CEOs’ opposition to Obama a puzzle

Thomas Frank’s “What’s the Matter with Kansas?” was published in 2004 and has been part of our political discourse ever since. Frank showed rather conclusively that the majority of the people in the state were consistently voting against their own economic interests. They were swayed, he concluded, by conservative approaches to issues such as gay rights and abortion.

I would love to read a similar book explaining why so many of our CEOs spent so many hundreds of millions of dollars trying to defeat President Obama in the last election. There is ample evidence that they were, in fact, working against their own best economic interests.

Certainly their paychecks didn’t get smaller under the first Obama administration. Chief Executive magazine’s annual survey found that $9.6 million was the median compensation package given to S&P 500 CEOs in 2011.Just about all compensation experts say that CEO pay should be based on shareholder return and earnings growth. Clearly the major indicator of shareholder return is the price of the corporation’s stock. CEO paychecks go up when their companies’ stock prices go up.The Dow
Jones Industrial average closed at 7940 and the S&P closed at 805 on the day Barrack Obama was sworn in as president Jan. 20, 2009. On Oct. 5, 2012, one month before Election Day, the Dow Jones Industrial Average set a five-year high when it closed at 13,610. The S&P closed at 3,136.

The DJIA was therefore up just shy of 80 percent and the S&P almost 290 percent during Obama’s tenure in office. He joined an exclusive club made up of Presidents Clinton, Eisenhower, FDR and Coolidge who were the only presidents that had the DJIA go up by more than 50 percent in their first three years.As for earnings growth, in the third quarter of 2012, just before Election Day, corporate profits as a percentage of GDP hit a new record high.In fact, it was a record not equalled since 1947, when the data was first compiled. In that one quarter, American business earned $1.75 trillion, almost 20 percent more than in the same quarter in 2011 and an amazing 11.1 percent of GDP.According to Fortune Magazine, “The Fortune 500 generated a total of $824.5 billion in earnings last year, up 16.4 percent over 2010. That beats the previous record of $785 billion, set in 2006 during a roaring economy. The 2011 profits are outsize based on two key historical metrics. They represent 7 percent of total sales vs. an average of 5.14 percent over the 58-year history of the Fortune 500. Companies also are garnering exceptional returns on their capital. The 500 achieved a return-on-equity of 14.3 percent, far above the historical norm of 12 percent.”

We indisputably have a jobs crisis, but if your job is being CEO of a major corporation, times have never been better. That’s true of bank CEOs as well. Back in 2008, many of them supported Obama’s candidacy. In 2012, most of them raised money to defeat him. Yet the FDIC recently reported that U.S. banks earned $37.6 billion in the third quarter of 2012, up 6.6 percent from $35.3 billion in the third quarter of 2011. This was more than any quarter in the last 6 years.

In addition, 57 percent of U.S. banks reported increased earnings and the number of troubled banks fell to the lowest level in three years. RBC Capital Markets analyst Gerard Cassidy described these profits as remarkably high –at a level that, if maintained for a year, would exceed the record for annual earnings, set in 2006. The CEO bias against Democratic administrations isn’t anything new, but the historical record makes it even more perplexing. I’ll close by quoting FOXBusiness (Sept. 4, 2012) on that:

“History actually shows that the U.S. economy, stock prices and corporate profits have generated stronger growth under Democratic administrations than Republican ones. According to McGraw-Hill’s S&P Capital IQ, the S&P 500 has rallied an average of 12.1 percent per year since 1901 when Democrats occupy the White House, compared with just 5.1 percent for the GOP. Likewise, GDP has increased 4.2 percent each year since 1949 when Democrats run the executive branch, versus 2.6 percent under Republicans.”

The line from “The King and I” comes to mind: “It’s a puzzlement.” And it goes way beyond Kansas.

Originally published 12 January 2012 on