As the coronavirus pandemic ramped up, there were some individuals who saw an opportunity for a quick buck, buying up personal protective equipment and disinfectant and then selling it later at jacked-up prices to desperate people and hospitals.
Some of these profiteers were outed on social media, becoming the target of potent popular rage. “Send them to jail!” was a not uncommon refrain from people who were furious that these individuals would try to profit from others’ pain.
These people suck. But their actions pale in comparison to the bad behavior of corporations during the pandemic — companies whose leaders don’t give a fig about our moral outrage unless it affects their bottom line.
A shining example of this behavior is the big corporations — Shake Shack, Ruth’s Hospitality Group, the Los Angeles Lakers, and J. Alexander’s Holdings, to name a few — who helped themselves to funds from the Paycheck Protection Program (PPP) established to help small businesses pay their workers.
Shake Shack, RHG, and the Lakers gave their loans back amid a public backlash. Shake Shack founder and chairman Danny Meyer and CEO Randy Garutti blamed their decision to tap the bailout program on confusion, saying “the PPP came with no user manual.”
Apparently, many big companies are confused — more than eighty publicly listed firms have taken money from the bailout program, despite having the ability to raise money on the capital markets. Moreover, a new report by Reuters shows that forty-one publicly listed firms that tapped the bailout fund had plenty of cash to cover expenses for the next few months.
Jim Cramer, host of CNBC’s Mad Money, pointed the finger at the banks who gave out PPP loans to big companies while thousands of restaurants, hair salons, and family-run shops saw their appeals for assistance denied: “I think that banks were complicit. I think banks gave loans to very good customers, maybe because they needed to keep them afloat.” He worries that people are “going to hate the banks again” like they did after the 2008 financial crisis, and that this time around there might even be “show trials.”
Not likely. But Cramer raises a valid point about the role of banks in managing the economic fallout caused by the pandemic. Consider for a moment that Wells Fargo — a company whose executives, for fourteen years, robbed customers through fraudulent accounts, charged mortgage holders unnecessary fees, and forced unnecessary insurance on auto-loan borrowers — was one of the banks entrusted with doling out bailout funds.
It’s not just big companies and banks; Silicon Valley start-ups raised more than $130 billion in venture capital funding last year, yet some start-ups applied for PPP loans. They saw it as an easy way to raise cash, extending their operating “runway” without having to ask venture capitalists for funds which may come with strings attached. And unlike small, family-run establishments, many of these start-ups already have cozy relationships with banks and investors, making it much easier for them to obtain the loans before the fund ran dry.
Taking the cake for bad behavior are the private equity (PE) companies. Despite holding roughly $2.5 trillion in “dry powder” — industry speak for money that can be used to finance investments — buyout firms are crying poverty.
PE executives explained to the Financial Times that “they cannot always divert capital to rescue missions at their existing investments because this could dilute investors’ returns.” As the companies that buyout firms have loaded up with debt to pay themselves fees and dividends hit the skids, PE lobbyists are begging for access to employee support programs and state-backed loans.
So far, private equity companies in the United Kingdom have been successful, gaining access to the government’s emergency loan program. In the United States, despite heavy lobbying, private equity companies have been blocked from using bailout funds designated for small businesses. But the Federal Reserve is propping them up in another way — in early April, it began buying up junk-rated securities, which includes debt issued by PE-owned companies.
One might be tempted to shrug off this bad behavior as par for the course in capitalism. Doesn’t the fault lie primarily with the hastily conceived and implemented first round of the bailout program that allowed undeserving companies to pocket bailout funds?
Yes, absolutely. But it’s worth remembering that less than a year ago the Business Roundtable breathlessly announced that Corporate America had turned over a new leaf — that it was “modernizing its principles” to value all stakeholders, not just shareholders.
More broadly, business leaders and elites have produced an endless stream of hype over the past few years about how, in the face of global warming, skyrocketing inequality, and widespread popular anger at the political status quo, corporations have seen the light. They promote and promise a new direction for capitalism, a path in which workers, communities, and the environment are valued, even prioritized.
If business leaders and billionaires actually believed the stories they were spinning, now would have been the perfect moment to demonstrate their newfound principles. Instead, it appears that leopards cannot change their spots — not even during a pandemic.