The Finance 202: Business leaders not sacrificing much by dumping Trump

THE TICKER

Don’t go lining up the Profile in Courage awards for American CEOs just yet.

Those who quit President Trump’s business councils last week to protest his handling of the Charlottesville horror have enjoyed heaps of praise. The resignations caused the collapse of the two panels — though Trump claimed post hoc he’d dismissed them himself — and business watchers have since hailed the executive exodus as aninflection for capitalism itself.

Business leaders, the argument goes, are supplementing their traditionally single-minded focus on maximizing shareholder value with a new mission to promote a broader public good. Andas Trump shrinks from the moral dimension of his leadership responsibilities, CEOs are charging into the breach.

Here’s another, admittedly more cynical, interpretation: The moment provided the CEOs a golden opportunity to indulge in some virtue signaling with limited downside. Denouncing neo-Nazis and white supremacists is the easiest conceivable moral stand (for most of us, anyway). And the executives sacrificed little by walking away from an increasingly toxic president. The councils had become little more than photo-ops for Trump — an uncomfortable display for executives especially protective of their brands among younger, wealthier, more urban consumers who harbor a strong aversion to the president.

Writing in the New York Times over the weekend, David Gelles laid out some of the case for business leaders’ bravery:

The forthright engagement of these and other executives with one of the most charged political issues in years — the swelling confidence of a torch-bearing, swastika-saluting, whites-first movement — is “a seminal moment in the history of business in America,” said Darren Walker, the president of the Ford Foundation and a board member at PepsiCo.
“In this maelstrom, the most clarifying voice has been the voice of business,” he said. “These C.E.O.s have taken the risk to speak truth to power.”
This transformation didn’t happen overnight. Chief executives face a constellation of pressures, and speaking up can create considerable uncertainty. Customers can be offended, colleagues can feel isolated and relations with lawmakers can suffer. Words and actions can backfire, resulting in public relations disasters. All this as a chief executive is expected to constantly grow sales…
In short, while companies are naturally designed to be moneymaking enterprises, they are adapting to meet new social and political expectations in sometimes startling ways.

And in the hometown paper, Steven Pearlstein framed the corporate brass spurning Trump as a major turning point in the history of American business:

For too many companies, “maximizing shareholder value” has provided justification for bamboozling customers, squeezing employees, avoiding taxes, despoiling the environment and leaving communities in the lurch. And for too many Americans, capitalism is now viewed as an unsavory system of organized greed in which it’s every man for himself.
It is that morally cramped model of capitalism that for a generation has been taught in business schools and economics departments, enshrined in corporate law and demanded by Wall Street investors and money managers. And it is the same model that led business leaders to abandon their much-needed role as stewar ds of the economy and hop into bed with the tea party and then Donald Trump.
Now, after decades of preaching that what was good for General Motors is good for America, corporate leaders have acknowledged that it might actually be the other way around — that what’s good for America is good for General Motors. However belated the conversion, their action this past week was courageous and impactful. We owe them our gratitude.

The breakup between Trump and the executives he considers peers has been a long time coming. As the Wall Street Journal noted Monday in a ticktock of how the relationship soured over the course of the year, at the end of last August, not a single CEO in the Fortune 100 contributed to Trump’s campaign. And while a parade of corporate chiefs made their way to Trump Tower in the weeks following his win to make nice with the president-elect, they quickly learned the peril of associating with him.

Uber was one of the first to feel the heat. The ride-hailing app lost 200,000 users after the #DeleteUber boycott launched to pressure then-CEO Travis Kalanick to quit Trump’s economic advisory council over the president’s proposed travel ban. Kalanick quit the panel in early February, but the damage was done. Competitor Lyft meanwhile leapt at the chance to underline its progressive credentials, pledging $1 million to the American Civil Liberties Union — and saw a 30 percent surge in its ridership. And Starbucks brushed off a counterprotest that Trump backers pushed after the coffee purveyor announced plans to hire 10,000 refugees worldwide over the next five years. (Perhaps the earliest brand to try to distance itself from Trump was the Trump Organization itself, which last October announced a new hotel line that dropped the family name, instead going by “Scion.”)

Public pressure on those participating on the councils continued to build. Per the Wall Street Journal account: “By late spring, business leaders were growing weary of having to publicly defend their participation with the White House. Walt Disney CEO Mr. Iger, the target of online petitions with hundreds of thousands of signatures calling for him to withdraw from the business council, responded at a March shareholder meeting that his participation didn’t mean he agreed with all Trump policies.”

Iger quit in June, along with Elon Musk, CEO of SpaceX and Tesla, after Trump announced he was pulling the United States out of the Paris climate accords. And others began discussing following suit. “It was becoming patently clear that these meetings were more of a time suck than a productive utilization of their time and resources,” one involved Washington consultant told the Journal.

The dam finally broke last Monday, when Merck CEO Ken Frazier, one of the country’s most prominent African American executives — and, per the Times, the son of a janitor and grandson of a man born into slavery — announced he would be stepping down from the president’s manufacturing council. Trump responded by taking to Twitter to bash the pharmaceutical company:

Now that Ken Frazier of Merck Pharma has resigned from President's Manufacturing Council,he will have more time to LOWER RIPOFF DRUG PRICES!
— Donald J. Trump (@realDonaldTrump) August 14, 2017

.@Merck Pharma is a leader in higher & higher drug prices while at the same time taking jobs out of the U.S. Bring jobs back & LOWER PRICES!
— Donald J. Trump (@realDonaldTrump) August 14, 2017

But in the latest sign that the president’s bark has lost its bite, Merck’s stock rallied in the wake of his attack.

Trump can take some solace in history. He isn’t the first president to suffer CEO defections from a White House business council. The first to organize one, Franklin Delano Roosevelt, drove a series of resignations from his so-called Business Advisory Council when he tried to claim its support for an extension of the New Deal-era National Recovery Act over the opposition of its members. The group survived, however, evolving eventually into the Committee for Economic Development. As University of Michigan sociologist Mark Mizruchi writes in his 2013 book, “The Fracturing of the American Corporate Elite,” the CED grew post-war into a forum for business leaders to forge an economic vision that served the broader national interest.

The economic boom that followed the war made it easier for those executives to privilege the public good over their individual corporate interests. The corporate bosses recognized the legitimacy of organized labor, for example, and accepted the government’s regulatory role. But by the early 1970's, with the rise of stiffer competition from emerging foreign economies and facing pushier federal regulators at home, the shared mission started to splinter.

In the four decades since, business leaders have pursued a much narrower self-interest in Washington policymaking.

The defections from Trump’s councils could be a leading indicator that corporate executives are resurrecting the sense of public responsibility they shouldered in the mid-20th century, Mizruchi tells me.

Or not.

“I don’t think there was no moral component to it at all,” he says. “But for many if not most of them, it was a pretty clear business decision.” He points out that the debates in which business types have taken public stands relate to social issues — in the Trump era, over immigrant rights and white supremacy, and before it, over gay rights in Indiana and transgender rights in North Carolina. “They’re not allocation decisions -- they’re not about the distribution of wealth,” Mizruchi says.

 Of course, a major debate over the distribution of wealth is primed to take center stage in Washington when lawmakers return this fall. Business interests, including those of executives who just quit the councils, still will be working with the administration on a tax code overhaul. As Nancy Cook wrote in Politico last week:

So while companies will rely less on direct access to Trump through advisory councils and meetings at the White House, their advisers and lobbyists still plan to engage with top White House aides such as Vice President Mike Pence or National Economic Council Director Gary Cohn, political appointees at agencies, and Congress to make their case for rolling back regulations, keeping specific tax breaks, or cutting the corporate tax rate.
This will, in effect, push corporations’ lobbying efforts more underground than a public listening session at the White House, covered with fanfare by photographers and reporters. That’s an ironic twist, eight months into the administration, for a president who promised to “drain the swamp” during his campaign.
For now, the only part of the White House that is toxic to business leaders and companies is the businessman-turned-president himself.

Corporate chiefs could carry the social justice banner they’ve hoisted in the wake of Charlottesville into the fray over taxes. They could, say, rally around a rewrite that relieves the burden on middle and lower-income earners and small businesses. They could demand that relief is made permanent, paying for it by zeroing out deductions for corporate interests and the rich while raising rates on upper-income earners. “Tax policy could be a test of this,” Mizruchi says. “I’m not really optimistic.”

MARKET MOVERS

— It's still not clear how they're going to do it, but Senate Majority Leader Mitch McConnell (R-Ky.) is projecting confidence again that congressional Republicans will find a way to lift the debt ceiling next month. “There is zero chance — no chance — we will not raise the debt ceiling,” McConnell said Monday in Kentucky at an event he co-headlined with Treasury Secretary Steven Mnuchin, who backed up his reassurance. The Post's Damian Paletta: "Mnuchin urged Congress to pass a “clean” increase in the debt limit — a bill that simply increases the ceiling and has no other policy changes or budget cuts attached to it. Many Republicans have signaled they would not support such a measure, and McConnell and House Speaker Paul D. Ryan (R-Wis.) have not backed any specific bill. One option would be for GOP leaders to try to attach an increase in the debt ceiling to a popular bill that is sure to pass Congress, but that scenario also poses risks because lawmakers could still try to change the bill or threaten to block it if they want to force concessions."

— At the same event, Mnuchin hinted that the Trump administration could reverse course on the Trump campaign's pledge to close the carried interest loophole. Bloomberg's Sahil Kapur: "U.S. Treasury Secretary Steven Mnuchin said Monday that President Donald Trump may keep the carried interest tax break for firms that create jobs, while eliminating it for hedge fund managers. 'We will close the loophole for hedge funds in carried interest,' Mnuchin said... 'What we are focused on is there are many other types of funds that do create jobs and we want to make sure we don’t discourage investment.'... McConnell said Monday the carried-interest tax break would be considered during tax negotiations among congressional and White House officials. He added that aside from tax incentives for charitable giving and home-mortgage interest, 'there’s no point doing tax reform unless we look at all these preferences.'”

As the Wall Street Journal's Richard Rubin points out, the break only applies to assets held for a year or longer, so many hedge fund managers don't benefit from it:

Definitions matter too. CI irrelevant for lots of hedge funds that don't hold positions for > 1 year to get long term cap gains rate. https://t.co/GLGglokrDW
— Richard Rubin (@RichardRubinDC) August 21, 2017

MONEY ON THE HILL

— The Big Six tax negotiators finding some agreement on the shape of a tax code revamp. But basic questions remain unresolved and prospects for the overhaul are still murky at best.

Politico's Nancy Cook reports: "There is broad consensus, according to five sources familiar with the behind-the-scenes talks, on some of the best ways to pay for cutting both the individual and corporate tax rates. The options include capping the mortgage interest deduction for homeowners; scrapping people's ability to deduct state and local taxes; and eliminating businesses' ability to deduct interest, while also phasing in so-called full expensing for small businesses that allows them to immediately deduct investments like new equipment or facilities.

"Whether this early level of agreement can translate into an actual tax plan that can pass both the House and Senate remains an open question, especially as the administration finds itself distracted by the fallout from Charlottesville; personnel shake-ups in the West Wing; and the ongoing investigations into Russian interference in the 2016 presidential campaign. The White House, Treasury Department and congressional leaders also have yet to resolve major philosophical questions, like whether a tax bill should add to the deficit and whether any tax cuts should be permanent, among other questions."

Speaker Paul D. Ryan (R-Wis.) said in a Monday town hall event hosted by CNN that a tax overhasul would be easier to pass than health-care reform. "I believe it's going to be far easier for us to do tax reform than it was, say, for healthcare reform," Ryan said, per the Washington Examiner. He pointed specifically to the inability to include measures in the healthcare bill because of Senate rules, including medical liability reform and interstate shopping. "Tax reform is different," he said.

POCKET CHANGE

— Goldman Sachs CEO Lloyd Blankfein used Monday's eclipse to throw some barely veiled shade at the president:

Wish the moon wasn't the only thing casting a shadow across the country. We got through one, we'll get through the other. #SolarEclipse2017
— Lloyd Blankfein (@lloydblankfein) August 21, 2017

People noticed.

From Josh Brown:

GS literally throwing shade. https://t.co/2pWi9tC8gX
— Downtown Josh Brown (@ReformedBroker) August 21, 2017

And some pointed out that Blankfein's former deputy now serves as Trump's top economic adviser.

Bloomberg's Sahil Kapur:

Helluva subtweet from Gary Cohn's former boss. https://t.co/NR2DS6TxPh
— Sahil Kapur (@sahilkapur) August 21, 2017

From the New York Times' Maggie Haberman:

As Gary Cohn continues working in the White House, a digging in >>> https://t.co/nwOqjVAa11
— Maggie Haberman (@maggieNYT) August 21, 2017

CNBC's Evelyn Cheng notices that the Goldman chief has demonstrated a penchant for trolling Trump on Twitter. He's appeared to poke at the president in at least four of the 13 total tweets he's sent so far.

— Meanwhile, Louise Linton, who is married to Mnuchin, made some of her own waves online for belittling a stranger on Instagram who criticized her coture-tagged post after flying to Kentucky on government business. Damian Paletta reports:

Louise Linton, boasted of flying on a government plane with her husband to Kentucky on Monday and then named the numerous fashion brands she wore on the trip in an unusual social media post that only became more bizarre minutes later.
When someone posted a comment on Linton's Instagram picture that criticized the way Linton touted the trip, the treasury secretary's wife swung back hard, mentioning the extreme wealth she and her husband control.
“Did you think this was a personal trip?!” Linton wrote on her Instagram page, responding to the person who had written “glad we could pay for your little getaway.”

Read Linton's mind-boggling post and comment here (her Instagram account was later made private, unsurpisingly):

Louise Linton, wife of US Treasury Secretary Steven Mnuchin, just turned her Instagram private after posting this (h/t @skenigsberg) http://pic.twitter.com/beakVnAhhu
— Margarita Noriega (@margarita) August 22, 2017