The Corner

Economy & Business

The Business of Bigness

One of the things about Big Business that provokes skepticism and hostility is just plain bigness, the sometimes incomprehensible scale of modern multinational enterprises.

For example: General Electric, a company that has been struggling, has just made two announcements: One is that its revenue for the fourth quarter of 2018 was stronger than expected even as its profit declined more than expected; the second is that it has reached an agreement in principle to pay a $1.5 billion settlement to the federal government over its now-defunct subprime-mortgage business. GE shares went up about 17 percent, which added more than $14 billion to the market value of the company.

Put another way: GE has agreed to pay what amounts to a $1.5 billion fine — and GE is having a very good day.

There isn’t actually anything wrong about that, but it’s easy to understand how that just seems wrong to some people.

I am generally skeptical of heroic CEO narratives — not that there aren’t a few of those that are true — but those boggling executive-compensation numbers make more sense in the context of the overall scale of these firms. A course of action that adds 1 percent to the value of a $100 billion company is a pretty big deal. GE’s CEO has a contract that could be worth up to $300 million — if GE share prices go up by 150 percent, which would represent a financial gain of which $300 million is a very small share. Again, I am not saying that this is necessarily sensible — there’s a lot more to a company like GE than its CEO — but the compensation figures make more sense when understood against the scale of so financially vast an enterprise.

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