Global economic conflict of interest

Amid all the financial chaos in today’s Global Economy it may be well to look at a conflict of interest that is always overlooked, or ignored. This is the conflict that must inevitably arise between a shareholder as an individual participating in the broader economy and that same shareholder with the expectation of adequate (or ever increasing) returns on their investment(s). In this type of situation the danger is that ethics, morality, the virtues and personal values will be ignored or over ridden.

As an individual and as a customer in the broader economy, a shareholder will naturally wish to pay as low a price as possible for the items purchased; the customer may bargain; the customer will almost certainly ask for a ‘cash’ discount. If the customer is a large, or bulk purchaser a ‘trade’ discount will be sought. This desire to pay as little as possible is the very reason why “Discount Warehouse” type stores are increasingly popular – world-wide.

Now those “Discount Warehouse” type stores and the very large supermarket chains exert enormous purchasing power and obtain their stock at the lowest price possible. This is all reasonable and understandable. Money and financial products are no less susceptible to these pressures that any other product supplied.

Competition between the various supermarket chains, discount warehouses and financial institutions means that profit margins are razor thin, hence all the advertising to attract customers to increase (or at least maintain) market share.
The same principle applies to the manufacturers of the goods sold by the large chain stores. Their gross profit margins are kept very low by competition and the large chains requirement to purchase their supplies at the lowest possible price – likewise with banks and other financial institutions that sell financial products.

You see the conflict of interest and the paradox? The purchaser (a shareholder) wishes to pay as little as possible for the items purchased – yet at the same time the CEO and the board of directors of any listed company, or bank, you care to name is under pressure to maintain (and increase) share value and dividends for that same shareholder. How can this happen if the shareholder (as a purchaser) and all other purchasers are trying to keep costs down by spending less?

This is when CEOs try to cut costs by – the old standby – reducing the cost of labour, which normally results in staff lay-offs. This further exacerbates the problem because fewer people are now able to purchase the goods or products sold, which in turn puts more pressure on the manufacturers and the suppliers, and so on, in a vicious downward spiral until something gives – as it has now with the World economy in turmoil.

This is also where the story becomes murky. To maintain the company's share value some CEOs resort to all sorts of stratagems to firstly, prop up their own position, and secondly, to increase profit margins. This is when you get melamine in milk products (China) and other short cuts taken with foods and food products (also principally China); this is when you get shonky financial ‘products’ (i.e. sub-prime mortgages) sold by banks and other financial institutions (USA); this is when you get ‘ponzi’ schemes (Bernard Madoff and others in the USA, Antigua, Belgium, the Channel Islands etc, etc); this is when you get companies moving their production ‘off shore’ – often a euphemism for using ‘sweat shop labour’ in third world countries (sports goods, shoes, underwear, electronics – you name the product and you choose the name of the company involved, situated in any developed country you care to name from Australia to the USA).

In the name of ‘good business’ and ‘sound management principles’ greed, corruption, fraud and anything else that will provide personal gain takes over. Any thoughts about ethics; any thoughts about morality; any thoughts about the importance of virtue; any thoughts about holding fast to one’s values are trashed in the headlong rush for “the money” - often as a 'reward' for being the CEO!

You understand now what I am getting at, and how the conflict of interest arises? I have no answer except to urge, beg, advise all to be moderate, to show measure in their business dealings and/or as shareholders – accept that enough is enough and don’t push for more – be reasonable with your expectations. To urge, beg and advise all to be ethical in their every day dealings with others – their relationships and, at all times, to treat others the way they would like to be treated.

There is also wisdom in the old saying that one should pay workers enough to buy the products they make.