Give Back Your Small-Business Aid. You Know Who You Are.
(Bloomberg Opinion) -- What were they thinking, those publicly traded companies like Shake Shack Inc., Ruth’s Hospitality Group and dozens of others — companies that could hardly be called small — that grabbed a slice of the Paycheck Protection Program, an act for which they have been duly flogged?
Actually, it’s not that hard to figure out: They grabbed the money because it was there to be grabbed. “To the extent we believe we are eligible and parts of the package will benefit the company, then we’ll look to pursue application options,” a Shake Shack representative told the Wall Street Journal soon after the PPP was passed by Congress.
Thanks to lobbying by the restaurant and hotel industries, someone slipped a loophole into the bill making it possible for big chains to apply for funds. The companies had banking relationships that all but guaranteed that they would be at the head of the line when it came time to apply. Besides, they had furloughed employees to consider, just like local hair salons.
In other words, they acted precisely the way companies always acted before the coronavirus outbreak. They were looking out for themselves, with little regard for anyone else. Yes, the program had been described from the start as aiming to benefit the truly small companies, the ones with no other access to capital. And yes, it was obvious that the initial $349 billion wasn’t nearly enough for the tens of thousands of small companies that needed federal help.
But the rules were the rules, right? For instance, the rules allowed holding companies to apply separately for each subsidiary they controlled — and receive multiple multimillion-dollar checks. That’s what President Donald Trump’s pal Monty Bennett did: He got $58.7 million for various hotel properties he owns.
And maybe, pre-coronavirus, that would have been the end of it. But the virus has made Americans acutely aware of inequities that had once been easy — or at least easier — to overlook. School closings sharpened awareness of the achievement gap between poor and well-to-do kids. Work-from-home policies helped keep white-collar employees safe while many blue-collar workers had to risk illness and even death because they didn’t have that luxury. It had become obvious that the virus struck the vulnerable harder than people with means.
The way that first round of PPP money was distributed seemed like yet another example of the rich getting richer and the poor getting poorer. But this time, the hyperawareness brought on by the coronavirus led to an enormous outcry, which included newspaper exposes and condemnations from lawmakers and even Treasury Secretary Steven Mnuchin.
The publicity wasn’t just bad; it was horrible. Small-business people who had been shut out complained bitterly about how the PPP had been rigged for the bigger companies. Reporters found recipients with ties to Trump, like Bennett. Others looked through federal filings, searching for public companies that had taken PPP loans. (The Wall Street Journal found 124 of them, with a median PPP loan of $2.8 million.) One company that landed a $10 million loan was MiMedx, which had recently paid $6.5 million to settle charges brought by the Justice Department. Critics accused it of using its PPP loan to cover its settlement with the government. (MiMedx denied this.)
Immediately, Shake Shack, a company founded by Danny Meyer, a highly respected restaurateur, gave back its $10 million. So did a number of other companies, including AutoNation, the Los Angeles Lakers, and, eventually, Ruth’s Hospitality. It wasn’t just because of the bad publicity, or at least I don’t think it was. It was because executives like Meyer realized that, even though Shake Shack had done nothing wrong, it was unfair that his company, with its $2.3 billion market value and $600 million in annual revenue, was taking money that so many smaller companies needed more.
Of course, there are also companies that have not given the money back. In an effort to twist their arm, Mnuchin said that companies that have taken more than $2 million would be audited before the loan could be forgiven. (Loans can be forgiven if the companies keep their employees on the payroll for eight weeks.) He also said that companies that wrongfully took PPP money could face “criminal liability.”
As threats go, that’s pretty weak, given that most of the companies simply took advantage of the language in the law. And most of the big companies that took loans can well afford to pay them back, thus avoiding the threatened audit. Nonetheless, they should still give the money back now.
They should do so because they have access to capital — in the equity and debt markets, as well as from banks — that is out of the grasp of the ordinary small-business person. They should do it because big companies that run into financial trouble can reorganize under Chapter 11 bankruptcy protection, while a corner pizza joint simply goes out of business. They should do it because small business is a critical element of American life, a source not just of jobs but of community.
They should do it for the simple reason that it’s the right thing to do.
There are people who believe that this crisis could lead to a reset of the values that have driven the business world the last quarter-century. One of the few upsides of the crisis has been a surge in caring for our neighbors and our fellow citizens. For their part, corporations have talked about putting their employees first, even at the expense of profits. Many of them raced to supply equipment the country needs to fight the virus.
The companies that have given back their PPP loans are showing that they, too, care for more than just their quarterly numbers. They did something to help small companies that will never affect their own bottom lines. The companies that haven’t given the money back? They’re showing that they’re not yet willing to look beyond their narrow self-interest.
This is their test. Giving back the PPP money is the only way they can pass.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."
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