Democracy is a messy thing. Shareholder democracy may be even messier.
For nearly a half-century, corporate America has prioritized, almost maniacally, profits for its shareholders. That single-minded devotion overran nearly every other constituent, pushing aside the interests of customers, employees and communities.
That philosophy was rooted in an idea that has an air of nobility about it. Shareholder democracy was the name given to investors asserting themselves in corporate governance. The idea was that investors would wrest control of companies from entrenched managers, letting the actual owners set their corporate priorities. But what we really got was something else: an era of shareholder primacy.
That may have a chance — a chance — of changing now that 181 chief executives have lent their signatures to a new “Statement on the Purpose of a Corporation” that was published by the Business Roundtable on Monday. The statement from the leaders of companies including JPMorgan Chase, Apple, Amazon and Walmart affirms that the nation’s largest companies have a “fundamental commitment” to all their stakeholders: putting employees, suppliers and communities on a pedestal that once belonged only to shareholders.
The companies’ statement is a significant shift and a welcome one. For years, businesses have resisted calls — including from this column — to rethink their responsibility to society. In response, corporations typically dismissed hot-button topics like income inequality, climate change, gun violence and more as political issues unrelated to them.
Some will doubt the sincerity of these business leaders’ words, and it remains an open question whether their companies will be held accountable — and by whom. But what we may be at the start of is less a new era and more a return to the past.
For nearly 50 years — following the publication of a seminal academic treatise in 1932 called “The Modern Corporation and Private Property” by Adolf A. Berle Jr. and Gardiner C. Means — corporations, for the most part, were run for all stakeholders. It was a time defined by organized labor, corporate pension programs, gold-watch retirements and charitable gifts from companies that invested heavily in their communities and the kind of research that promised future growth.
It is a period often referred to — sometimes derisively — as “managerialism.”
But by the 1970s, managerialism became synonymous in investment circles with immovable executives who were running bloated businesses more for their own benefit than for their shareholders.
It also coincided with the ascent of Milton Friedman, the University of Chicago economist who preached a gospel of profits-as-purpose and mocked anyone who thought that businesses should do anything else.
“What does it mean to say that ‘business’ has responsibilities?” Mr. Friedman wrote in this newspaper in 1970. “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”
That began the rise of shareholder democracy, an idea that the public and news media embraced. Shareholders and, in turn, a new class of investors known as corporate raiders convinced executives to slash any and all fat from their budgets or risk being taken over or voted out. Layoffs increased, research and development budgets were cut, and pension programs were traded for 401(k)s. There was a rush of mergers driven by “cost savings” that grabbed headlines while profits soared and dividends increased.
And here we are. Americans mistrust companies to such an extent that the very idea of capitalism is now being debated on the political stage. Populism has been embraced on both ends of the political spectrum, whether in the trade protectionism of President Trump or the social-net supremacy of Senator Bernie Sanders.
It is against that backdrop that the Business Roundtable released its statement on Monday. The group should be commended for coming around — and no one wants to criticize progress — but it is undeniably late.
Make no mistake, it wasn’t shareholder democracy that created this new enlightened moment. Public outrage pushed this forward. So did anger in Washington and regulatory scrutiny that is finally coming to bear.
Shareholders — with some exceptions — did not come around until they had no choice but to realize that these forces could have an impact on their investments.
by Andrew Ross Sorkin, NY Times | Read more:
Image: Rick T. Wilking/Getty Images
For nearly a half-century, corporate America has prioritized, almost maniacally, profits for its shareholders. That single-minded devotion overran nearly every other constituent, pushing aside the interests of customers, employees and communities.
That philosophy was rooted in an idea that has an air of nobility about it. Shareholder democracy was the name given to investors asserting themselves in corporate governance. The idea was that investors would wrest control of companies from entrenched managers, letting the actual owners set their corporate priorities. But what we really got was something else: an era of shareholder primacy.That may have a chance — a chance — of changing now that 181 chief executives have lent their signatures to a new “Statement on the Purpose of a Corporation” that was published by the Business Roundtable on Monday. The statement from the leaders of companies including JPMorgan Chase, Apple, Amazon and Walmart affirms that the nation’s largest companies have a “fundamental commitment” to all their stakeholders: putting employees, suppliers and communities on a pedestal that once belonged only to shareholders.
The companies’ statement is a significant shift and a welcome one. For years, businesses have resisted calls — including from this column — to rethink their responsibility to society. In response, corporations typically dismissed hot-button topics like income inequality, climate change, gun violence and more as political issues unrelated to them.
Some will doubt the sincerity of these business leaders’ words, and it remains an open question whether their companies will be held accountable — and by whom. But what we may be at the start of is less a new era and more a return to the past.
For nearly 50 years — following the publication of a seminal academic treatise in 1932 called “The Modern Corporation and Private Property” by Adolf A. Berle Jr. and Gardiner C. Means — corporations, for the most part, were run for all stakeholders. It was a time defined by organized labor, corporate pension programs, gold-watch retirements and charitable gifts from companies that invested heavily in their communities and the kind of research that promised future growth.
It is a period often referred to — sometimes derisively — as “managerialism.”
But by the 1970s, managerialism became synonymous in investment circles with immovable executives who were running bloated businesses more for their own benefit than for their shareholders.
It also coincided with the ascent of Milton Friedman, the University of Chicago economist who preached a gospel of profits-as-purpose and mocked anyone who thought that businesses should do anything else.
“What does it mean to say that ‘business’ has responsibilities?” Mr. Friedman wrote in this newspaper in 1970. “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”
That began the rise of shareholder democracy, an idea that the public and news media embraced. Shareholders and, in turn, a new class of investors known as corporate raiders convinced executives to slash any and all fat from their budgets or risk being taken over or voted out. Layoffs increased, research and development budgets were cut, and pension programs were traded for 401(k)s. There was a rush of mergers driven by “cost savings” that grabbed headlines while profits soared and dividends increased.
And here we are. Americans mistrust companies to such an extent that the very idea of capitalism is now being debated on the political stage. Populism has been embraced on both ends of the political spectrum, whether in the trade protectionism of President Trump or the social-net supremacy of Senator Bernie Sanders.
It is against that backdrop that the Business Roundtable released its statement on Monday. The group should be commended for coming around — and no one wants to criticize progress — but it is undeniably late.
Make no mistake, it wasn’t shareholder democracy that created this new enlightened moment. Public outrage pushed this forward. So did anger in Washington and regulatory scrutiny that is finally coming to bear.
Shareholders — with some exceptions — did not come around until they had no choice but to realize that these forces could have an impact on their investments.
Image: Rick T. Wilking/Getty Images
