Responsibilities Of Profit?

Thanks to the government's rescue of the financial system, many banks and hedge funds are making money again, but this turnaround has caused a backlash among recession-weary Americans. How should these business leaders respond?

Former congressman Mickey Edwards is vice president of the Aspen Institute, where he directs the institute's Rodel Fellowships in Public Leadership.

For those who see themselves as having a higher calling, with concern about the country and not merely the corporation, here's one three-part suggestion:

Thank the workers who helped the company turn around and give them bonuses, capped perhaps at $10,000, a fairly nice chunk of change.

Express an awareness that the new profitability came from taking significant and perhaps imprudent risk, and vow that having rescued the company, its managers will now pursue a more cautious strategy.

Announce that the many millions of dollars which could have been paid in super-sized bonuses will instead be either paid into the Treasury (a thank-you) or distributed to worthy charities. That might not qualify as "business" leadership, but it would qualify as human leadership, which is something too few business executives have demonstrated in recent times.

Yash Gupta is dean of Johns Hopkins University's Carey Business School.

Company leaders must be transparent about how they're making their profit and how they plan to use it.

The American people won't begrudge them their fiscal recoveries. Most people will probably say, "More power to them. Our big companies need to get back on track." But in this climate, suspicions will linger. There will be questions about how these businesses used any TARP money they might have received. After all, that money came out of the taxpayers' pockets. So the companies have a responsibility to be as transparent as possible.

Equally important is how these companies treat their employees -- letting the workers share in the benefits of renewed profit, improving the quality of their work lives. It would also be a significant gesture for these companies to invest in their local communities, particularly if the communities are suffering. The businesses could do this through foundations or by supporting local efforts that provide training to unemployed youth and laid-off adults.

Bill George is a management professor at Harvard Business School and the former chairman and chief executive of Medtronic.

The heads of the healthiest financial institutions like J.P. Morgan and Goldman Sachs (where I serve on the board) need to provide the leadership in working with the U.S. government to put in place necessary changes in regulatory frameworks and capital requirements to ensure that the United States does not find itself back in a similar meltdown in the years ahead.

Internally, they need to provide leadership with sound compensation principles like strict pay-for-performance and bonuses paid in restricted stock rather than instant cash in order to ensure that the recent returns to financial health are sustainable over the intermediate and long term.

Economists and business leaders should recognize that the return to health of financial institutions has not impacted the growing unemployment and jobs crisis, which is likely to worsen in coming months. Creating jobs will require a concerted effort by financial institution leaders and government officials to focus more investment funds and incentive in new company formation, support for entrepreneurs, and research and innovation. These moves are vital to the future health of the U.S. economy.