BB&T, the nation’s ninth largest financial holdings company with $109.2 billion in assets, announced today that it “will not lend to commercial developers that plan to build condominiums, shopping malls and other private projects on land taken from private citizens by government entities using eminent domain.”
In a press release issued today by the bank, BB&T Chairman and Chief Executive Officer John Allison, said, “The idea that a citizen’s property can be taken by the government solely for private use is extremely misguided, in fact it’s just plain wrong. One of the most basic rights of every citizen is to keep what they own. As an institution dedicated to helping our clients achieve economic success and financial security, we won’t help any entity or company that would undermine that mission and threaten the hard-earned American dream of property ownership.”
Here is more information.
Give me a break. There's no violation of a fiduciary duty there. Indeed, putting aside morals, the officer might be helping his company. I'm seriously thinking of switching my banking to BB&T.
Corporations aren't faceless entities with no moral obligations. Corporations are made of people, and those people, just like all people, have an obligation to act uprightly—even in business. Sometimes lawyers (or any highly educated professional) need to take a vacation to visit the real world.
And, in anticipation of responses, the response that "but the law may require this action (or inaction)" is no response. Assuming the law requires such action, lawyers (and judges) are the ones responsible for the requirement. Lawyers need to get a sense of moral obligation and stop making any argument that will bring victory for their client.
Take a break. Go back to your childhood. And remember the day when your parents told you "Do right--no matter the cost."
Just a thought and obviously a digression.
In the real world, which includes real legal concepts like fiduciary duty and constitutional rights (or non-rights, after Kelo), Anglo-American corporations are indeed faceless entities with no moral obligations. They have legal obligations, but taking all prudent and legal action (post-Kelo in this case, the actions we're concerned with are legal) to maximize shareholder value is the preeminent one. Of course, given the public outcry against Kelo, good PR may well do this better than unseemly private eminent domain seizures. But let's not pretend that if that were not the case, the management of this company could not be forced to change tune or step down.
The town changed from what other method?
What you are describing sounds like what I thought was the very standard "highest-and-best-use" method for assessing properties for taxation.
Whatever happened to the traditional economic view that business cannot do anything inefficient or they will be put out of business? I think this is a good test case of that implausible theory. If BB&T survives despite this irrational policy, maybe we should rethink the traditional assumption that businesses make optimal decisions due to competition.
A related point sometimes made is that businesses will not engage in racial discriminate if their competitors don't. Why? Because racial discrimination is inefficient and thus those business who engage in it risk suffering in the market place. This case is analogous. Here, BB&T is "discriminating" (you might think the discrimination is a good thing) against certain projects that might be the most profitable.
If BB&T survives, I think it is grounds for skepticism concerning the general point that businesses that do not maximize efficiency will be ground under by competition.
At the same time however, I have little doubt, that the board and/or management would have little trouble showing that it is sound business practice to take up this policy, as some others point out for the benefit in probably goodwill and public publicity alone. Of course, one other question is...how much business is BB&T really losing out on? Probably not all that much.
Here's the link.
While perhaps more difficult to quantify, they certainly exist.
Mebbe, I'll buy some stock in BB&T, that "but for" this announcement, I would otherwise not.
Also, if the shareholders don't believe this is a good course of action, they're free to remove the officers who chose it.
Leibowitz: "Wow! A courageous leader. I need to buy some of their stock."
Future BB&T PR: "We are a bank you can trust. Love us."
It may be a risk, but risks aren't irrational.
Inefficiency is in the eye of the beholder. I think Harley-Davidson managed to put that narrow view to rest when they started marketing nostalgia instead of engineering and reliability. This change in approach caused a turnaround in a company that was selling an outdated non-competitive product without having to change much in the engineering because they appealed to the "buy American" and the "Outlaw" image Harley had always projected.
BB&T is right on track in this time of political corruption and "faceless industry" whose only goals are to make the stockholders rich in the short term. Any good business (person) will tell you that customer service and a longterm view is what makes a company great and that short term greed will often destroy a company. From any perspective what they are doing, as "inefficient" as it seems, will be a moneymaker in the long run.
I'm betting Mr. Allison hasn't gone through all the bank's portfolios to determine these issues. And that leads me to think perhaps this is just a PR move.
If I were a BBT shareholder today, I'd be proud - and speaking for myself, it would be worth a two penny dillution to my EPS.
cathy :-)
I am not sure that is true. Your hypo brings up some troubling unconstitutional conditions problems.
There is a whole area of law on de facto takings. The case i recall studying involved an idividual who owned beach front property that was subsequently declared protected. He was not allowed to develop it and he argued that the government needed to pay him for it as if they had condemned it. I think he lost if memory serves. I don't recall this area of law well at all but I don't think the law is very favorable to land owners and I think governments are free to take many actions that can almost completely devalue property without compensation to the owners.
Are you referring to Lucas v. South Carolina Coastal Commission? That case involved a guy who bought two residential beachfront lots with the idea of developing them and selling them at a profit. After he purchased the property the state passed a law which essentially forbade Lucas from developing his parcels. The Supreme Court (Scalia) held that because he was entirely prevented from developing the land in accordance with his reasonable, investement backed expectations, that a de facto taking had occurred for which Lucas was entitled to compensation.
That's not exactly correct. De Facto takings are one type of regulatory takings, but there are other types of regulatory takings as well, such as development exactions or traditional Penn Central regulatory takings. So all de facto takings are regulatory takings but not all regulatory takings are de facto takings. Thus the terms aren't interchangeable. Professor Epstein also has a treatise of sorts on takings which would probably appeal to many VC readers.
jallgor--I think Lucas was the first de facto/total taking case the Supreme Court heard, if I am remembering correctly it was decided in the mid 1990s (I want to say either 1994 or 1996?). Perhaps you were remembering a lower level case or a state supreme court case?
I hate when that happens...
Who knew Ayn Rand was a CEO? (John Allison is an out-and-out Objectivist, a major supporter of the Ayn Rand Institute and the Anthem Foundation for Objectivist Scholarship. The BB&T Charitable Foundation has endowed programs for the study of the moral foundations of capitalism at a number of southeastern universities.)
Plus there are so many ways around this it is a joke. Is "underwriting" "lending" because many of these projects are financed through bonds? If they were serious, they would say "we will not do business with anyone who receives or benefits from private property which was acquired by eminent domain or the threat of eminent domain". But they aren't serious, they just want publicity.
I do find this an entertaining test case. I wonder how many people who espouse the Friedman position on corporate social responsibility got excited by Tyler's post and didn't think about the fiduciary claim...? [I'm agnostic on the moral argument about corp. social responsibility; I was making the more mundane legal point.]
Maybe the right thing for Allison to do is to take any benefit he himself realizes from Kelo-type takings and give it to those whose property was taken.
Suppose a hygiene product retail chain starts up that is expressly committed to never using animal-tested prodects (see The Body Shop). Are they betraying their stockholders if it turns out that the goodwill gained from this commitment doesn't actually exceed the competitive advantage lost? For that matter, are they betraying their stockholders if they don't switch to a more lucrative line of business altogether (who knows? men's shoes maybe)?
In BB&T's case, the company has a clear, extensive, express commitment to objectivist values. Is validly expressing these values in the business world a betrayal of investors who knew them going in just because it may not be the highest-yield strategy?
I don't see why a company following it's well-stated operating values should send libertarian investors soul searching. But I await the smarter folk to tell me otehrwise.
Certainly, if a subsequent report finds truly cynical or machiavellian motives, then that discovery would warrant foreclosing any recommendation of BB&T for this announcement. But lacking that, there's no need to elevate BB&T to some position of secular sainthood, still it seems reasonable to appreciate it for what it is, neither over-valuing nor devaluing it. It seems to be a modest announcement and as a public/business policy seems worthy of a reasonable degree of respect without getting all misty-eyed over BB&T. It is what it is, no more but no less either.
I see nothing irrational or inefficient about BB&T's policy. What Vorn fails to consider is that it now may be considered risky to loan money to a private company that expects to acquire needed properties through emminent domain. Even if such a taking is locally legal, there may be legal or even physical attempts to block the transfer. Bad publicity may hurt the viability of the project. The project could be cancelled or delayed due to protests or changes in the law. Even if I was unconcerned about business ethics, I would avoid making loans in these circumstances.
The comments on this thread are so ridiculous that they defy the imagination and do not warrant response. E.g., Singer suggests that maybe we should require executives to make UNETHICAL decisions to pump up the bottom line. Unbelievable!
As pointed out, this thread should be called "Is Atlas Refusing to Shrug, not "Is Atlas Shrugging?". Guess Tyler never read Ayn Rand. Never too late to start!
And no byomtov, there is no dilemma for libertarians, obviously. Only for people with compromised I.Q.'s.
How many potential clients are really on the list of those that profit from eminent domain takings? Is it really a significant portion of the market?
Is BB&T wanting for customers? Do they have more money to lend that they can't find a home for? My point is that they can probably stay fully invested (fully loaned-out?) without lending to such companies, meaning the impact on the bottom line is zero.
In essense, they have gotten good publicity and good will with both clients and the public, at what is very likely a minimal or even zero cost.
It's nice to see good ethics rewarded, but even ignoring the good ethic, this may be a good bottom-line move, not a bad one. How many free news articles did they get just today?
If BB&T were a post-Kelo startup you would be correct. But it's not and you aren't.
Look here.
Byomtov, I'm not sure what you're getting at here. The right way to apply set philosophical operating principles can change over time. (In fact, perhaps only in the current Kelo backlash could they make this move and justify it with the gain in goodwill.) Can you elaborate?
Salary ($thou) 900 920
Bonus ($thou) 911 1,200
Other ($thou) 1,352 387
Stock Gains ($thou) 2,221 920
Total Compensation ($thou) 5,384 5,540
Seems like the reason Mr. Allison is on a par with other banking executives is mostly because of his stock gains.
So how bad could the stock be doing?
Warren Beatty, Buck Henry, Dyan Cannon..."Heaven Can Wait".
What I'm getting at is this:
If I start a firm, and seek investors, I am perfectly within my rights to declare any operating philosophy I want. If I decide I want to donate 10% of profits to various charities, for example, it is perfectly legitimate for me to do so, provided I make potential investors aware of this plan before they invest. But it seems to met that, from a libertarian perspective (which I interpret as shareholder returns above all, with behavior restricted only by laws), adopting such a policy after people have invested money is unacceptable. The same applies to Kelo.
I assume here that the policy in question - whether charitable contributions or avoiding Kelo-based projects - reduces shareholder returns. Of course my argument dos not apply in general to changes in philosophy that are motivated by the desire to increase returns (though even here some questions may arise if such this involves major changes in the types of activities the firm undertakes, the risk characteristics of its projects, and so on. I assume that we are not talking about essentially incremental changes).
So if you believe that BB&T will benefit economically from this policy change then you face no dilemma. I find that a dubious proposition.
"Regarding a corporation's duty to maximize value for shareholders, I would support a policy of prohibiting corporations from giving money to charity. It's easy to give away somebody else's money. I also believe that much charitable giving by corporations is done to support pet projects of management"
That's exactly Peter B. Lewis' stated position - profits belong to the shareholders; distribute the profits to the shareholders and let THEM decide what charities, if any, to which they wish to apply THEIR profits
What I'm getting at is this:
If I start a firm, and seek investors, I am perfectly within my rights to declare any operating philosophy I want. If I decide I want to donate 50% of profits to various charities, for example, it is perfectly legitimate for me to do so, provided I make potential investors aware of this plan before they invest. But it seems to me that adopting such a policy after people have invested money is unacceptable. The same applies to Kelo.
(Note that I personally do not universally object to companies adopting, for ethical reasons, policies that do not maximize returns, but I take it libertarians do so object. I actually don't object to BB&T's policy per se, though I would to the 50% contribution example).
I assume here that the policy in question - whether charitable contributions or avoiding Kelo-based projects - reduces shareholder returns. Of course my argument does not apply in general to changes in philosophy that are motivated by the desire to increase returns (though even here some questions may arise if such this involves major changes in the types of activities the firm undertakes, the risk characteristics of its projects, and so on. I assume that we are not talking about essentially incremental changes).
So if you believe that BB&T will benefit economically from this policy change then you face no dilemma. I find that a dubious proposition.
If they have such a policy and it meets the following conditions then you are correct:
1. It is clearly and emphatically stated in corporate publications such as annual reports, etc.
2. Such statements have explained the practical implications of the philosophy - not "we are objectivists."
3. There have been specific instances in the past where the company has sacrificed gains to maintain philosophical consistency.
4. The company has not deviated from this philosophy when convenient. (For example, has the company ever lobbied for legislation that would provide it with special benefits - has it engaged in rent-seeking behavior? Does it take advantage of special tax breaks? Either of these, it seems to me, would suggest that BB&T is entirely willing to violate its objectivist ethic when it is profitable to do so.)
5. And has Mr. Allison's performance in office been evaluated on a strict meritocratic basis? (I'm not sure if this would be part of objectivism or not, but their statements about "discrimination" surely suggest that to be consistent in their philosophies this should be done).
So I agree that if they have longstanding policies of this sort, well-publicized and consistently followed through the years, there is no problem. I'm dubious that the conditions hold, but I'm open to evidence.
You could say that investors won't expect any sacrifice of profit to principles in the absence of across-the-board compliance. But I think that's unconvincing. I do agree, though, that it takes a holistic view of the circumstances surrounding the investment. From what I've gleaned so far of BB&T, I wouldn't find this stand as an unexpected move, providing that it doesn't endanger the businees.
PS: I think this entire thread of the argument (while interesting) is moot. I don't have their balance sheet in front of me, but I'm willing to bet that the gains in goodwill and publicity are at the very least comparable enough to the business loss to fall within the CEO's discretion.
The whole thing still strikes me as a PR stunt.
Am I being overly stringent? Well, I'm being stringent. People are not perfect, and it is unfair to probe into every detail of the life of someone who generally tries to behave ethically. But I think a different standard applies to those who stand up and lecture others about their righteousness when they donate a dollar to charity. So, since I agree with gab that this is primarily a PR stunt, I think it is reasonable to hold BB&T to a strict standard.
Upshot, even if your conditions weren't met, there are issues of fact, that wouldn't be easy to prove, that stand in the way of any shareholder action.