Stakeholder capitalism: Difference between revisions
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{{a|devil|[[File:Stakeholder.png|450px|thumb|center|A stakeholder yesterday. Well, it was this or a picture of Peter Cushing, folks.]]}} | {{a|devil|[[File:Stakeholder.png|450px|thumb|center|A stakeholder yesterday. Well, it was this or a picture of Peter Cushing, folks.]]}} | ||
=== Adam Smith’s Dangerous Idea === | |||
Once upon a time, not terribly long ago, a [[shareholder]] was an opaque yet sacred being, somewhat divine, to whose improving ends everyone engaged in a company’s operation twitched their every fibre. | |||
This ''[[Shareholder capitalism|will to shareholder return]]'' sprang from the brow of [[Adam Smith]] and his [[invisible hand]]:<blockquote>“...Though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements...They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, ''and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species''”<ref>''The Theory of Moral Sentiments'' (1759) Part IV, Chapter 1.</ref></blockquote>This was, a ''breathtaking'' insight; no less [[Darwin’s Dangerous Idea|dangerous]] than [[Darwin’s Dangerous Idea|Charles Darwin]]’s: from collected, unfettered, selfish actions [[emerges]] optimised community welfare. | |||
The modern corporation is, philosophically, the embodiment of that idea. ''Look after the [[shareholder]]<nowiki/>s, and society will look after itself.'' | |||
By pursuing only its shareholders’ enrichment the corporation, so the theory had it, was more nimble, more responsive to society’s demands, and able to magically allocate capital wherever the community most needed it at any time. | |||
“Compare this,” declared gleeful proselytes, “with the disasters of central planning, five-year plans, great leaps forward and so on.” | |||
[[Shareholder capitalism]] had its advantages, to be sure: not least of which was easy performance measurement: one could evaluate every impulse, every decision, every project, every transaction against a single yardstick: wa''s this in the [[Shareholder|shareholders]]’ best interest?'' | |||
Shareholders’ interest, in turn, could be measured along a single dimension: ''profit''. Nothing else mattered. The [[professional-managerial class]], and their endemic [[agency problem]], were hemmed in: you can’t hide from after-tax profit. | |||
=== Stakeholder capitalism === | |||
Well, that was then. What was unarguable orthodoxy in 1985 has fallen from grace. The narrative has changed to fit our millennial world. Unalloyed selfishness has become, to the modern conscience, intolerable. | |||
Dangerous, even: in 2003, legal academic Joel Bakan put the argument that since a [[Legal person|corporation]]’s sole statutory motive is the short-term enrichment of its owners, it has the clinical characteristics of a ''psychopath''.<ref>Joel Bakan, ''The Corporation: The Pathological Pursuit of Profit and Power'' (2003)</ref> | |||
[[ | Things have only got worse since for Adam Smith’s conviction in the [[Emergence|emergent]] goodness of shareholder profit. | ||
We are cancelling and redrawing the world: let us cancel and redraw our corporate aspirations too. Shareholder capitalism is, by design, venal, selfish and riven with [[Unconscious bias|bias]]. Its stampede for profit demonstrates an abject want of care for everyone else. | |||
And so it has come to pass: “'''stakeholder capitalism'''” has displaced [[shareholder capitalism]]. [[Wall Street|Gordon Gekko]] is out. Arif Naqvi is in. | |||
We | We, the planet, ask corporations to orient themselves toward ''all'' their “stakeholders” — customers, [[creditor]]<nowiki/>s, suppliers, [[employee]]<nowiki/>s, the community, the [[Environmental, social and corporate governance|environment]], the marginalised multitude that suffers invisibly under the awful [[Externality|externalities]] of industry ''and'' — last, but not least! — shareholders. | ||
''Corporations must not profit at the expense of the wider world''. | |||
This view seems so modern, so compassionate and so ''right'' — so ''fit for [[Twitter]]'' — that it is hard to see how anyone can ever have thought otherwise. | This view seems so modern, so compassionate and so ''right'' — so ''fit for [[Twitter]]'' — that it is hard to see how anyone can ever have thought otherwise. | ||
But still, this is a striking reversal: it passed with barely a shot fired. | |||
Even that trade union for unreconciled boomer gammons, the Business Roundtable joined in: last year, it “redefined the purpose of a corporation” away from ''the outright pursuit of profit'' towards ''promoting an economy that serves all Americans''. | |||
“It affirms the essential role corporations can play in improving our society,” said Alex Gorsky,<ref>No relation to ''that'' [[Good luck, Mr. Gorsky|Mr. Gorsky]], as far as we know.</ref> Chairman and CEO of Johnson & Johnson and Chair of the Roundtable’s Corporate Governance Committee,<ref>Not trying to be funny or anything, but is being Chairman ''and'' CEO really the best example for a chair of a corporate governance committee to set?</ref> “when [[CEO|CEOs]] are truly committed to meeting the needs of all [[stakeholder]]<nowiki/>s.” | |||
But stakeholder capitalism ''codifies'' the [[agency problem]]. It diffuses the executive’s accountability for anything the corporation does, putting the [[professional-managerial class]] beyond the reproach of the one constituent stakeholder group with the necessary means, justification and consensus to call it out: their [[Shareholder|shareholders]]. | |||
=== '''About those shareholders''' === | |||
Under Joel Bakan’s theory, remember, it is not the ''shareholders'' who are psychopaths, but the [[corporation]]<nowiki/>s they own, as distinct [[Legal personality|legal person]]<nowiki/>s. | |||
The shareholders are only a ''motivation'' for the corporate pathology. Which is just as well, because shareholders, ultimately come from all walks of life: through our retirement plans, 401(k)s and ISAs, ''we'' are the ultimate shareholders:[[Stakeholder capitalism#footnote-4|4]] [[diverse]] in every conceivable dimension, bar one. | |||
Shareholders don’t have to know each other, like each other or care less about each other. On any other topic, their aspirations and priorities will jar, clatter and conflict. If you put them in a room to discuss anything ''but'' their shareholding, you would not be surprised were a fight to break out. | |||
But that | But on that one subject, they are totally, magically, ''necessarily'' aligned: each will say, “whatever else I care about in my life, members of the board, know this: ''I expect you to maximise my return''.” | ||
'' | === '''About that return''' === | ||
Now you might argue that, since we are all shareholders in one way or another, stakeholder capitalism is really no more than paying attention to shareholders’ ''wider'' interests, not just their pecuniary ones. This way, polar bears get a look in if and only if their welfare is in the shareholders’ wider interest. | |||
But that isn’t ''stakeholder'' capitalism: that’s just a debased version of ''shareholder'' capitalism. It simply replaces shareholders’ ''monetary'' interests for their ''moral'' ones, along the way substituting the shareholders’ moral judgment with the Board’s. | |||
''That is not the deal''. The Board are the shareholders’ ''servants''. They don’t get to moralise on the shareholders’ behalves. | |||
Besides, to ditch this narrow financial interest is to miss the single clinching insight. ''As long as it is all about return, there can be no arguments.'' | |||
=== '''The abstraction of value and the important of cash''' === | |||
Long ago, our forebears in ancient Mesopotamia hit upon a way to abstract pure, disembodied ''[[value]]'' from the relativising commodities or perishable [[Substrate|substrates]] in which it is usually embedded: they called that abstracted value “''[[Cash|money]]''”. | |||
Cash does not go off, cannot be eaten, and does not depend for its value on anything else. Cash ''is'' abstract value. | |||
Hence its value as a yardstick for corporate performance. In discharging their sacred duty, [[Chief executive officer|those stewarding the affairs of corporation]] could not have clearer instructions: should the return they generate, ''valued in [[Cash|folding green stuff]]'', not pass muster, ''there will be no excuses''. | |||
There is no dog who can eat a [[Chief executive officer|chief executive]]’s homework, no looking on the bright side because employee engagement numbers are up, no consolation to be taken in the popularity of the company’s float in the May Day parade: if the annual return disappoints, members of the executive board, ''expect to get shot''. | |||
It gives a pretty good picture of how shareholders, workers and executives are doing relative to each other. | Now, before you cry, “but surely, shareholders need no protection from chief executive officers! It is the disenfranchised underclass at the margins of society who must be protected!” consider the data published by the Economic Policy Institute in 2018,<ref>https://www.epi.org/publication/ceo-compensation-2018/</ref> which maps CEO compensation against worker compensation and the performance of the S&P500 since 1965. It gives a pretty good picture of how shareholders, workers and executives are doing relative to each other. Worker compensation has improved at an annualised rate of 2.5%. Shareholders gained at 8.5% per annum. The overall return for Chief Executive Officers since 1965 shows a growth rate of ''thirty five percent per annum''. | ||
So before we cast the poor shareholders’ interests to the wind, ask this: by switching to stakeholder capitalism, ''[[Cui bono|who benefits]]''? | So before we cast the poor shareholders’ interests to the wind, ask this: by switching to stakeholder capitalism, ''[[Cui bono|who benefits]]''? | ||
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[[Stakeholder capitalism]] means the executive class always has an excuse. ''Always''. For ''everything''. To run a company ''for the world at large'' is to run it ''for no-one''. And when a [[professional-managerial class]] of agents can’t work out who ''else’s'' interests to put first, what do we expect them to do? | [[Stakeholder capitalism]] means the executive class always has an excuse. ''Always''. For ''everything''. To run a company ''for the world at large'' is to run it ''for no-one''. And when a [[professional-managerial class]] of agents can’t work out who ''else’s'' interests to put first, what do we expect them to do? | ||
===Are corporations best-placed to look after everyone else’s interests?=== | ===Are corporations best-placed to look after everyone else’s interests?=== |