Moving up the ladder… from $5 tips to Corporate Feudalism
In my 20s and 30s, I had a big advantage… I understood the “favor economy” of doormen. And how that same idea translated into big bonuses on Wall Street.
Every December, my roommates in our Manhattan apartment would start talking about how to tip… comparing which doorman was most helpful over the previous year or how well the concierge treated them.
I’d just shake my head. They didn’t get it. Tipping doormen wasn’t about past accomplishments like signed packages, hailed cabs, and squashed noise complaints… It was about the future packages, cabs, and complaints.
A big tip is memorable. It doesn’t go unnoticed. If you give great tips, then you get great service – that’s how it works.
But there’s been some debate on how and why we tip so much in America. Some think it should be outlawed and believe it’s done out of guilt. And yet it’s been ingrained in our culture that tipping is a reward for a job well done. Michael Lynn, a professor at Cornell’s School of Hotel Administration, estimates the tipping economy is worth about $40 billion. He sees tipping doing imperceptible damage to collective well-being… And he’d like to see the custom outlawed.
I’m sure tipping can be viewed as problematic because it creates classes. There’s a hierarchy associated with every exchange. But this is the world we live in. Whether it’s a bartender, masseuse, or cable guy knocking on your door, if you hand them a tip before they work, it establishes that their services are respected and appreciated. They’re incentivized ahead of time to go above and beyond. Of course, this isn’t without risk. Someone can take your money and not take care of you, but chances are you’d have tipped them regardless. Maybe it cost a few extra bucks. To me, buying the futures on tips is a well-calculated risk.
It works for me. My car is always parked right near the exit at the garage. I’m always squeezed in when I need an emergency haircut. I never wait for a table at the restaurants I frequent. I always scratch their backs before they can scratch mine.
And once that’s been established, I get the royal treatment. I also try to tip those who might be overlooked. For the person that checks you into a hotel, an extra $20 or $40 is powerful. Upgraded rooms and free movies start popping up on the computer screen. Everyone wins… Well, except for maybe the hotel.
The favor economy works the same way. It’s simply doing something for someone with expectations of reciprocity. It’s mutually beneficial. Like when a pair of New York Jets tickets landed in my lap. Despite being a huge football fan, I wasn’t interested in driving to New Jersey on a Sunday to see a team that I didn’t like. But I knew the mechanic who works on my car was a huge fan. The result: My good deed turned into some excellent free service.
But where should we draw the line? Is there some moral stratosphere where the tit-for-tat strategy becomes cloudy ethics with increased temperatures of risk?
We begin to see a shift toward more serious consequences as we go higher up the ladder…
On Wall Street and in other big-revenue industries, we see similar actions and reactions in the form of tipping or gifting. If you take care of your clients and employees it can potentially increase revenues, improve image and perception, create lead generation, and increase sales and referrals. It’s considered good business, but at what cost?
When I was a head trader of a couple billion-dollar hedge funds, you could walk by my desk every December and see cases and cases of wine, Omaha steaks on dry ice, broker-branded attire and luggage, signed memorabilia from Cleveland sports teams, private plane invites to the upcoming Super Bowl… You know, just a nice holiday gesture from the brokers who covered my account.
And of course I was influenced. Who was I going to give my next million-share trade to? The guy who sent me two cases of my favorite tequila, or the guy who sent me a $25 gift card to Applebee’s with a scarf that had his firm’s logo emblazoned on it? Decisions were made without a thought of fiduciary duty.
The financial industry has taken aggressive steps to stop this kind of pay-to-play behavior over the last decade or so. They tell employees on the “buy side” that if they accept gifts it can, and will, result in termination. And the “sell side” brokers are no longer allowed to expense lavish gifts to their clients. Many of the men and women I spoke with at mutual funds, hedge funds, and sell-side brokers told me that it’s much harder to curry commission dollars with expensive gifts these days. But it’s wrong to say it’s been eliminated… An easy way to circumvent these rules is to send the gifts to the home instead of the office, and for the buyer to eat the costs. It’s because they know they’ll be handsomely rewarded. It comes down to simple math.
At the top of the pay-for-play ladder is Corporate Feudalism, a political system whereby corporations replace or coopt governments. It’s the intersection of money and politics, and it’s similar to me giving the garage attendant $5 every time I roll in. I take care of him so he takes care of me. If the corporations take care of the politicians then the politicians take care of the corporations.
Regardless whether you’re on the right, left, or middle, the idea of buying political influence should be concerning. Some of the issues can be traced back to Citizens United v. Federal Election Commission, when the U.S. Supreme Court struck down part of a law that barred corporations from paying for political ads before and during an election. Today, corporate political spending has become a multibillion-dollar industry. Money makes it easy to lobby Congress and the government. Big dollars can win many legislative and regulatory fights.
Some people call giving corporations a better tax rate, less regulation, and more influence, “capitalism.” Others liken it to feudalism. But as a society, do we want to become more or less dependent on big corporations? Look at the stock market to see it happening in real time. Stocks don’t lie. People do.
The recent run-up has been largely in anticipation of tax reform giving corporations more money and power and maybe, hopefully, more jobs and higher wages. It’s hard to predict the future, but it feels like “cross your fingers” economics for the middle and lower class.
And whether you’re a Republican or Democrat, it’s easy to throw stones.
Turney Duff is a former trader at one of the biggest hedge funds in the world, the Galleon Group, where its founder and several Galleon employees were found guilty of insider trading. Turney rose through the ranks and then fell prey to the trappings of Wall Street: money, sex, drugs, alcohol, and power. Turney chronicles his spectacular rise and fall in his bestselling book, The Buy Side: A Wall Street Trader’s Tale of Spectacular Excess.