Recently I wrote a guest editorial for the Des Moines Register suggesting while the current Congress is clearly ineffective, the media spotlight is too focused on Congressional handling of the economy. After all, America’s corporate CEOs are the ones who have the power. They create jobs, invest in our country and construct the marketplace of tomorrow. Yet, far too many are shirking their fiduciary duty to their companies as well as their patriotic one by choosing to weather the economic storm tucked snuggly in their corporate power bastions.
In short, most of them aren’t helping.
I closed that piece by saying they needed to pay workers more, fight to keep jobs on our shores, and invest in our collective American future. It was time for them to step up and serve their country, again. These were hardly revolutionary concepts. In recent weeks throngs of people have taken to the streets in the nationwide Occupy protests to voice a very similar message.
The Occupy naysayers like to call the protesters unfocused and I will admit the messages coming from the streets have been wide-ranging. So, let me be specific. If the corporate tycoons would utilize their growing stockpiles of cash to invest in America, the gloomy economic forecast would clear quickly.
Allow me to use the companies of the Dow Jones Industrial Average (DJIA) as an example. The DJIA is a stock market index, a method of measuring a section of the stock market in order to make broader market-wide assumptions. The health or wealth of the DJIA is not a scientific sample to be extrapolated to the entire market, but it can give a general sense as to the state of the market.
While there are a wide variety of measures to consider when evaluating companies, let’s look at one of the simplest to understand, cash. Cash and equivalents are the most liquid assets found on a company’s balance sheet. They are the assets most easily converted into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper.
In times of uncertainty, companies stockpile cash. And, boy, are they. The way DJIA companies are building up cash reserves, it is surprising A&E television isn’t filming a special segment for its popular show “Hoarders .”
Before the financial collapse in 2008, DJIA companies had $233.5 billion on-hand in cash and equivalents. As of June of this year, their combined cash and equivalents total skyrocketed to $431 billion, an increase of over 184 percent. This means the 30 DJIA companies have taken $197 billion that was once invested in operations, returned to stockholders in the form of dividends, paid in salaries to employees, or aggressively invested in growing business, and put it in the most passive of investments, cash and equivalents. Corporate America has taken money out of active circulation in the marketplace and stashed it waiting for a sunnier, safer outlook. This may not be the exact corporate equivalent of grandma taking her life savings and burying it in a coffee can under the willow tree, but it is close.
It is understandable why a company would increase cash holdings during tough times, but doing so in such a collective and extreme measure makes the recovery harder and longer. If the DJIA companies and the rest would begin to take money out of cash and equivalents and invest in business and growth, jobs would increase, buying would resume, and the economy would begin to rebound.
There is an undeniable selfishness in a company refusing to invest or distribute wealth. Stockholders are better off when a company is investing and growing than when it is in a cash laden holding pattern. If the company chooses not to invest, it should distribute the cash to stockholders and let them do so. Economic recovery depends on each of us doing our part. American workers need to be diligent and productive. In return, they need to be paid a reasonable wage. American CEOs and their corporate boards need to wisely turn cash and equivalents into meaningful investments that will grow the economy by creating jobs and wealth here at home.
The Occupy protesters are pointing their fingers at high-paid corporate executives suggesting it is time they discover what “right-sizing” tastes like. Executive salaries and the growing wealth divide is an important part of the discussion, but for now, let’s stay focused on something meaningful CEOs can do to make a difference. It is time for CEOs to redirect the towering piles of money found on corporate balance sheets under cash and equivalents and make investments in the U.S.A.
CEOs, your companies will be better for it. Your country will be better for it. And, here is a side benefit: the noise coming from the Occupy protests outside your windows will begin to quiet a little if you begin to show you are interested in something more than just protecting yourselves under a blanket of cash.
Graham Gillette can be reached at [email protected]