exempt from federal and state taxes and generally from local property and other taxes. Not-for-profit hospitals also have access to tax-exempt bond financing and have tax-deductible status for gifts and contributions (Barton, 2010). For-profit hospitals do not have this luxury. Public or private hospitals can be classified as non-profit. Non-profits include a majority of the hospitals in the US. The two types of hospitals differ mainly in regulatory rules. Not-for-profit hospitals do not need to pay property, sales, or income taxes. For-profit hospitals do. Despite these differences, the two types of ownerships have been becoming more and more similar and many......

Words: 1445 - Pages: 6

Premium Essay

For Profit vs. Non Profit

...Financial Management in Non-profit Organizations and How It Compares to For-Profits Organizations are usually classified as either non-profit or for-profit. Business corporations are organized for-profit. While non-profits usually include associations, charities, and other voluntary organizations formed to further cultural, educational, religious, or public service objectives. Non-profits and for-profits do have some things in common. Both types of organizations attract individuals focused on maximizing income, minimizing expenses, and reaching their goals. While there are many similarities, non-profits and for-profits have many differences. The most fundamental difference between nonprofit and for-profit organizations is the reason they exist. A non-profit organization exists to provide a particular service to a community, while a for-profit organization exists primarily to generate a profit for the company’s owners and shareholders. A non-profit organization channels all of their income into services and programs aimed at their mission compared to for-profit organizations that distribute profits between owners, employees, shareholders and the business itself (Bottiglieri, Conway, & Kroleski, 2011). Financial management for non-profit organizations is similar to for-profit organizations in many ways however key differences shift the focus of a nonprofit manager. These differences include organizational structure, ownership, distribution of profits, generating......

Words: 1728 - Pages: 7

Premium Essay

Summarization of a Not-for-Profit and for-Profit Hospital

...care organization and a for-profit health care organization of your choosing. Answer the following: Summarize the types of services provided, clientele served, and provider groups involved. Compare and contrast the strengths and weaknesses of each organization from patient, provider, administrator, and third-party payer perspectives. Provide at least 2 suggestions for each organization to minimize the identified weaknesses. Summarize which organization you would rather be part of, using rationale. Abstract There are many differences that for-profit and not-for-profit organizations have between one another. Research has been conducted on one not-for-profit organization (VA hospital) in a for-profit organization (Baptist Medical Center) and the strengths and weaknesses from a provider’s and patient’s perspective in which organization would be a better choice to be part of. Not-for-profit hospitals are recognized for their charitable intentions. Not-for-profit hospitals have a habit of being larger and also have a tendency to be training hospitals. The earnings that not-for-profit hospitals receive are reinvested to enhance the quality care that is offered at these hospitals. Their earnings are also invested into community programs, which in turn can provide little to no fee to those individuals who are considered to be low income families and also maybe uninsured for the services of these programs. The purpose of not-for-profit hospitals is to assist......

Words: 1646 - Pages: 7

Premium Essay

Can There Be Prosperity Without Growth?

...Prosperity without Growth (A case study for Colorful Corporations) Name: Institution: Course: Date: Introduction Issues of growth and prosperity have raised many controversies among policy makers. Growth in the economy has been associated with strong GDP levels. Nations are struggling towards achievement of economic growth. Policy makers believe that, through growth, there is prosperity, full employment, stability, and future economic sustainability. Just as humans, growth relies on ecosystems for survival. The question is whether economic growth is substantial for assuring stability and prosperity. Jackson, the author of “Prosperity without growth” has inspired this discussion. According to Jackson, policy makers have of reviewing the current trends of economies (Jackson, 2011, p. 3). The current economic growth has pushed humanity to the edges of environmental, financial and social catastrophe. Growth models have failed to deliver humanity’s major wishes that include; full employment, prosperity and stability. Economic growth is dependent on the environment. Natural resources and ecosystems upon which humans depend on are dying out as a result of economic growth. The future is at risk if economies continue to harm the environment. This paper wishes to prove that there is prosperity without growth; through environmental sustainability programs. Aim a. To identify conditions that may define a sustainable economy and how they affect CEOs of......

Words: 1419 - Pages: 6

Premium Essay

Without Border

...unemployment rate in India was last reported at 10.8 percent in the year 2010. From 1983 until 2000, India's Unemployment Rate averaged 7.20 percent reaching an historical high of 8.30 percent in December of 1983 and a record low of 5.99 percent in December of 1994. The labour force is defined as the number of people employed plus the number unemployed but seeking work. The non labour force includes those who are not looking for work, those who are institutionalized and those serving in the military. The following is the table of Unemployment in India in different years: Country 2002 2003 2004 2005 2006 2007 2008 2009 2010 India 8.8 9.5 9.2 8.9 7.8 7.2 6.8 10.7 10.8 Note: This entry contains the percent of the labour force that is without jobs. Substantial underemployment might be noted. All such economic indicators not only measure/analyze the present performance of an economy but also help in predicting and forecasting its future growth prospects Page No 11 Equity Research Retail Sector In India Page No 12 Equity Research 4.1 Overview The retail sector has been at the helm of India‟s growth story. The sector has evolved dramatically from traditional village fairs, street hawkers to resplendent malls and plush outlets, growing from strength to strength. According to the Indian Council for Research on International Economic Relations (ICRIER), India is the seventh-largest retail market in the world, and is expected to grow at a CAGR of over 13% till......

Words: 12705 - Pages: 51

Free Essay

Profit and Non Profit Organisation

...for-profit and not-for profit social enterprise?
 Social enterprise are businesses that deal with the social problems, communities issues, people’s life chances and the environment. More over, making the world a better place is a significant part of what social enterprise do. A social enterprise also know their aims and purpose of its business clearly. Most of its income were bring in through selling goods or services. Besides, it will also have clear rules about what to do with its profits, reinvesting for the enterprise’s further “social mission”. Social enterprise can also be separated into two categories which are both for-profit and not-for profit in form. In our general mindset, for-profit enterprise always try to maximise the returns for the investors, while not-for profit companies will usually serve to public good. The biggest difference between a for-profit and not-for profit social enterprise is that the for-profit enterprise has a more attracting capital compare to not-for profit enterprise. Whereas the not-for profit enterprise usually requires certain ongoing fundraising efforts. As in detailed, a business or organisation which set its primary goal is making a profit are so called for-profit enterprise. Nowadays for-profit enterprise are more preferably by most companies because they are focusing on making profit. Does anyone who's not interested in money? Therefore for-profit enterprise is more attractive than not-for profit companies. A for-profit......

Words: 509 - Pages: 3

Premium Essay

Prosperity Without Growth

...The Colourful Corporation [pic] Research Study: Prosperity without Growth? Executive Summary The aim of this report is to identify and define the conditions that create a sustainable economy and report on the effects they might have on the future governance, vision and strategy of The Colourful Corporation. In doing so the report has analysed the most pressing issues that relate to the development and continuation of a sustainable economy. The research has been undertaken at the request of the CEO and uses academic literature as its backbone. Overall the report found that there are many factors that are consistent with a sustainable economy with the following being researched: science & technology; ecology & sustainability; population, demographics, society & culture as well as economy, geopolitics & security. The report concludes that the future of the global economy will be built on innovation, low-waste, long-term planning and will be developed in harmony with the natural environment, and that these factors should be used in the development of the company’s future vision and strategy. The report recommends that the company: • Invest in Research & Development (R&D) • Decrease the use of chemicals, pesticides etc. in production & process work • Further research the implications of population growth and cultural homogeneity and its effects on the company. • Take a cautious approach to large financial investments Table of......

Words: 2019 - Pages: 9

Premium Essay

Strategies for Economic Prosperity

...Name Tutor Course Date Article 1 Strategies for economic prosperity Mark Whitehouse and Greg Ip. July 29, 2006. Economic growth Mark Whitehouse and Greg Ip in their article on economic growth explain on the price rise as well as on growth slow. Explains that during economic expansion, prices and wages are increasing, a potentially noxious mix for a Federal Reserve will try to contain inflation without triggering a recession. According to an advance estimate made by the commerce department economic activity slowed as a result of builders putting up fewer homes and consumers cutting on spending. Economists explain that slowing growth and rising prices will continue to complicate Fed’s task of deciding what level of interest rates is high enough to contain inflation. However, it’s not so high to slay out economic growth. Between April and June inflation grew at a rate of 2.5% whereas the core personal consumption index rose at an annualized rate of 2.9% in the second quarter. More so the level of worker’s wages and benefits rose at 3.6%. Once the Friday report was released investors took up the vision that Fed would be more likely give the economy a break by holding the interests steadily at 5.25%. This report confirmed the predictions of the economists that cooling house market as well as the consumer spending will take a bite out of economic growth. However, some economists had the hopes that business investment as well as improving the foreign trade would......

Words: 1926 - Pages: 8

Free Essay

Peace and Prosperity of the Tang Dynasty

...Brett Wagner 10/21/14 Dr. Song The Peace and Prosperity of the Tang Dynasty China is a country with an incredibly rich history spanning more than 2,000 years. This history involves centuries and centuries of dynasties being overthrown and the repeated splitting and reunification of China. With constant conflict and millions of soldiers having died over the years, one would think China would never experience a state of tranquility, and then the Sui dynasty was succeeded by the Tang dynasty. The Tang dynasty was a period of peace and prosperity for China. There were many factors that contributed to the peace and prosperity of the Tang dynasty, however it seems to be true that all things good must come to an end. This time of peace was disrupted by the Rebellion of An Lushan, which marked the decline of the Tang dynasty. There were many components that gave way to the peacefulness of China prevalent during the Tang dynasty, some of which were residual from the Sui dynasty. One of the major factors was the reunification of north and south China. This occurred under the reign of the Sui dynasty, which prevented future conflicts between the north and the south by creating a sense of unity and wholeness. Although the unification was done by force, it greatly benefited China and the Tang dynasty. It is said that this unification “ushered in three centuries of cultural flowering,”1 which is a very long period of cultural advancement, especially for China. Another feat under the Sui......

Words: 1153 - Pages: 5

Premium Essay

Non-Profit to Profit Making Plan

...Running Head: Non-Profit to Profit Making Plan Non-Profit to Profit Making Plan Assignment Two Strayer University HSA 505 Health Services Strategic Marketing Non-profit and for-profit hospitals come with their own set of rules, regulations, and expectations. They both work financially differently and it is known that for-profit hospitals generate millions of dollars in revenue every fiscal year. This is not the same for non-profit hospitals. Non-profit hospitals work with what the state and federal government allots them and they do not make money hand over fist. The obvious motive for turning a non-profit hospital into a for-profit hospital is for money. This paper will address the external and internal factors that influence decisions, the theory and practical framework of data, market segmentation, and analyzing of data for the switch from non-profit to for-profit hospitals. Describe the external and internal factors that influence the executive team’s decision making and specify which might be most instrumental in making the decision to become a for-profit entity. Why do you think so? It is imperative to understand the differences of internal and external factors, especially in terms of decision-making due to the fact that a problem has to be recognized in order to establish a next crucial step. In this instance the next crucial step is the decision to move from a non-profit to a for-profit entity. Within this move both internal and external......

Words: 1557 - Pages: 7

Premium Essay

Not for Profit

...of duties, “When the controller left, the finance department staff took on additional duties, and often ended up working overtime. We noted that during the latter part of the year, the same individual was creating purchase orders, entering invoices into the system, and preparing the cheque runs. The CFO said the situation was unavoidable, and noted that the accounting manager reviewed the cheque runs and prepared the bank reconciliations.” I – The lack of segregation of duties is inappropriate since it does not separate accounting entry from payment and can result in finance staff making inappropriate accounting entries (for example payments to themselves) and then issuing the cheques to themselves with no oversight. Fraud could occur without being detected in time to prevent it. R – EC should hire a new Controller as soon as possible to set up proper segregation of duties and have proper oversight. Presently, management review is too late and merely a detective control and not preventative. Inventory W – “Most employees are reluctant to complete a materials sign-out sheet. They claim they are too busy.” I - Inventory might get stolen if the sign-out sheet is not properly filled out and management are not able to trace back to who is responsible for signing out the inventory. R - To ensure all employees fill out the sign-out sheet, employees should be notified that management will randomly review the sign out sheet for completeness, to show the relevance to the......

Words: 1276 - Pages: 6

Premium Essay

Profit

...in regard to sales over the financial year. Gross profit percentage of sales: Gross profit Sales This is the measurement of the profit made by SIGnature created by selling their services higher than they buy them. This calculation shows that for every £1 of sales, SIGnature are making a gross profit of 58.63p. This is a positive figure as it shows that the company are gaining a profit from their services which is what they would aim to do and therefore the business should aim to increase their gross profit percentage of sales. Due to SIGnature being a new business, this implies good performance as they are gaining a profit from their services although it is only half of the figure gained from sales. The profit may be low because SIGnature may need to be putting the money created from sales back in to the business in order to keep it running the way it is. To increase this gross profit percentage, SIGnature could potentially attempt to decrease their outflow as they would then not have to put as much money back in to the business. If the gross profit is low because of cost of materials, SIGnature may find it hard to improve this percentage as they need the materials to produce their services. Net profit percentage of sales: This is the measurement of the profit made by SIGnature after they have paid their expenses. This calculation shows that after paying their expenses, SIGnature has made a profit of 2.31p. This figure, although positive, needs......

Words: 1634 - Pages: 7

Premium Essay

Non Profit to Profit Making

...Non-Profit to Profit Making • Tasha Garrison HSA 505: Health Care Planning and Marketing Dr. Wendy Whitner October 30, 2011 Describe the external and internal factors that influence the executive team’s decision making and specify which might be most instrumental in making the decision to become a for-profit entity. Why do you think so? In communities around the nation, many not-for-profit hospitals are struggling to stay afloat. Rising costs, a heavy patient load and outdated equipment make some simply not economically viable. For-profit medical groups are often stepping in and buying these hospitals. While some community leaders are relieved that the hospitals are being saved, others worry that it will be at a cost to the economically disadvantaged in the community. With more hospitals on the auction block every day, the effect of this change is likely to become clear in the coming months and years. There are several factors that contribute to an executive team deciding to become a for profit organization. The most common reason is financial. Both internal and external factors can also influence an executive team’s decision to become a for profit entity. Some of the internal factors are employee turnover or employee relations issues, dated or obsolete facilities, and healthcare services that may be out of line with market demand. The external factors that contribute......

Words: 859 - Pages: 4

Premium Essay

“Increasing Profits Without the Pain”

...total revenue, direct costs and gross profit for each product. This is an essential method to distinguish products that make superior profit with unprofitable ones. To figure out which services are unprofitable, list all the services, the cash collected from those services, and the time applied to the service. By dividing the cash collected by the total time applied gives me a very good estimation of the profitability of each service. Cancellation of products can affect the company in many ways. The main advantage is that it could lead to lower costs and higher inventory levels that could be replaced by other more profitable products. The way in which it impacts customers is that an unprofitable product, may be needed by a key customer who orders other, more profitable products. b. Repeat the same exercise, this time in a not-for-profit organization. Amnesty International is a not-for-profit organization focused on human rights with over 3 million members and supporters around the world. The objective of the organization is "to conduct research and generate action to prevent and end grave abuses of human rights, and to demand justice for those whose rights have been violated." The objective of a Non-Profit Organization is to provide services to the community without any monetary profits. For most Non-Profit Organizations, the crucial relationship is that shared with the Funder, and not the end-user. A growing concern a non profit organization has where the full cost......

Words: 542 - Pages: 3

Premium Essay

Not-for-Profit

... 200,000 Cash 200,000 Pledges receivable 200,000 Resources released from restrictions 150,000 Cash 150,000 Research expense 150,000 Resources released from restrictions 150,000 1b. Pledges receivable 200,000 Revenue from contributions 200,000 Cash 200,000 Pledges receivable 200,000 Research expenses 150,000 Cash 150,000 1c. Pledges receivable 200,000 Deferred revenue 200,000 Cash 200,000 Pledges receivable 200,000 Deferred revenue 200,000 Revenue from contributions 200,000 Research expenditure 150,000 Cash 150,000 2. The standard government model and the not-for-profit standards were developed specifically for colleges and universities. It is even more difficult to justify the use of different accounting practices by similar types of government entities based entirely on their choice of assumption. However, standard setting is a political process, not merely a theoretical exercise, and compromises must sometimes be made....

Words: 1171 - Pages: 5