You’re Being Robbed: How Corporations Fake Profits While Executives Cash Out Billions….The Terrifying Rise of Corporate Zombies – And Why No One in Power Wants to eliminate Them
For much of the twentieth century, corporate success was primarily measured by a company’s ability to generate profits from its core operations. Profits funded reinvestment, compensated investors, supported wages, and provided a financial buffer against downturns. That framework still exists in theory, but it is no longer the dominant operating model for a large portion of the modern corporate economy.
Today, a growing number of corporations operate without sustained profitability. Instead, they rely on debt financing, repeated capital raises, accounting adjustments, and valuation narratives to maintain the appearance of financial health. As long as access to capital remains uninterrupted, these firms can continue operating despite weak underlying economics.
This shift is not isolated to a few industries or bad actors. It reflects a broader change in how corporate performance is measured, rewarded, and financed.
How many companies are actually profitable?
Across U.S. public markets, roughly 30 to 40 percent of publicly traded companies fail to produce consistent profits under standard accounting rules in a given year. This proportion rises during periods of low interest rates and abundant liquidity and declines only modestly when financial conditions tighten.
A subset of these firms fall into the category commonly described as zombie corporations. These companies generate insufficient operating income to cover interest expenses and remain viable only by refinancing existing debt or issuing new capital.
Estimates consistently show:
• 10 to 20 percent of public companies meet this definition
• Many remain in this condition for multiple years
• Their survival depends on continued access to credit rather than operational improvement
These firms are not temporarily impaired. Their business models cannot support their capital structures without ongoing external financing.
What GAAP measures—and how reported performance diverges from it
In the United States, Generally Accepted Accounting Principles (GAAP) provide the mandatory framework for financial reporting. GAAP requires companies to recognize all material costs, including debt interest, taxes, asset depreciation, and stock-based compensation. Under this framework, profitability is binary: a company either generates net income or it does not.
However, many firms shift investor and analyst attention away from GAAP results toward alternative metrics. In parallel, multinational corporations exploit differences between accounting regimes, tax jurisdictions, and subsidiary structures to legally shift income and expenses across entities. This can reduce reported losses, defer expense recognition, or present consolidated results that mask weakness in the underlying operating business.
These practices comply with existing rules, but they reduce transparency regarding a firm’s true economic condition and long-term sustainability.
How performance incentives have changed
Corporate performance is increasingly evaluated using revenue growth rates, market share expansion, and valuation multiples rather than free cash flow generation, balance-sheet strength, or reserve adequacy. Compensation structures, investor expectations, and access to financing are frequently tied to these growth-oriented metrics.
As a result, management teams are incentivized to pursue expansion strategies even when the underlying business cannot sustain itself through internally generated cash. Continued borrowing or external capital becomes a functional requirement, not a transitional phase.
This incentive structure allows companies to appear successful for extended periods while remaining financially fragile.
The role of EBITDA and adjusted earnings
A key mechanism enabling this shift is the reliance on EBITDA and adjusted earnings measures. These metrics exclude debt service, taxes, asset depreciation, and often stock-based compensation. While they can provide limited insight into operating activity, they omit the costs that ultimately determine whether a business can survive without external support.
Companies can report positive EBITDA while:
• Net income remains negative
• Cash flow is insufficient to service debt
• Total leverage continues to rise
When these metrics dominate corporate communication, investors and stakeholders are encouraged to evaluate performance without accounting for financial durability.
Executive compensation and capital extraction
Another structural contributor to corporate fragility is executive compensation design. In many firms, substantial capital is allocated to senior leadership through salaries, bonuses, equity awards, and incentive plans that vest on short-term performance measures.
These compensation obligations persist even when companies generate losses or rely on borrowed funds to operate. Capital that could otherwise strengthen balance sheets, build reserves, or reduce leverage is instead distributed upward.
This shifts risk away from executives and toward employees, creditors, suppliers, and shareholders. Firms operating with minimal liquidity while maintaining high executive compensation are structurally exposed to disruption.
When failure becomes a repeatable outcome
Some corporate structures are designed in ways that allow leadership and financial sponsors to extract value early while deferring risk. Compensation and distributions occur before leverage fully constrains operations. Limited liability protects individuals from personal loss. When financial pressure becomes unsustainable, bankruptcy or restructuring resets the balance sheet.
This process is legal. It is enabled by how compensation, debt, and bankruptcy rules interact.
Public examples illustrate the pattern. Toys R Us collapsed after years of heavy leverage following a leveraged buyout, with operating cash flow diverted toward debt service and fees. Sears underwent prolonged asset liquidation and restructuring while its core retail business deteriorated. Hertz entered bankruptcy under significant leverage and emerged restructured after losses were absorbed by others. WeWork expanded rapidly under valuation-driven incentives despite lacking a profitable operating model.
In each case, failure imposed costs on workers, suppliers, and investors, while leadership exited with compensation largely intact.
Dividend recapitalizations further amplify this dynamic by increasing debt solely to distribute cash to owners, weakening the operating company while insulating recipients from future losses.
Why regulatory systems allow this behavior
Regulatory oversight in many areas prioritizes disclosure over outcomes. As long as risks are disclosed somewhere within required filings, the underlying business model is generally permitted to continue. Enforcement penalties are often small relative to financial gains and are treated as routine expenses.
In addition, personnel movement between regulatory agencies, financial institutions, and advisory firms reduces institutional resistance to these structures. Bankruptcy law focuses on orderly resolution rather than accountability for capital allocation decisions that precede failure.
The result is a system that manages collapse rather than preventing it.
Real-world fragility at the operating level
These dynamics are not confined to financial markets. Many manufacturing and supplier firms, particularly in the Midwest, operate with limited cash reserves and depend on uninterrupted operations.
When Jaguar Land Rover experienced a cyberattack, disruptions propagated rapidly through its supply chain. Vendors faced immediate financial strain not due to operational incompetence, but because their margins and reserves were insufficient to absorb even short-term interruptions.
In such environments, a brief pause in cash flow is enough to trigger layoffs, credit withdrawals, or insolvency.
Credit markets and risk transmission
Lending institutions also contribute to systemic fragility. Loans are frequently issued to borrowers with limited repayment capacity, bundled into securities, and sold to other institutions. This disperses risk without eliminating it.
When defaults increase, institutions holding these assets experience rapid deterioration. Thin capital buffers accelerate the process, turning what appears to be diversified exposure into a concentrated shock.
Passive investing and weakened discipline
Passive index investing further reduces market discipline. Index funds allocate capital based on market capitalization rather than financial strength. Companies continue receiving capital as long as they remain listed, regardless of profitability or leverage.
This delays corrective pressure and allows weak firms to grow larger before failure, increasing the downstream impact when corrections occur.
Moral hazard and repeated intervention
Repeated rescues and restructurings create moral hazard. When losses are absorbed by creditors, governments, or employees while gains remain private, risk-taking becomes rational from a management perspective.
Over time, this embeds fragility into the system. Behavior adjusts not toward resilience, but toward strategies that maximize short-term extraction under the expectation that downside will be limited.
Bottom line
A significant portion of the modern corporate economy operates on a model that prioritizes capital access, valuation maintenance, and compensation extraction over cash flow generation and balance-sheet durability.
Some companies are financially fragile due to external shocks. Others are fragile because their structures make resilience unnecessary for those controlling capital decisions.
Until performance metrics, compensation systems, and regulatory incentives are aligned with long-term financial sustainability, instability will continue to recur.
The open question is not whether these cycles repeat, but how long they are allowed to persist.
Disclaimer:
This commentary is provided for educational and informational purposes only. It discusses publicly observable business structures, financial incentives, and historical outcomes using widely reported data and well-documented market patterns. No claims are made regarding illegal conduct, criminal intent, or wrongdoing by any specific individual or organization. References to companies and industries are illustrative of systemic dynamics, not allegations. Readers should understand this analysis as opinion and economic commentary, not legal or financial advice.
