When Greed Is Good

Last week, I published a piece about Bernie Madoff. Essentially, my point was that it wasn't greed that motivated him -- he didn't make a penny from his Ponzi scheme -- but rather pride and hubris.

The story was generally well received, but some commenters chose to zero in on whether or not greed was a good thing or not. While I think such a discussion missed the larger point I was trying to make, it doesn't mean that the topic isn't worth talking about.

This past week is rife with examples of how greed can be bad for companies, but you have to dig a little further to see when it can be good. I'd like to cover some of both examples today, and hopefully we can have another lively discussion about the merits of greed below.

Greed in the news
There may be no better example, fresh in investors' minds, of destructive corporate greed than the recently revealed behavior of Chesapeake Energy (NYSE: CHK  ) CEO Aubrey McClendon. First we found out that he had taken out enormous loans to take part in a company perk, and that those loans created a situation where his interests were not aligned with shareholders'.

Then, after McClendon announced that he would be stepping down as chairman of the board of directors, Reuters broke a story claiming that he had run a secret hedge fund for four years, trading the very commodities Chesapeake produces. Furthermore, Reuters quoted a former trader for the hedge fund, who said that McClendon "engaged in 'near daily' communications and 'exhaustive' calls to help direct the fund's trading."

Unlike Madoff, McClendon earned fees and a cut of profit from the hedge fund.

And McClendon wasn't alone in these dealings. SandRidge Energy (NYSE: SD  ) CEO Tom Ward was once the COO of Chesapeake and is the company's co-founder. He, too, had a hand in running the hedge fund that McClendon is taking so much heat for.

Either way, it's clear that these two men have put their own, short-term interests front and center, instead of serving those that they're supposed to: employees, customers, and -- most notably -- shareholders.

When greed is good
When we say "greed," it can mean a host of different things to different people. Most dictionaries would define it as "an excessive desire for power or wealth."

But I would actually argue that there's a continuum of greed. On one end, we have "short-term greed." This is the type of greed I usually think of in a negative light, because it blinds the holder from seeing long-term consequences, both to him/herself and to others. McClendon and Ward would definitely be guilty of this.

But on the other hand we have "long-term greed." I think more positively of this term, as it connotes a desire to win steady, long-term success through pro-social behavior that benefits all stakeholders.

Amazon.com (Nasdaq: AMZN  ) CEO Jeff Bezos is famous for playing the long-term greed game. He is now in his second round of forgoing short-term profits in an effort to cement his company as No. 1 in customer service. The company is currently spending billions of dollars to build out fulfillment centers across the country to improve delivery time to customers.

Starbucks (Nasdaq: SBUX  ) and Costco (Nasdaq: COST  ) are two other favorite examples of long-term greed. Both companies have generous compensation plans for their employees. When Wall Street has clamored for them to change the pay and benefits of rank-and-file employees -- especially during the Great Recession -- both declined.

Though it would be nice to think that Howard Schultz and Jim Sinegal, the respective CEOs who put these policies into place, were just being altruistic, that wouldn't show the whole picture. Sinegal once stated, "We want to be here 50 years from now ... [and] taking care of your own people" is one of the pillars for long-term success.

Since we live in a democratic society, people vote with their feet -- that goes for shareholders, customers, and employees. If you want to succeed over decades, you'd better be able to satisfy all three of these groups.

What do you think?
I wouldn't say this puts me in the same company as Gordon Gekko, but I do believe that there's scant difference between the behavior of someone hoping to promote long-term pro-social behavior and someone who is long-term greedy.

Of course, there are a thousand shades of gray between these two extremes, but from where I sit, the more long-term greed we have, the better.

Fool contributor Brian Stoffel owns shares of Amazon.com, Costco, and Starbucks. You can follow him on Twitter, where he goes by TMFStoffel.

The Motley Fool owns shares of Starbucks, Amazon.com, and Costco Wholesale. Motley Fool newsletter services have recommended buying shares of Costco Wholesale, Starbucks, Amazon.com, and Chesapeake Energy, and writing covered calls on Starbucks. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (6) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 10, 2012, at 1:11 PM, Foosballking wrote:

    The term "greedy" is used by leftists to besmirch anyone who wants to keep what they earn...as opposed to surrendering what is earned to the federal and state leviathans...

  • Report this Comment On May 10, 2012, at 3:05 PM, WikiCPA wrote:

    Wealth is the most accurate measurement of one's contributions to society. Wealth isn't made short-term, riches are. Those who inherit or steal, become rich, not wealthy.

  • Report this Comment On May 10, 2012, at 5:22 PM, tnk4800 wrote:

    the latest from zero hedge sums it all up for me.

    http://www.zerohedge.com/news/jpm-crashing-after-it-convenes...

    tnk4800

  • Report this Comment On May 10, 2012, at 6:25 PM, DSmod wrote:

    You are simply finding a way to call greed "good" by redefining it. This "long-term greed" which "promotes social behavior that benefits all stakeholders", is not really greed by any classical definition. We have a word for that which has worked perfectly well for centuries: ambition. I don't really see the point to the funny word games.

  • Report this Comment On May 10, 2012, at 6:45 PM, TMFCheesehead wrote:

    @DSmod-

    You're right, on some level it's semantics. The bigger point was just that if you applied all that was wrong with greed in the short term--and applied it to the long term--you'd see a huge improvement. The real focus is on a long-term perspective.

    Brian Stoffel

  • Report this Comment On May 10, 2012, at 9:00 PM, TMFGortok wrote:

    You will always have people that do bad things.

    If it's in a capitalist system, then sooner or later those that do not produce what their consumers want will fail.

    That's the beauty of capitalism. It doesn't try to say that you'll never have bad people, just that those that do bad things will eventually fail.

    Contrast that with what we have now, where the people that did bad things are bailed out by the government with the people's money. That's not capitalism, and that's not healthy.

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