This week the Business Roundtable, an exclusive club of the top people at the 181 biggest corporations, made news by announcing that there is more to business that making stockholders rich.
Since 1978, the Roundtable has periodically issued a commentary on the role of corporations. Since 1997, the press release says, these statements have prioritized the stockholders.
The new statement brings back the "stakeholders." The stakeholders include customers (who deserve value for their money), employees (compensation, benefits, even help with education) suppliers (ethical deals) and the communities where the corporations do business.
Stakeholders were all the rage back in the '60s and early '70s, and any good business person could rattle off "stakehoderzandstockholders" like the old pastors could say "holymotherchurch." Then that went away. I was surprised that the Roundtable didn't prioritize stockholders until the '90s because Ronald Reagan and his economics exponents had certainly done so during the '80s. But the politicians are ahead of the steely-eyed moneymakers oftener than you think.
Andrew Ross Sorkin, who writes the Deal Book for The New York Times, opined that "shareholder democracy" took one on the chin from the new Roundtable statement. It was supposed to be a Good Thing when stockholders were enabled to take away power from their hired guns. Heaven knows, I wrote that often enough in those days. "Management" of venerable companies that might have produced nice, but unspectacular, returns on investment would crash dive their companies into ventures that would produce spectacular ROI. But not for long. Just long enough to fatten their bonus. It was an era when customers of ancient corporations would mutter, "These widgets are nowhere near as good as the ones we used to get."
I may have told this story before, but it's a good one. It may be a little burnished because I heard it from Pabst Brewing executives. But it goes like this:
Back in the 1950s, the four beer companies in Milwaukee decided to take a strike and did. Picket lines went up. The CEO of Pabst looked out the window at the pickets and his heart was moved with compassion. Send out some beer to those boys, said he. And it was done. When the strike was settled -- raising the cost of living by a nickle a bottle, according to the guy who later was my best man -- the Blatz and Schlitz signs in the blue-collar bars of Milwaukee came down, and the Pabst signs went up.
During the '60s I read a study of how old, boring Sears was the hero of a Latin American country, where landing a job with Sears was a ticket to education and even maybe political prominence. Sears was, almost single-handedly creating a middle class in that country.
When I was at The Miami News in the late '80s, Eastern Airlines was still flying. One effect that had on the community was that every city in Miami-Dade County had appointed boards for zoning, parks or whatever. Serving on those boards meant a lot of time and no or little compensation. But the boards all seemed to have at least one Eastern employee volunteering to keep them on the rails.
Now, one might say Pabst helped itself by slaking the thirst of its striking employees, and Sears helped itself by creating a middle class because that's who it sold to. Eastern got a better place to live for its employees and executives, which helped to attract and retain them. But in a just universe, doing good should result in doing well.
I will be interested to see if these ideas translate to actual changes in business practices.
ReplyDeleteRight now it looks like an end run around the electorate's growing interest in "socialist" (i.e., Democratic) candidates, by giving lip service to becoming better corporate citizens: "We don't need to be regulated because we're going to stop screwing consumers and workers now!"
Talk is cheap.
Yeah. Nice PR at a strangely appropriate time with Democratic Socialism becoming no longer a curse word for many. I'd like to see their nice words become institutionalized.
DeleteI have nevah depended on the kindness of multi-millionaires.
DeleteAlso: Could be a hint that the Captains of Industry understand that Trump and all his works are just bad business.
DeleteIf the Country Club Republicans turn on him, I may have to revise my prediction of a second term for Donald, followed by President Ivanka in 2024. (Haha, my auto-correct corrected "Ivanka" as "unable.)
We are essentially in the midst of a "cold" civil war as Trump foments divisions along ethnic, class, religious, and regional lines, tears up international agreements, and destabilizes world economies. If this turns into a hot war, that's no good for anybody, including business. Except carpetbaggers and blockade runners.
I think it would help if the anti-trust laws were enforced.
ReplyDeleteI think it would help if the 25th Amendment were invoked. This whole Greenland thing is the livin' end for me.
DeleteYeah, Greenland, seriously? And then he gets all huffy with Denmark's prime minister, who is probably scratching her head, thinking, "Is this guy for real?"
DeleteTrump thinks we can't even fix Puerto Rico, and he wants to buy a country? I'm beginning to think 25th, too. Maybe he's got that disease that George III had. Or just plain old early Alzheimer's.
I'm sure it's way to distract people from gun regs and family separation talk, but it's weird even for him. He is an elderly, obese, man who makes strange wheezing noises when he reads from a teleprompter. He looks bloated and shambles when he walks. The hair dye and spray-on make-up add to his appearance of ill-health. He is just a bizarre spectacle.
DeleteI think you may be a bit too cynical about the Roundtable's rediscovery of stakeholders. As I tried to indicate above, the Roundtable's pronouncements tend to be lagging indicators of what has been going on in politics and society. The 1997 deification of stockholders lagged both the Reagan administration's hero investors and the (mostly) liberal (I was complicit) effort to squelch hired guns and bean counters with the 401(k) squadrons and housewife day traders. The Business Roundtable is as unable as the Davos talkers to change the societies they talk about.
ReplyDeleteCynical, probably. No one ever accused me of being Little Mary Sunshine.
DeleteI'm among those who think the term "corporate altruism" is a contradiction in terms. We can be sure that if the Business Roundtable is speaking up about stakeholders, then the Business Roundtable believes that to speak this way is somehow in its members' best interests.
ReplyDeleteMilton Friedman, in 1970, wrote an article in the NY Times that helped establish what became known as the Friedman Doctrine, extolled in his best-seller "Free to Choose", and encapsulated by the thesis statement, "The social responsibility of business is to increase its profits." The article is available here, albeit annoyingly without paragraph breaks. It's not too difficult a read. It's clear that he doesn't think much of the idea of corporate executives using corporate funds to try to improve the world; he'd much rather that executives, stockholders, employees and the rest of us use our community and political engagement as private citizens to make the world a better place, including by regulating the behavior of business. It's a serious argument and still worth thinking about.
https://web.archive.org/web/20060207060807/https://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
I thought we tried Friedmanism in the 1980s. The Rs loved it then, but they seem to have fallen in love with something else since. Chile tried it, too, with less than satisfactory results.
DeleteOne thing that's wrong with Friedmanism as a "serious argument" is that it stamps out community and political engagement of private citizens, even as it dumps all of the community needs on them. Take unions. Friedmanism did, took them away, and now employers scream no one is training workers. Unions used to.
At one time the ILGWU had not only English classes for its workers, but mandolin clubs, book clubs, etiquette classes, bowling leagues and a theater group that got "Pins and Needles" to Broadway. Big waste of the employers' time.
As for Friedman-style private political action, consider Citizens United. And weep. That's a product of business for profit only. It may be from the wrong side of the Friedman blanket, but his theory is the co-respondent.
Tom - I don't disagree with the ills you describe. I would say that most of those bad things came about via rent-seeking, i.e. corporations putting their thumbs on the scales of the government that is supposed to be keeping corporate bad behavior in check. Rent seeking typically eliminates or weakens laws and regulations to give businesses an unfair advantage. Friedman hated rent-seeking. I think he would say: corporate managers can leverage the immense wealth of corporations to work for many different social outcomes; some allegedly altruistic ones, and some that surely are the opposite of altruistic; and we should be suspicious whenever corporate managers voluntarily leverage that immense corporate wealth for *any* social outcome other than profitability. I think he would also say: corporations shouldn't be in the business of piling up wealth: that wealth should be returned to the stockholders, who in the final analysis are private citizens. Their votes should count just as much, and just as little, as ours do.
DeleteI don't know what he would have thought about Citizens United. But political donations seem to be evolving along free market and competitive lines. It appears to me that some election cycles, Democrats out-fundraise Republicans, and in other cycles, it's the reverse. It's surely no longer the case that corporate managers as a whole are country-club fat cats who are in the bag for the GOP. The subject of your post, this statement by the Business Roundtable, most likely illustrates that the corporate managerial class is more friendly to Democratic issues and ideals. And that's not surprising: they belong to the same technocratic, meritocratic elite that runs the Democratic Party these days (and much of European politics, too). Those guys at the Trump rallies who hate immigrants and love trade wars with China: that's the traditional, factory-worker Democratic base from 50-60 years ago. If there were still any unions left, those voters would join in a heartbeat.
Re Tom's earlier comment, more on Friedmanism here: https://www.theatlantic.com/ideas/archive/2019/08/milton-friedman-shareholder-wrong/596545/?fbclid=IwAR0WA7lGWkN6ZZQr9UW-Qw4aj1z1YrNdAHD7p9nh_Bfq4YkUd-81rEPceIo
DeleteInteresting piece in Atlantic. From the U of Chicago Law School, not the Economics Department where Milton is still revered, though. Monopoly is the logical goal of any capitalist undertaking, not only corporations. The local dry cleaner can't hope to lock up the business as tightly as a monopolist corporation can hope to.
DeleteIf you pay attention at your local grocery store, you will see all kinds of odd products -- sardines with jalapeno, or cream cheese with pumpkin spice. Nobody is actually expected to eat this sort of thing; the products exist to take up more shelf space so there is less room for competitors. Of course, nobody is trying to rig the free market in this struggle to take up the most shelf space. Oh, no. (Fingers crossed.)
Wow, I could have just provided the URL to that Eric Posner article in The Atlantic and saved myself some time and effort!
DeleteAnyone who has read Patrick's comments over the years about the behavior of senior corporate managers already is familiar with the criticism of rent-seeking offered by Posner (and me, if I'm sufficiently immodest).
FWIW, I largely agree with Posner's main point: "The only proven way to stop corporations from polluting, defrauding, and monopolizing is to punish them through the law." I agree only largely and not completely because corporations have gone multinational, whereas laws and regulations stop at the nation's or commercial union's borders.
I hope you can open this Times' article: C.E.O.s Should Fear a Recession. It Could Mean Revolution.
ReplyDeletehttps://www.nytimes.com/2019/08/21/opinion/economy-recession.html
I was able to open it, it wasn't paywalled, at least from my side. They keep talking about how this has been the longest economic expansion evah. Was glad to see the article address the fact that that is only true in a very narrow sense. I know they play games with the CPI by somehow minimizing food price increases. Have been noticing for quite some time that food prices have been increasing, and container sizes and packages have been decreasing. The cake mixes that used to be 18 oz are now 15. Messes up one's old recipes.
DeleteThe CPI game they play with food prices is the result of having an unchanging "market basket" in the past. While people buy toilet paper and milk at whatever price is being charged, when beef gets too expensive they switch to more pasta and less beef. After everybody pointed that out, they started changing the "market basket" to reflect consumer behavior. I actually had a chance to talk to the two guys who figured out the beef-to-pasta ratio each month back in the 90s. Very funny, for economists.
DeleteI don't know how the CPI number crunchers are handling the incredible shrinking container sizes, but they are probably doing something similar.
Tom, that's interesting. In grad school, we lived on oatmeal, peanut butter, toast, bananas, frozen orange juice, and tea (cheaper than coffee). On weekends, we'd splurge on half a pound of cheese and an indifferent bottle of liebfraumilch to go with the toast. Maybe that will be the market basket of the future!
DeleteJean, as long as the liebraumilch was there, you had the basic food groups.
DeleteJean - that's really not too different from my kids' diets today! Except if they had their druthers, the bananas I buy would be organic, and they supplement what you described with yogurt, naan and Thai carryout.
DeleteOf course, you were living on your own. They're taking up space in my fridge and freezer.
There wasn't much space for that diet to take up in anybody's fridge!
DeleteAnd the Chicago Tribune editorial board weighs in: headline: "Was Milton Friedman wrong? No, just nuanced about the role of business in society."
ReplyDeletehttps://www.chicagotribune.com/opinion/editorials/ct-editorial-business-roundtable-profits-milton-friedman-20190820-mwdyex7vrrdb3hn32x3smwlyka-story.html
Meanwhile, in local news that surely has a bearing on our discussion, Del Monte Foods announced it is closing a packaging plant in Mendota, IL that employs 500 people. (This is one of four plants nationwide that Del Monte is closing; Trump's tariffs are cited as the reason.) Mendota's population is about 7,000, and while it's probably not kind to its town fathers to describe it as "in the middle of nowhere", I fear, from the point of view of attracting large manufacturers, that's pretty much where it is. It seems safe to say that Del Monte hasn't read the memo yet from the Business Roundtable.
To be sure, Del Monte isn't a member of the Roundtable. Two of my former employers are. One closed all of its American manufacturing plants during my tenure there. The other packed up and moved its headquarters from Chicago to London, apparently for tax-shelter purposes. I am sorry to be cynical, but my supposition is that these companies' commitment to employees, community and the rest stretches all the way to any instance in which those laudable goals start to conflict with profitability.
In my previous comment, I meant to include a link to the Del Monte plant closings story, here is one:
Deletehttps://www.cbsnews.com/news/del-monte-foods-closing-two-more-us-plants-laying-off-hundreds/
Related, I was talking to my brother (who is a cattle rancher) a while back, and he was saying that four corporations control the meat industry. Doing a little researching, it appears that he is correct. Those corporations are Cargill, Smithfield, Tyson, and JBS USA.
DeleteSmithfield is owned by the Chinese. JBS USA is a wholly owned subsidiary of JBS SA, which is Brazilian.
I surmised that cattle prices would probably rise, due to the extensive loss of cattle in Nebraska to the flooding in March. He said that was a drop in the bucket in the tot al picture. Consumer prices did increase, but not the price to the producers.
I remain unimpressed by the Trib's editorial. One of the reasons we have opioid addiction, broken families, people leaving churches, etc., was the introduction into American society of just-on-time employees. They were nominally employed somewhere, but just on call. So this week they might be called for 50 hours, and next week only 10. This made it hell to budget, arrange day care or get a second job, but so what? It maximized profits. If we still lived in a caring society the companies that did that to people would be paying higher taxes to pay for the services they caused their "employees" to need. But since we don't, they don't. But so what? Not paying those taxes maximizes profits. That is the dystopia Friedmanism leads to and helped to create.
DeleteI haven't seen any numbers on this, so I am only guessing, but I suspect that back in the days, before unions, when the urban work week was 5 1/2 or 6 10-hour days, there was not a whole lot of church attendance by families in which the parents were not called by their children Mother and Father nor Mater and Pater. Nor did working families sit quietly on Sunday afternoons reading the Bible. The employer hired their labor, and they were lucky to have the day off (if he didn't need them)for washing and ironing. Christians were not scandalized (but Catholics might have been) by such godless behavior. All in the name of Progress.
Re: just-on-time employment, there are still rules, at least in our state, about what percentage of employees can be part-time (which would be the ones working variable schedules). There are small employer exemptions, I think it only app!ies to those employing 50 or more. And of course there is a loophole big enough to drive a truck through. The loopho!e are temp agencies. Of which there are plenty. Because if you are a temp, you are technically working for the agency, not the company using your services.
DeleteAbout the ranchers who support Trump, which is most of them, it might seem counter- intuitive because of the trade wars he starts. But it isn't really, because what they are actually against is globalism. And they perceive Trump as a thumb in the eye to globalism.
DeleteThe other thing about Friedman's thinking that deserves your attention is that it is the capitalist version of Marx's Economic Man. As the Trib put it, the companies are owned by stockholders, and the stockholders want profits. Oh? Is that all they want?
ReplyDeleteMaybe if they are Carl Icahn or Wilbur Ross. But most stockholders want a lot of things besides profits, and one of those things is a society in which people are treated as persons and not inputs. In fact, some stockholders are treated as inputs when they go to work. They don't like it. They might even cheerfully trade a couple of points off their ROI for humane treatment on the job. That doesn't enter into the theory you start with an assumed Economic Man.
I don't think a lot of people connect the dots between their investments and corporate behavior because if you have a 401k or CDs, admins are moving your funds around all the time, and you don't know what companies you're funding.
DeleteBut I will say that it gave me GREAT pleasure to liquidate my mom's stock in a corporation that brought you Agent Orange and napalm, and give it all to my kid's band camp, which provides jobs for college kids, professional musicians, and instruction for a lot of wild-ass teenagers careening around the woods learning to play jazz and classical music.
The camp gave my kid a hefty scholarship every summer, and now that money plus change is back in their scholarship fund for some other kid.
Jean - was the Boy an Interlochen kid? Those kids have some serious talent.
DeleteNo, Blue Lake Fine Arts Camp near Muskegon, which is grittier and a bit looser. I had never heard of it until I got the scholarship notice in the mail. Unbeknownst to me, he had applied and auditioned on his own through school band. We all have really happy memories of that place.
DeleteCatching up after latest trip. Tom, I finally responded to your comment on the Eucharist thread.
ReplyDeleteAnne, I caught you at Eucharist. tom
DeleteTom B, if youre reading this, Ted Yoho and Louie Gohmert just got some competition for dumbest member of Congress. I was just reading that Sen. Tom Cotton was the one egging Trump on to buy Greenland.
ReplyDeleteTom I-Wish-I-Was-In-The-Land-of Cotton old-sheets-there-do-not-turn-rotten is in the Senate. If he moves to the House, Louie might have to break a sweat but he will remain the dumbest member.
ReplyDeleteSorry. The Business Roundtable statements are a big pile of BS.
ReplyDeleteThe main problem (aside from the fiction that the stockholders "own" the company) is that CEO pay is tied to stock options which in turn are tied to stock prices. It wasn't so much the "innovation" of shareholder equity, but the pay via options scam that had led to all of this inequality. I don't see the CEOs dismanting this system since it serves them so well. If they went back to collecting paychecks like they used to as the employees they are, they would make far less.
Welcome to the Cynics Club, Patrick. If it is BS (and I agree), to what end? Why even bring it up and make an issue of it?
DeleteThis worker as "stakeholder" or "associate" or "partner" stuff has been around for many years. In the corporation, it's just part of the billion dollar business of HR trying to convince people to work harder without paying them more, in this case by making them feel more important. When it comes out in a public forum, it's about some change in the political environment. Note, no one in business is suggesting her they "they" actually change. But they certainly wouldn't mind sounding like they are.
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