Il Papa

The Morning Call apologizes for being a poor judge of character

About three or four months ago, two of my daughter’s friends got into an argument.  Like her, they’re both college freshmen, and they’re both interested in questions of faith, culture, and society.  One is a devout non-denominational evangelical Christian who wants to be a preacher, while the other is a free-market-supporting atheist who wants to annoy his non-denominational evangelical Christian friend.  Their argument was over Pope Francis and whether he’s a good guy or a bad guy in the great global battles raging today.  The free-marketeer insisted that the Pope is a pain-in-the-backside at best and is a hardened socialist.  The Christian took the opposite position and, in defense of the Holy Father, cited a 2014 article in the New Oxford Review, a small Catholic magazine.  The article was titled “Is Pope Francis a Socialist,” and answered that question as follows:

Like his predecessors, this Pope has insisted repeatedly that his pronouncements are not meant to be viewed as political statements but as declarations of human dignity and need.  But, of course, that has not stopped conservatives from bristling at many of his pronouncements, fretting openly about the first Jesuit pope and his purportedly leftist leanings….

Based upon the evidence to date, we think it fair to conclude that Pope Francis’ experience in economic matters is limited–which may well be why he has explicitly declared that he has no interest in dictating public policy.  But that’s not to say that his every pronouncement is mistaken, or a sign of latent socialism.  American conservatives would do well to remember that, just as they would do well to look for the far more abundant common ground with the modest yet spirited pope.

I only know about this argument and the citation of said article because my daughter showed me the discussion, which took place via group text.  She thought I’d get a kick out of it, since the author of the New Oxford piece was…yours truly.  You see, back in October 2014, about a year-and-a-half into Francis’s papacy, we were still trying our best to put on a happy face and to give the new pontiff the benefit of the doubt.  When he said or did something stupid or destructive, we convinced ourselves that his words were taken out of context or intentionally misinterpreted.  And often they were.

Nevertheless, more than six years later, here we are, still dealing with a pope whose words and deeds nearly always confirm his critics’ worst suspicions about him.  And our patience has worn thin.

Is Pope Francis a socialist?  That’s a question for another day and another piece.  Today, the question is “Is Pope Francis a stubborn, naïve, willfully destructive man who continues to overstep his authority and continues, therefore, to lead his flock astray in matters that he has no business even contemplating much less getting involved in?”

Sadly, the answer is obvious.

The following is a from an article originally published at Quartz (qz.com).  It was then republished by Yahoo Finance.  There are countless other stories that we could have cited – including this from the New York Times’ Dealbook – but, as you’ll see, the Quartz piece is perfect.  Under the headline “Pope Francis is backing a new movement to redefine capitalism as a force for good,” Anne Quito writes:

Capitalism has been condemned for many of the world’s evils, from massive income inequality to climate change. But self-interest wasn’t the core idea of the economic system first codified by Adam Smith in the 18th century. Avarice became coupled with capitalism in the 1980s, fueled largely by Nobel prize-winning economist Milton Friedman’s theory that the singular goal of businesses is to maximize profits for shareholders. In short, it was the argument that “greed is good.”

Now a new global alliance, with Pope Francis as its moral leader, is pushing to rescue the heart of capitalism and reorient it as a force for social good. The founding members of the Coalition for Inclusive Capitalism with the Vatican comprises large corporations like Bank of America, BP, Estée Lauder, EY, Johnson & Johnson, Mastercard, Merck, Salesforce, and Visa. It also includes grant-giving bodies like the Ford Foundation and the Rockefeller Foundation, government bodies, and the International Trade Union Confederation, the world’s largest workers’ rights group….

Lynn Forester de Rothschild, the coalition’s founder, contends that the alliance isn’t another caucus exclusive to big corporations. Any enterprise that believes in the need to reform the prevailing capitalist agenda can sign up to be part of the movement. “It’s available to the corner pharmacy who wants to make a commitment to hiring one person of color, or being carbon neutral,” she explains. “They don’t have to do what Johnson & Johnson or Merck does. They’ll do what’s comfortable to them.”…

“I think this pope has true authority on the human soul,” Forester tells Quartz. “When he says things like ‘we need a new conception of the economy in which production of wealth improves rather than destroys our world,’ that is inclusive capitalism.”

Where do we even begin?  At the beginning, we suppose…

That headline.  Dear heavens.  Capitalism needs to be redefined to be a force for good?  Are you sure?  And the Pope – this Pope – is the guy who is going to do so?  Really?  Does he know that he’s only about 130 years too late?  Rerum Novarum, the encyclical from Pope Leo XIII, is very short.  Perhaps Pope Francis might give it a read?  Or if he’d like something a little more contemporary, he could try Centesimus Annus, Pope Saint John Paull II’s encyclical, issued in 1991, commemorating the hundredth anniversary of Pope Leo’s masterpiece.  The mind reels at the notion that Francis, of all people, is capable of making capitalism “a force for good.”

But it gets worse…

In her intro, Ms. Quito not only gets Adam Smith PRECISELY BACKWARD but also gives away the game entirely, using those two keywords that demonstrate in arguably what this entire effort is about: “Milton Friedman.”  As our favorite morning newsletter put it just a week ago:

Friedman, you see, has become the catch-all boogie-man for those who wish to extend the reach of politics into capital markets.  The invocation of his name is perfunctory virtue signaling in the “socially responsible” world.  He is the Emmanuel Goldstein of the ESG-Stakeholder movement….

Know this one thing for sure: anything you read, you hear, or you see that cites Milton Friedman or the “Friedman model” as the outdated or incomplete or mistaken interpretation of capital markets is ideological propaganda.  Anyone who purports to be able to remedy the shortcomings of the Freidman model is, in truth, selling you something.  Any investment trend promises to save the world from Friedman-ite greed is advancing a religious doctrine.  And any intellectual theory that promises to “revolutionize the way businesses calculate their success” by fixing Freidman’s errors is merely advancing the glorious myth.

Well done, Il Papa.

Then, there is the cast of characters with whom the Pope has now aligned himself: “Bank of America, BP, Estée Lauder, EY, Johnson & Johnson, Mastercard, Merck, Salesforce, and Visa…”  Ugh.  There is much to loathe in that list, but as you may know, the vilest name of them all is “Salesforce,” the CEO of which we described as follows back in August:

[W]e would struggle to find anyone in American business we dislike and resent more than Marc Benioff, the founder and CEO of Salesforce.  In many ways, Benioff is the personification of all that ails that which passes for “capitalism” these days.

Benioff himself made billions from the perversion of capitalism but now insists that it’s time to concede that “capitalism is dead” and that  we have to start over with something new.  Never does he acknowledge that he was right there with Cassius, Casca, and Brutus jabbing his knife into capitalism over and over again until its corpse lay covered in blood on the Senate floor.

We mention Benioff today for a few reasons.  First, as you may know, on Tuesday, Salesforce reported record 2nd quarter profits.  To celebrate, Benioff appeared on CNBC to talk about his great triumph:

“This is a victory for stakeholder capitalism because I think, you know, that we did a great job for our shareholders this quarter, but we also did a great job for our stakeholders, as well,” he told CNBC’s Jim Cramer. “This is a moment when we need to be thinking not just about how to serve all of our customers, but also how to take care of our communities because they are in so much pain.”

Second, we mention Benioff today because less than 24 hours after spraining his shoulder patting himself on the back, Benioff told 1000 of his presumably most important stakeholders to pound sand:

Salesforce is cutting about 1,000 jobs, or close to 2% of its workforce, after a blowout earnings report pushed the stock up 26% to a record valuation on Wednesday.

“We’re reallocating resources to position the company for continued growth,” a spokesperson confirmed in a statement to CNBC. “This includes continuing to hire and redirecting some employees to fuel our strategic areas, and eliminating some positions that no longer map to our business priorities.”

What an ass.

The third reason we mention Benioff is that the news of the last couple of days gives us another opportunity to quote our friend Ben Hunt from Epsilon Theory, who has written some truly wonderful things about Salesforce and its illustrious leader, whom Ben has called “one of the modern-day robber barons.”  Almost exactly two years ago, Ben put it this way:

Marc Benioff is a freakin’ genius, an absolute master coyote who plays the metagame better than anyone whose last name doesn’t rhyme with Mayzose or Stuffit. Hat’s off to anyone who figures out the market zeitgeist and parlays that into not only billionaire-dom, but liquid billionaire-dom.

No company has played the stock-based compensation game better than Benioff’s brainchild, Salesforce.com, to the benefit of not only Benioff, but everyone in management (particularly sales) at Salesforce. Here’s how it works.

Since Salesforce became a public company, its revenues have grown at a wonderful clip. It’s EBITDA (earnings before interest, taxes, depreciation and amortization) and net income available to common shareholders… not so much.

Where have all the revenues gone, if not into earnings and net income? Well, if you read the Wall Street analyst reports about Salesforce “beating its earnings estimates” every quarter, you’d think that this chart above must be wrong. Why, Salesforce has lots of profits! Sure, it trades at a high P/E multiple, as befits a company with such great revenue growth, but the consensus Wall Street earnings estimate for this quarter is $0.50 per share. With 756 million shares outstanding, that’s about $375 million in earnings this quarter alone.

What gives?

What gives (among other things) is stock-based compensation. The earnings estimates that you’ll hear the CNBC analysts talking about Salesforce “beating” or “missing” are pro-forma earnings. They do not include stock-based compensation. Actual money paid to employees? Yes, that’s included. Stock paid to employees in lieu of actual money? No, that’s not included. If you included stock-based compensation (and all the other pro forma adjustments) as actual expenses, which of course they are, then the consensus Wall Street earnings estimate for this quarter is not 50 cents per share. It’s 2 cents per share.

Since it became a public company in 2004, Salesforce.com has paid its employees $4.8 billion in stock-based compensation. That’s above and beyond actual cash compensation. For tax purposes, it’s actually expensed quite a bit more than that, namely $5.2 billion. The total amount of net income available for common shareholders? $360 million. On total revenue of $52 billion.

Note that none of this includes the money that Benioff himself made in stock sales from 2004 through 2010, where he sold between 10,000 and 20,000 shares of stock in the open market PER DAY, EVERY DAY, for SIX YEARS.

That’s truly beautiful – both Ben’s takedown and Benioff’s scheme.  The best part is that stock-based compensation is one of the greatest dual-purpose scams of all time.  Not only has it allowed Benioff and those like him to make billions upon billions of dollars, it also allows them, now that they have more money than most Latin American nations, to insist that capitalism is broken, that the “shareholder” model is destructive, and that people should just shut up and let them “fix” the system.

Over at Epsilon Theory yesterday, Ben Hunt’s partner, Rusty Guinn, penned a piece on this same subject that is far cleverer and far more entertaining than the one you’re reading now.  But we’re not really in the mood to be clever (not that we’re as clever as Rusty, in the first place).  We’re more in the mood to be angry.

We’re also, frankly, a little embarrassed.  We’ve missed on any number of issues over the years, but likely never as badly as we missed on Pope Francis.

Mea culpa.

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