‘Greedflation’
An article published by the UK-based FT on March 31, 2023 brought up some interesting perspectives on global corporations, claiming that many were making millions of dollars in profits amid the seeming global macroeconomic challenges.
As revealing as the article was, what l found interesting was rather the emphasis on a new word in the world of business — greedflation.
“Bumper profits and bigger margins have not gone unnoticed and a new word, greedflation, has started to crop up. In the past two years, non-financial companies in the US and Europe have fared well despite stiff headwinds from the pandemic and the war in Ukraine. Even with supply chains bottlenecks, strains on global shipping and disruptions in the supply of energy and commodities, corporate profits have surged”, Anne-Sylvaine Chassany stated in that opinion piece.
In fact, the gradual rise in global inflation, following the easing of the restrictions introduced by countries to contain the pandemic in 2020, was attributed to improved demand for goods and services (positive) but a lag in supply due to bottlenecks in supply chain channels.
In effect, while global demand picked up in response to the gradual return to normalcy, the steep and broad disruptions in supply lines resulted in mismatches between demand and supply, and because the demand-push factors were so strong, it was easier to push down the high input costs to consumers faster than in previous years, further fuelling rise in headline inflation.
Chassany further explained that earnings before interest and taxes peaked in the course of 2022, at nearly 18 per cent of revenues on average for the largest US listed companies and more than 15 per cent for Europe’s biggest listed groups.
She based her analysis on data compiled by Refinitiv.
Other studies conducted on corporations in emerging and developing countries have shown an average of 147 per cent jump in corporate profits post-pandemic, with some economic clusters quadrupling profits.
In November 2021, international charity organisation, Oxfam, also highlighted in a release that Pfizer, BioNTech and Moderna were making $1,000 profit every second.
In a recent report, analysts highlighted that Exxon Mobil saw record annual profits in 2022.
The company’s yearly earnings released stressed that it "achieved best-ever annual refining throughput in North America and the highest globally since 2012."
Total annual earnings for 2022 was estimated at $55.7 billion.
Exxon was not alone in the record numbers. British oil giant, BP, has also announced record annual profits of nearly $28 billion in 2022, the biggest in the company's 114-year history and more than double the year before.
So is it really about greed or better management coupled with favourable market conditions albeit within a challenging global economy?
Well, not so much of greed, if I have to give a straight answer. But over the years, the public has always become sceptical about high corporate profits and ensuing high salary package for the big bosses.
At one point, these socalled obscene salary packages were described as"fat cat pay”. In view of this, the call for corporations to redistribute profit has been loud.
The next question is: How? This also takes me back to an old debate about shareholder value maximisation and the broader stakeholder interests.
Whereas it is clear that profit motive is what drives businesses and therefore attract investors, the clamour for sustainable business practices also drives businesses towards care for the planet, as they pursue profit.
In broad terms, the concentration on Corporate Social Responsibility (CSR).
The Organisation for Economic Cooperation and Development (OECD) describes CSR as a “business's contribution to sustainable development”, and stresses that “corporate behaviour must not only ensure returns to shareholders, wages to employees, and products and services to customers, it must also respond to societal and environmental concerns”.
Thankfully, there is evidence that suggests that organisations are balancing social and environmental goals somewhat, as they pursued their profit maximisation agenda.
This self-regulating business concept – socially responsible- has made corporations more accountable to itself, stakeholders, and ensuring that it was conscious of the impact it was having on all aspects of society, - economic, social and environmental.
I saw a classic example of this in May 2021 when AstraZeneca company had to react to a protest at its headquarters in Cambridge, UK. The activists had staged the protest because they wanted AstraZeneca to waive its COVID vaccine patent.
The “People’s Vaccine” activistswere of the view that if the intellectual property of the vaccine that the company produced was made available, it would make it possible for more companies to get into its production, and that would strongly help to reverse the tide of the coronavirus infections.
Dealing with the issue, this is what the company said in part: “AstraZeneca has risen to the challenge of creating a notfor-profit vaccine that is widely available
around the world, and we are proud that our vaccine accounts for 98 per cent of all supplies to Covax.”
“We have established 20 supply lines spread across the globe and we have shared the IP [Intellectual Property) and know-how with dozens of partners in order to make this a reality. In fact, our model is similar to what an open IP model could look like”.
Many had wondered, as to whether the company was putting humanity before profit. But as l read more comments from Pascal Soriot, the Chief Executive Officer (CEO) of AstraZeneca about what the company had done, and continued to do, to ensure that its vaccine was available to all, where possible, l was satisfied with the company’s interest in humanity too.
Ah, and according to reports, the CEO was on course to earn pay and perks of up to £17.8m for 2021! That meant many more at the Boardroom were satisfied too.
The clear point here is that, there is nothing wrong with businesses earning legitimate returns in a sustainable way.
Adoption of sustainable practices guarantees both the present and the future progress of not only the company, but the world as a whole.
Surely, we can’t live in a world where high inflation morphs into greed and exploitation of the poor by powerfulcorporations. It is a no no! Greedflation is certainly not good.
botabil@gmail.co