Friday, August 15, 2014

Stakeholder Capitalism

I lifted the article below from the AlterNet webpage. Robert Reich was at one time the U.S. Secretary of Labor in the Clinton Administration. He's now a professor at U.C. Berkeley.  Over the last decade, Robert Reich has become a strident voice against the predatory brand of capitalism that emerged with Ronald Reagan in the eighties.   In this kind of capitalism, the only rights that count are those of the shareholder owners, who put profit ahead of all other considerations.  It's an ugly, sociopathic approach to business that allows a handful of CEO's and stockholder-owners to get very rich, while  employees and the public get screwed.

In the piece below, Robert Reich talks about a different approach to corporate capitalism that acknowledges employees and the public as stakeholders, whose perspective on corporate governance should count just as much as that of shareholders.

Germany has one of the most consistently successful economies in the world. In Germany, by law, a corporation's board must include members from the company's labor force and also from the communities in which the business operates.  That business paradigm works for Mercedes-Benz, BMW, Siemens, etc. etc. German companies are some of the most well-managed and highly regarded in the world.

Stakeholder Capitalism is kind of capitalism on which a sustainable, life-affirming future can be built.  As Robert Reich demonstrates in the article below, genuine stakeholder democracy does not exist these days in America. What we have now is a brand of legalized bribery that allows public policy to be shaped by bankers, big business, and bad billionaires.

How do we get the saner approach to Capitalism that Robert Reich advocates?  It starts with fundamental change to the rules we live by. We need a Constitutional Amendment. It should say, 'Corporations are not People', and 'Money is not Speech'. For more about this, check out my earlier blogs that are labeled, Move to Amend.


The World Needs This Saner Approach to Capitalism
 by Robert Reich
AlterNet, August 10, 2014  |
In recent weeks, the managers, employees, and customers of a New England chain of supermarkets called "Market Basket" have joined together to oppose the board of director's decision earlier in the year to oust the chain's popular chief executive, Arthur T. Demoulas.

Their demonstrations and boycotts have emptied most of the chain's seventy stores.

What was so special about Arthur T., as he's known? Mainly, his business model. He kept prices lower than his competitors, paid his employees more, and gave them and his managers more authority.

Late last year he offered customers an additional 4 percent discount, arguing they could use the money more than the shareholders.

In other words, Arthur T. viewed the company as a joint enterprise from which everyone should benefit, not just shareholders. Which is why the board fired him.

It's far from clear who will win this battle. But, interestingly, we're beginning to see the Arthur T. business model pop up all over the place.

Patagonia, a large apparel manufacturer based in Ventura, California, has organized itself as a "B-corporation." That's a for-profit company whose articles of incorporation require it to take into account the interests of workers, the community, and the environment, as well as shareholders.
The performance of B-corporations according to this measure is regularly reviewed and certified by a nonprofit entity called B Lab.

To date, over 500 companies in sixty industries have been certified as B-corporations, including the household products firm "Seventh Generation."

In addition, 27 states have passed laws allowing companies to incorporate as "benefit corporations." This gives directors legal protection to consider the interests of all stakeholders rather than just the shareholders who elected them.

We may be witnessing the beginning of a return to a form of capitalism that was taken for granted in America sixty years ago.

Then, most CEOs assumed they were responsible for all their stakeholders.

"The job of management," proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in 1951, "is to maintain an equitable and working balance among the claims of the various directly interested groups ... stockholders, employees, customers, and the public at large."

Johnson & Johnson publicly stated that its "first responsibility" was to patients, doctors, and nurses, and not to investors.

What changed? In the 1980s, corporate raiders began mounting unfriendly takeovers of companies that could deliver higher returns to their shareholders - if they abandoned their other stakeholders.
The raiders figured profits would be higher if the companies fought unions, cut workers' pay or fired them, automated as many jobs as possible or moved jobs abroad, shuttered factories, abandoned their communities, and squeezed their customers.

Although the law didn't require companies to maximize shareholder value, shareholders had the legal right to replace directors. The raiders pushed them to vote out directors who wouldn't make these changes and vote in directors who would (or else sell their shares to the raiders, who'd do the dirty work).

Since then, shareholder capitalism has replaced stakeholder capitalism. Corporate raiders have morphed into private equity managers, and unfriendly takeovers are rare. But it's now assumed corporations exist only to maximize shareholder returns.

Are we better off? Some argue shareholder capitalism has proven more efficient. It has moved economic resources to where they're most productive, and thereby enabled the economy to grow faster.

By this view, stakeholder capitalism locked up resources in unproductive ways. CEOs were too complacent. Companies were too fat. They employed workers they didn't need, and paid them too much. They were too tied to their communities.

But maybe, in retrospect, shareholder capitalism wasn't all it was cracked up to be. Look at the flat or declining wages of most Americans, their growing economic insecurity, and the abandoned communities that litter the nation.

Then look at the record corporate profits, CEO pay that's soared into the stratosphere, and Wall Street's financial casino (along with its near meltdown in 2008 that imposed collateral damage on most Americans).

You might conclude we went a bit overboard with shareholder capitalism.

The directors of "Market Basket" are now considering selling the company. Arthur T. has made a bid [3], but other bidders have offered more.

Reportedly, some prospective bidders think they can squeeze more profits out of the company than Arthur T. did.

But Arthur T. knew may have known something about how to run a business that made it successful in a larger sense.

Only some of us are corporate shareholders, and shareholders have won big in America over the last three decades.

But we're all stakeholders in the American economy, and many stakeholders have done miserably.
Maybe a bit more stakeholder capitalism is in order.

Here is a link to Robert Reich's webpage...


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