Lessons from Wall Street: Was Gordon Gecko Right All Along?

<p>The famous phrase 'Greed is good' from the movie Wall Street has been quoted time and time again as a sign of what's wrong with America. But let's look at the entire speech and see if, in fact, the character famously played by Michael Douglas was onto something. In fact, in some ways the speech was downright prescient.</p>
<p>One of the fundamental rules of management it to align incentives with desired behaviors and base rewards on measurable and accountable results. One of the main criticisms of Wall Street today is that senior managers were making huge salaries and bonuses that were divorced from company performance. In fact, there is a popular uprising against using funds from the 'rescue package' to pay for these golden parachutes for people who did nothing more than run companies into the ground.</p>
<p><em>Now, in the days of the free market, when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company! All together, these men sitting up here own less than 3 percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than 1 percent.</em></p>
<p><em>You own the company. That's right -- you, the stockholder. And you are all being royally screwed over by these bureaucrats, with their steak lunches, their hunting and fishing trips, their corporate jets and golden parachutes.</em></p>
<p>Another criticism being leveled today is that of wasteful spending with needless layers of bureaucracy that add complexity and no real value - building houses of cards using fancy accounting loopholes and principles that mask the real picture.</p>
<p><em>Gecko: I have spent the last two months analyzing what all these guys do, and I still can't figure it out. </em></p>
<p>And the actual quote about greed makes it clear that what he's really talking about in enlightened self-interest (and not limited to fiscal gain).</p>
<p><em>The point is, ladies and gentleman, that greed -- for lack of a better word -- is good.</em></p>
<p><em>Greed is right.</em></p>
<p><em>Greed works.</em></p>
<p><em>Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.</em></p>
<p><em>Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind.</em></p>
<p><em>And greed -- you mark my words -- will not only save Teldar Paper, but that other malfunctioning corporation called the USA.</em></p>
<p>He's linking that desire with evolution - combining capitalism with social Darwinism and the idea that survival of the fittest applies to companies, economies and countries and not just individuals.</p>
<p>While I object to the principle that often grows from this combination - that those who are on the lower end economically are somehow inferior or undeserving - there are a few basic truths that this speech does address:</p>
<ol type="1">
<li>Stakeholders (shareholders) are not just there when it is time to reap the benefits of financial gain; they also assume the risk and have to face the losses when and if things go wrong. Therefore they need to be ENGAGED and ACTIVE. </li>
<li>As any parent knows, you need to reward behaviors you wish to see repeated, and address those that you do not. Corporate incentives must be aligned with desired outcomes. And there must be consequence for failing to meet those outcomes. They don't have to be draconian, but they certainly should be proportional and FAIR.</li>
<li>Inefficiency, obfuscation and esoteric rules cloud the picture. TRANSPARENCY allows for informed decision making (including whether or not to invest). People must insist that they know what they are buying.</li>
<li>The idea that shareholders can cut and run when things go badly doesn't work when company values drop as precipitously as they have recently. Or when they are prevented from selling stock due to the restrictions within their employee stock purchasing plans. Therefore they also must be and make efforts to keep themselves INFORMED</li>
<li>Long term thinking is necessary for long-term sustainable growth and value creation.</li>