The recent statement by the US Business Roundtable distancing itself from the shareholder primacy principle it has upheld for the last 20 years, is potentially a big deal – as was the one in 1997 by the same organisation that enshrined shareholder value as the overriding purpose of the corporation in the first place.
That the new one, signed by 181 corporate grandees including Apple’s Tim Cook, Morgan Stanley’s Jamie Dimon and Johnson & Johnson’s Alex Gorsky, commits signatories ‘to lead their companies for the benefit of all their stakeholders – customers, employees, suppliers, communities and shareholders’ – is of course encouraging (although as Stefan Stern notes in a post to the Drucker Forum, it should hardly be startling ‘to hear CEOs committing to “delivering value to our customers” or “compensating [employees] fairly” (not “paying them more”, we should note).’
All the same, forgive me for suspecting that the new change of heart will have less powerful effects than the last one, at least in the short term. After all, the 1997 statement preceded, and underwrote, the period of wild financialisation and deregulation that culminated in the collapse of Lehman Brothers, followed by the Great Financial Crash, a decade of austerity, and the outbreaks of populist revolt that have culminated in Donald Trump and Brexit today.
Yet there is no hint in the statement that the ‘fraying of the American dream’, in Dimon’s words, or any of its manifestations in inequality, precariousness or ill health, is directly due this terrible error; no hint of mea culpa that shareholder primacy has failed even in its own terms, benefiting only a tiny proportion of privileged investors – prominent among them, as economist Thomas Piketty pinpointed, a small cadre of ‘supermanagers’ whose pay packets have benefited in direct proportion to the number of jobs cut and R&D projects forsworn; nor that the same executives colluded in an extreme ideology which, in the words of Shoshana Zuboff in her monumental The Age of Surveillance Capital, of which more soon, reinterpreted the public corporation ‘as a costly error, and its long-standing reciprocities with customers and employees … as destructive violations of market efficiency’. The regime of shareholder value maximisation is so noxious to publicly-quoted companies that their numbers have halved on both sides of the Atlantic under its aegis, with the same reduction in the numbers they employ.
Unless there is real acknowledgement of the above, and where we actually are now, any ‘reform’ will be limited to lip service, reinforcing the suspicion that the Roundtable initiative is motivated above all by vested interest and the fear that unless it moves first, it risks facing something much more threatening in the future – Democratic presidential candidate Elizabeth Warren’s Accountable Capitalism Act, for instance, or Jeremy Corbyn’s ‘inclusive ownership fund’, which might be the UK equivalent.
Even if the signatories mean what they say, altering today’s course to make a real difference to people’s lives – which has to be the underlying aim – is not a small task. Just as Hayek, followed by Friedman, Jensen, Meckling and Fama did when they set the shareholder value movement in motion in the 1970s, it involves going back to the basics on which the entire edifice of modern management sits. In this case, it means asserting, contra Friedman, Jensen et al, and probably putting into statute, that shareholder’s don’t own companies, and directors and executives are therefore not their agents.
Next, it means reasserting – something blindingly apparent to everyone except the present generation of capitalists – the importance of jobs. The relative peace and stability of what the French call ‘les trente glorieuses’ – the three decades of economic growth and prosperity following World War II – was based on Zuboff’s ‘reciprocities’, and in particular acknowledgement of the simple truth articulated by Henry Ford when he doubled his workers’ wages: mass-production only works when it is part of a system that also creates mass-consumers to buy the product they have made.
During those years, well-paid jobs were the link that closed the circle between production and consumption, and inequality fell. Today, when so many transactions are non-monetary (the devil’s bargain of ‘free’ online products in return for ‘free’ personal data), that circle, already weakened by shareholder-value fundamentalism, has been well and truly broken. Mending it will not be easy, to say the least.
The final obstacle in the way of reform is the formidable ecosystem that has grown up around the prevailing wisdom. Shareholder primacy is taught in business schools, advised in consultancies and, most insidiously, a vast fund-management industry ironically competes for our custom, and gets paid, according to the same quarterly-returns measure that has locked the toxic dynamic in place across the whole economy. ‘As long as the music is playing, you’ve got to get up and dance,’ Citigroup’s Chuck Prince memorably told the FT just before the GFC broke. The fact that, unforgivably, 99 per cent of the media assumes that shareholder primacy is part of the natural order of things ensure that in the background the music is still playing away.
All that said – deep breath – it would be wrong to despair. If a few people with strong opinions and a plausible but erroneous theory could (let’s not mince words) change the course of economic history in the 1970s and 1980s, it can be done again with one that is right. It won’t be simple, and the result will look nothing like it did then – the world has moved on. But we have learned that there is no such thing as technological inevitability – technology is just a means to economic ends. We know more urgently than ever before that, as an ecologist once put it, ‘The economy is a wholly-owned subsidiary of the environment’. And we know that in a post politics-as-usual world, pressure from below can lead to surprising results. So let’s not be too grateful for the soothing words of the business great and good. The purpose of the corporation isn’t theirs to dispense as they please. The purpose of business is to improve and sustain the environment for the benefit of all its inhabitants, whether it likes it or not.