– Fantasy or Action Plan?
The American Experiment: Shareholder vs. Stakeholder Model
Corporate capitalism in America is not difficult to explain: Companies work to generate profits http://doc.cat-v.org/economics/milton_friedman/business_social_responsibility to satisfy their owners and shareholders.
This ideology was officially adopted in the 1980s, when big companies decided their only objective was:
“Maximizing Shareholder Value.” https://www.warren.senate.gov/imo/media/doc/Accountable%20Capitalism%20Act%20One-Pager.pdf
The man behind this idea, economist Milton Friedman, wrote:
“There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” (From Capitalism and Freedom)
According to this model, Shareholder Primacy, a company’s decisions are made by its executives and those who own its stock. They also share the rewards; investors earn dividends, executives stock options and generous yearly bonuses.
Given that just 10% of Americans own 84% of the stock market, this model excludes most from the decision-making and its benefits: the company’s customers, community, employees, and the environment.
Proof: In 2017, CEO compensation grew by about 17.6% – to an average of $18.9 million – while pay for regular workers, adjusted for inflation, declined by .2%. http://rooseveltinstitute.org/why-workers-corporate-boards-just-makes-sense/
America was not always like this. In the 1950s and 60s, strong unions guaranteed workers good wages, pension, health care, and other benefits. Companies understood that their first goal was to provide the public with “quality goods and services at fair prices, thereby earning a profit.” That in turn would “attract investment to continue and enhance the enterprise, provide jobs, and build the economy.” https://bigthink.com/brandon-weber/elizabeth-warrens-accountable-capitalism-act-aims-to-restore-what-we-used-to-have-in-this-country History showed this model worked.
Now some in America want to bring Stakeholder Governance back:
Keep the markets; they work. They create wealth. But level the playing field: Widen the pool of stakeholders to whom big companies are accountable, and ensure that workers have a voice in how corporate decisions are made.
The Accountable Capitalism Act, https://www.warren.senate.gov/imo/media/doc/Accountable%20Capitalism%20Act%20One-Pager.pdf introduced by Massachusetts governor Elizabeth Warren, proposes to do just that. Among other things, it calls for:
The idea is not revolutionary; Europe has applied it for decades. In Germany, the concept of codetermination is at the root of Social Capitalism. https://www.theglobalist.com/economic-democracy-and-codetermination-harnessing-the-capitalist-engine/
In America too, some companies already apply a Benefit Corporation Model. http://benefitcorp.net/policymakers/state-by-state-status
It works: just ask Patagonia, Whole Foods, Danone North America, and Kickstarter.
The debate is raging in America now as midterm elections near: Shareholder or Stakeholder?
Stay tuned for capitalism’s next chapter.
by Yara Zgheib