1. “Economic Inequality: Organizations’ actions” Pooja Eppanapally Sonia Dandiya Charis Stengos Nuno Codreiro Adria Quintana Sung Jae Lee Team 3

2. Agenda 1.Economic Inequality 2.Is it good or bad for business? 3.State of Art: Theory 4.Reality in Macro environment (Globally, US, UK) 5.Reality in Micro Level (Organizations) 6.Europe: Mondragon Corporate 7.USA: Americas: Benefit Corporations & King Arthur Flour Company 8.Asia: …. 9.Key Takeaways 10.Recommendations 11.Bibliography 2

3. Source: "Redistribution, Inequality, and Growth", IMF 1. Economic Inequality  Rajan, 2010  underscores how inequality intensified the leverage and financial cycle, sowing the seeds of crisis.  Stiglitz, 2012  stresses the role of political- economy factors (especially the influence of the rich) in allowing financial excess to balloon ahead of the crisis.  Persson and Tabellini, 1994; Easterly, 2007; Berg, Ostry and Zettelmeyer, 2012  inequality can undermine progress in health and education, cause investment-reducing political and economic instability, and undercut the social consensus required to adjust in the face of major shocks, and thus that it tends to reduce the pace and durability of growth 3

4. Source: Robert H. Frank,, “Income Inequality: Too Big to Ignore”, New York Times, 30/11/2011 2. Good or Bad Good -Economies grow faster -Egalitarianism discourages productive employees -Egalitarianism supports the laziness. Bad -Economic Inequality creates financial distress and thereby divorce rates are increased, commute time is getting longer. -Middle class is squeezed. 4

5. Source: "Redistribution, Inequality, and Growth", IMF 3. State of the Art-Theory 5 Pooja Eppanapally Sonia Dandiya

6. Source: "Wealth of the 85 richest people equal to that of the poorest 3.5bn", The Irish Times 4. Reality in Macro Level  Global inequality has increased to the extent that the €1.2 trillion combined wealth of the 85 richest people is equal to that of the poorest 3.5 billion — half of the world’s population.  Since the late 1970s, tax rates for the richest have fallen in 29 out of 30 countries. This “capture of opportunities” by the rich at the expense of the poor and middle classes has led to a situation where 70 per cent of the world’s population live in countries where inequality has increased since the 1980s and 1 per cent of families own 46 per cent of global wealth — almost €85 trillion. 6

7. Source: Larry Elliot, "Britain's five richest families worth more than poorest 20%”, The Guardian, 17/03/2014 4. Reality in Macro Level: UK case https://www.youtube.com/watch?v=aOJ93tAbPP0  The richest have 60% twice as much as all the rest layers.  The richest actually have 100 more than the bottom 20% of people have.  The richest 1% has the wealth of the 60% of UK population combined.  Britain's five richest families worth more than poorest 20%. 7

8. Source: "Wealth Inequality in America: Perception vs. Reality, “youtube”. 4. Reality in Macro Level: US case https://www.youtube.com/watch?v=LlYojsi3Zqw  The richest 1% has the wealth of the 40% of US population combined.  The income of this 1%, from 70’s till now is tripled. (9% to 24%).  CEO’s are paid 380 times more than average workers. 8

9. Source: Brian Groom, “CEO pay relies on self-serving myth”, Financial Times & “Top CEO pays” Bloomberg 5. Reality in Micro Level: Organizations Causes for irrationally high pay: Scarcity of talents Industry standards International headhunters help the mobility of the CEO’s to other companies RANKCOMPANY, CEO & INDUSTRY CEO PAY & BENEFITS AVG. WORKER PAY & BENEFITS PAY RATIO (CEO pay/ average worker pay) 1 JC Penney Co. Ronald Johnson $53.3 M FY ended 2012 $29,688 2012 1,795 2 Abercrombie & Fitch Co. Michael Jeffries $48.1 M FY ended 2012 $29,310 2012 1,640 3 Simon Property Inc. David Simon $137.2 M FY ended 2011 $86,033 2011 1,594 4 Oracle Corp. Lawrence Ellison $96.2 M FY ended 2012 $74,693 2012 1,287 5 Starbucks Corp. Howard Schultz $28.9 M FY ended 2012 $25,463 2012 1,135 9

10. “but across the world there are still organizations that lead the change ” 10

11. Source: Mondragon Corporation official website  4 th largest industrial group  7 th largest financial group in Spain  Specialized in industrial, financial, retail and knowledge sectors  Sales in 150 countries  14.081 b.n € in revenues  289 businesses  80,321 employees  105 production plants  9 Corporate offices  15 technology centers  Pay: Management levels earn around 30% less, lower wage levels earn around 13% more  Ratios reviewed periodically and voted on, from the Board of Directors 6. Mondragon Corporation 11

12. Source: Mondragon Corporation official website 6. Mondragon’s Awards 244 awards totally for social responsibility, innovative business model, innovative management, “change driver” and management excellence. 12

13. Source: Personal Interview 6. Mondragon Interview with an official Interview with …. 1. How have you built this culture ? 2. Which are the challenges for the group ?? 3. How you still sustain this culture? 13

14. Source: 7. Benefit Corporations & King Arthur Flour Company 14

15. Source: 8. Korea: Samsung 15 Jack Jang Sung Jae Lee

16. Source: Team Analysis 9. Key takeaways 16 Nuno Codreiro Adrià Quintana

17. 10. Recommendations Organizations NGO’sBusiness Schools Nations Level of Action Level of power *Given the fact that nations and international NGOs have already acted towards minimizing economic inequality, this team assumes that these actions must be followed by organizations and business schools. *Leaders of powerful organizations must establish processes and fair culture. Potential leaders from business schools, who have less power, can be educated in a way that planet sustainability matters more than corporate profitability. 17 + + - - Source: Team’s Recommendations, 2014

18. 18  "Redistribution, Inequality, and Growth”, IMF  Brian Groom, “CEO pay relies on self-serving myth”, Financial Times  “Top CEO pays”, Bloomberg.  Wealth Inequality in America: Perception vs. Reality, “YouTube”  Larry Elliot, "Britain's five richest families worth more than poorest 20%”, The Guardian, 17/03/2014.  "Wealth of the 85 richest people equal to that of the poorest 3.5bn“, The Irish Times.  Robert H. Frank, “Income Inequality: Too Big to Ignore”, New York Times, 30/11/2011. 11. Bibliography