Monday, October 21, 2019

Elizabeth Warren’s ‘Accountable Capitalism Act’ Reprises Benito Mussolini


The following excerpts are from a letter published in The New Jersey Star-Ledger on 8/5/19. Apparently inspired by Elizabeth Warren’s proposed "Accountable Capitalism Act," Gordon Sell wrote under the heading Time to reconstruct corporate America:

The “CBODOA” [corporate boards of directors of America] is making its members rich beyond their wildest dreams, while sacrificing America’s resources, innovation and future greatness on the pyre of shareholder equity.

We’ve been taught to think of these boards of directors as collections of wise business leaders who supposedly help corporations make prudent decisions. The reality is that it is a vast old boys’ network of golfing buddies who serve on each others boards, vote for exorbitant pay raises, give unqualified people powerful jobs and vote to sell out America’s corporate resources to the highest bidder, even if they are our international competitors.

The current corporate board-of-directors system is not working. It is time to rewrite corporate law to tear down the conflicts of interest, focus on core business rather than stock price and give managers, engineers, workers, communities and even customers a seat at the table.

Throughout history, whenever someone succeeds at producing wealth, greedy people want to take it and/or power-lusters want to control it. Sell is one of them. “Corporate resources” are not “America’s.” They belong to the corporation’s owners, the shareholders. “America’s . . . greatness” lies in the fact that private property rights are protected. So this letter totally contradicts fundamental Americanism, which lies in the protection of individual rights. Sell does, however, regurgitate an old ideology.

Warren’s "Accountable Capitalism Act" would require this:

American corporations with more than $1 billion in annual revenue must obtain a federal charter from a newly formed Office of United States Corporations at the Department of Commerce. The new federal charter obligates company directors to consider the interests of all corporate stakeholders – including employees, customers, shareholders, and the communities in which the company operates. This approach is derived from the thriving benefit corporation model that 33 states and the District of Columbia have adopted and that companies like Patagonia, Danone North America, and Kickstarter have embraced with strong results.

Note that the list of stakeholders is preceded by the word “including,” meaning “not limited to.” The list of stakeholders that would be granted the “right” to run business corporations that they neither financed not built would be limited only by the whims of government officials, including politicians and bureaucrats. Warren may have been inspired by Ralph Nader’s 1970s scheme  for federal chartering of large corporations. But it is really aligned with someone from the early 20th Century. Now read these excerpts from THE DOCTRINE OF FASCISM by Benito Mussolini and Giovanni Gentile, published in 1932.

REJECTION OF INDIVIDUALISM AND THE IMPORTANCE OF THE STATE

Fascism is therefore opposed to all individualistic abstractions based on eighteenth century materialism [i.e., Enlightenment liberalism].

Anti-individualistic, the Fascist conception of life stresses the importance of the State and accepts the individual only in so far as his interests coincide with those of the State, which stands for the conscience and the universal, will of man as a historic entity [i.e., mysticism]. 

No individuals or groups (political parties, cultural associations, economic unions, social classes) outside the State (15). Fascism is therefore opposed to Socialism to which unity within the State (which amalgamates classes into a single economic and ethical reality) is unknown, and which sees in history nothing but the class struggle. Fascism is likewise opposed to trade unionism as a class weapon. But when brought within the orbit of the State, Fascism recognizes the real needs which gave rise to socialism and trade unionism, giving them due weight in the guild or corporative system in which divergent interests are coordinated and harmonized in the unity of the State (16).

8. Conception of a corporative state
(16) We are, in other words, a state which controls all forces acting in nature. We control political forces, we control moral forces, we control economic forces, therefore we are a full-blown Corporative state. We stand for a new principle in the world, we stand for sheer, categorical, definitive antithesis to the world of democracy, plutocracy, free-masonry, to the world which still abides by the fundamental principles laid down in 1789. (Speech before the new National Directory of the Party, April 7, 1926, in Discorsi del 1926, Milano, Alpes, 1927, p. 120)
The Ministry of Corporations is not a bureaucratic organ, nor does it wish to exercise the functions of syndical organizations which are necessarily independent, since they aim at organizing, selecting and improving the members of syndicates. The Ministry of Corporations is an institution in virtue of which, in the centre and outside, integral corporation becomes an accomplished fact, where balance is achieved between interests and forces of the economic world. Such a glance is only possible within the sphere of the state, because the state alone transcends the contrasting interests of groups and individuals, in view of co-coordinating them to achieve higher aims. The achievement of these aims is speeded up by the fact that all economic organizations, acknowledged, safeguarded and supported by the Corporative State, exist within the orbit of Fascism; in other terms they accept the conception of Fascism in theory and in practice. (speech at the opening of the Ministry of Corporations, July 31, 1926, in Di­scorsi del 1926, Milano, Alpes, 1927, p. 250). 

All emphasis is mine.

Warren would require corporations to seat on their boards of directors members elected by a vote of its employees. Other stakeholders would be “represented” on corporate boards by government dictate. Don’t be fooled by the “democratic” ruse. When the government mandates, the government dictates the interests of these various groups. The individual members may gain a vote. But it is a useless vote, gained in exchange for sacrificing their right to think, determine, and act according to what they judge to be their own personal interests. The election is infected with the disease of all democracy, mob rule; that is, the interests of minority voters is subjugated to the will of the majority. They are forced to accept, by government decree, someone they may not know to represent interests that may not be their own. Private corporations are of course free to allow its employees to vote for corporate directors. But when the government forces it on corporations, it violates the rights of shareholders to govern their own corporations as they see fit.

Only a free market recognizes the rights of individuals to determine their own interests. In regard to business corporations, the individual judges based on voluntary choices--as a consumer, the choice whether to buy the product; as a worker, the choice whether to work for a company; as an investor, the choice whether to invest in the company; as a supplier, the choice of whether to contract with the buying company, and so on. 

All of that will be superseded by some new American incarnation of The Ministry of Corporations. Warren’s “accountable capitalism” would not empower stakeholders. It would strip the stakeholders of their power and transfer that power to the state. All these interests will be “brought within the orbit of the State [and] coordinated and harmonized in the unity of the State.” That is what it means to have government gun its way into private corporation boardrooms, whether in the name of “stakeholders” or “divergent interests”.

There is nothing wrong with a company considering many interests other than shareholders, of course. In fact, as I observed in my previous post “On the Purpose of a Corporation by the Business Roundtable PART 2”, the best interests of the company’s shareholders ofthen requires it. And Warren acknowledges that “For much of their history, American corporations tried to balance the interests of all of their stakeholders, including employees, customers, business partners, and shareholders.” She claims without evidence that this is no longer the case, so the Federal Government must force them to. But that is just a thin and transparent rationalization. Her bill is really just a power grab by a socialist trying to frame it to appear to fit Americans’ generally free enterprise-respecting culture.

But what Warren actually proposes is a reprise of Mussolini’s Doctrine of Fascism, a form of guild socialism expanded to encompass “all stakeholders,” or as Mussolini puts it, “divergent interests.” Guild socialism is a “socialistic theory advocating state ownership of industry with control and management by guilds of workers.” Fascist collectivism expands beyond “workers” to encompass all of society, organized into groups, or guilds. Fascism, after all, derives from the Italian word fascismo, which literally means group. Hence, Mussolinin’s hostility toward individualism. In the fascist version of guild socialism, the workers are joined by all other groups. In the American version, nominal ownership remains in private hands, but controlled by state-mandated board members. “Fascism,” explains Mussolinin, “is . . . opposed to trade unionism as a class weapon,” instead “giving . . . due weight in the guild or corporative system [to] divergent interests,” all under the auspices of the state. “Managers, engineers, workers, communities and even customers” would all have “a seat at the . . . corporate board-of-directors . . . table,” as Gordon Sell demands. Elizabeth Warren would add an open-ended list of other “stakeholders” categories. “No . . . economic unions . . outside the state,” explains Mussolini. 

The parallels are stark, and scary. Warren’s “accountable capitalism” puts us on the way to “a full-blown Corporative state.” It puts us on the way to socialism—national guild socialism. Warren claims her proposal is “derived from the thriving benefit corporation model that 33 states and the District of Columbia.” It is not derived from, but an override of the states--a power grab by the federal government of a function now relegated to the states under the Founders’ federalism. It is another attack on the separation of powers, further marginalizing the balancing power of the states. Warren’s “accountable capitalism” is a power grab--taking away a corporation’s accountability to the stakeholders it deals with in the free market, making it accountable to the government. It is a power grab from the rights of individual and from the powers of state governments—a repudiation of the Ninth and Tenth Amendments, respectively.

In a free country based upon individual rights, there is no room for fascism. There is no room for Benito Mussolini, or for Elizabeth Warren. In America, the moral rights of individuals to finance, build, and run a company for profit is protected by constitutional and moral law. The rights of voluntary exchange are protected by law. The rights of any individual “stakeholder” to judge for himself whether or not to deal with the company is retained by each individual, not forcibly transferred to some collective guild via a government-imposed “representative.” According to American principles, the government cannot step in and dictate how private business is run, or how private individuals or voluntary associations of individuals trade with each other. It can only police the market for force or fraud, otherwise leaving individuals to their free choices.

As regards Gordon Sell’s Star-Ledger letter, I posted these comments:

Contra Gordon Sell, American business is not a tribal resource. Corporations are private businesses started, financed, and built by the shareholders. Only the shareholders have the moral right to choose who and how to govern their corporations. Non-shareholders who think they have the “right” to muscle in on what others own are no different from underworld crime bosses.

Sell apparently draws from Elizabeth Warren’s so-called “Accountable Capitalism Act”. The “managers, engineers, workers, communities, and customers” that Sell says should be “represented” on corporate boards via legal federal mandate, and other “stakeholders” Warren would add, are essentially no different from the “divergent interests” of Benito Mussolini’s Italian fascism. Warren’s ACA reprises Mussolini’s 1932 “DOCTRINE OF FASCISM,” in which all economic groups are “coordinated and harmonized in the unity of the State” leading to “a full-blown Corporative state”—i.e., totalitarianism. Everyone is enslaved to the corporations, which are corralled “within the sphere of the state.” 

Of course, the state corporatism of Warren’s ACA is not capitalism. Capitalism protects the rights of individuals to operate businesses and consumers, job-seekers, suppliers, and others to decide for themselves whether to work for, contract with, or patronize what business. A capitalist government polices the markets for criminal activity like force and fraud, but otherwise leaves people free to work, contract, and trade. What Warren, Sell, and their ilk are advocating is not corporate accountability to consumers, employees, et al. That’s a free market. They are advocating accountability to government masters. They are abandoning capitalism, and introducing to America the guild socialism of fascist state.

Related Reading:




The Capitalist Manifesto by Andrew Bernstein

Friday, October 18, 2019

On the Purpose of a Corporation by the Business Roundtable, PART 2


As to the Business Roundtable statement, Purpose of a Corporation, it’s a stab in the back to the people who invested their money, entrusting the corporate managers to fulfill their fiduciary responsibility to the shareholders, the owners. And it’s wholly unnecessary. The headline: “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’.” The subtitle: “Updated Statement Moves Away from Shareholder Primacy, Includes Commitment to All Stakeholders.” Here is the core of the statement:

While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:

·         Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
·         Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
·         Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
·         Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
·         Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.

None of these goals is objectionable. What is objectionable—I would say immoral—is the order; more to the point, the appearance of the first four on a list of purposes, which in effect subordinates the shareholders to fifth class status. This is akin to a defense attorney placing others’ interests above those of his own client. 

In his FEE column lauding the Roundtable, Should Corporations Consider Any “Stakeholders” Other Than Shareholders?, Franklin J, Parker asserts:

Through experience, we have learned that a singular focus on quarterly profits makes for unhealthy long-term businesses, which is bad for shareholders.

Who ever said that maximizing shareholder value necessarily correlates to a "singular focus on their next quarterly bonus" anyway? That sounds like a straw man. If Parker's description of the Business Roundtable's statement is accurate—that the statement actually does prioritize "several other corporate commitments ahead of generating long-term value for shareholders," it is definitely a call for corporations to violate their fiduciary responsibilities. A primary focus on “generating long-term value for shareholders” is precisely what a corporation’s moral obligation is. Those “other commitments” are fine, and pursuing them should not and need not come at the expense of stabbing shareholders in the back. They shouldn’t be at the expense of shareholders. Nor should they be the purpose of a business corporation.

A proper approach to the purpose of a business corporation is described in the 1963 policy statement of Indian Head Mills textile company under its then-president James E. Robison:

The objective of this company is to increase the intrinsic value of the common stock. [This company is in business not] to grow bigger for the sake of size, nor to become more diversified, nor to make the most or best of everything, nor to provide jobs, have the most modern plants, the happiest customers, lead in new product development, or to achieve status which has no relationship to the economic use of capital.

Any or all of these may be, from time to time, a means to our objective, but means and ends must never be confused. Indian Mills is in business solely to improve the inherent value of the common shareholder’s equity in the company.* [my emphasis]

“[M]eans and ends must never be confused!” The Business Roundtable lists five key objectives that it claims to “Redefine the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’”; “Delivering value to our customers, Investing in our employees, Dealing fairly and ethically with our suppliers, Supporting the communities in which we work, Generating long-term value for shareholders.” In one of the worst cases of businesspersons pandering to their enemies, the Roundtable lists shareholders last. This is immoral. Let’s paraphrase Robison:

The objective of a business corporation is to increase the intrinsic value of the common stock. Corporations are in business not to deliver value to our customers, invest in our employees, deal fairly and ethically with our suppliers, support the communities in which we work, or to achieve status which has no relationship to the economic use of capital.

Any or all of these may be, from time to time, a means to our objective, but means and ends must never be confused. Corporations are in business solely to improve the inherent value of the common shareholder’s equity in the company. 

The Business Roundtable is reversing cause and effect, and in the process selling out America’s consumers, productive workers, and communities. The first four are not primaries. They are means The last is the end. If we forget this hierarchy, we do indeed end up with “An Economy That Serves All Americans,” a mushy phrase that really means a state-controlled economy whereby productive people serve the state. A free market economy leaves people free to work and trade in service to their own lives and flourishing: It does not work for people who believe the economy owes them a living. 

Again, “means and ends must never be confused!” Nor must ends and effects. Good jobs, a strong and sustainable economy, innovation, a healthy environment, and economic opportunity are all effects of the primacy of the corporation’s purpose, which is “solely to improve the inherent value of the common shareholder’s equity in the company.”

I found two more good examples of the proper hierarchical approach to running a business corporation. 

Jonathan Townley, writing for The Objective Standard, explains How John H. Patterson Modernized Industry. Patterson started National Cash Register company (now NCR) in 1884. Patterson learned that “a singular focus on quarterly profits makes for unhealthy long-term business.” As Townley explains:

In 1894, however, NCR experienced a major setback: An order of cash registers worth $50,000 was returned because the machines were defective.17 To investigate the cause of the poor workmanship, Patterson moved his desk to the factory floor, where he could interact directly with his workers.

Like many factories of the day, his was dark, dirty, and poorly ventilated. Injuries were common. Water for drinking and washing was unsanitary. Unhappy with the working conditions and pay, many skilled workers were quitting. Patterson realized that he had not given his workers a reason to care about the quality of their work.18

He quickly had the factory cleaned and ventilation systems installed. He was among the first industrialists to introduce safety measures for using dangerous equipment. And he built subsequent factories with massive windows, allowing adequate lighting for his workers. These became known as the first ever “daylight” factories.19

These changes improved working conditions enormously. Morale increased, turnover decreased, and poor workmanship all but ceased.

In March of 1913, a disastrous flood struck Dayton, Ohio, where many of NCR’s employees worked. Patterson quickly organized a massive rescue and relief effort, rescuing thousands of people and giving food and shelter to the suddenly homeless people. Townley concludes:

Patterson’s devotion to quality, his complete disregard for convention, and his quest to improve all aspects of his business did more than lead NCR to success. He molded an entire generation of entrepreneurial minds, training many directly and setting the standards by which countless others judged success. He demonstrated to business owners the benefits of investing in one’s employees. And he showed the world what so many “greedy industrialists” are made of: an enduring will to remake the world as it could and should be—and on their own terms.

Clearly, Patterson demonstrated that the well-being of his workers and their community were necessary contributions to his company’s success, not a substitute for that success. John A. Allison grew BB&T into one of the biggest financial firms in America. As I wrote in my post "It's a Wonderful Life" - in Real Life, as the 2008-09 mortgage meltdown was occuring:

BB&T’s philosophy (the company is now run by Kelly King) is laid out in a special section on its website. The introduction stresses that although “Change is necessary for progress, … the context, our vision, mission and values, are unchanging because these principles are based on basic truths.” 

Its core principles are led by its Values (reality, reason, independent thinking, productivity, honesty, integrity, justice, pride, self-esteem, and teamwork, with a final word on the role of emotions). Values are defined as “practical habits that enable individuals to live, be successful, and achieve happiness.”

These values define the Concepts That Describe BB&T, its Vision, Mission, and Purpose, and its Strategic Objectives. These set the tone for its relationship with its clients, employees, and the community at large, and define BB&T’s long-term goals:

Our ultimate purpose is to create superior long-term economic rewards for our shareholders. This purpose is defined by the free market and is as it should be. They take the risk if the business is unsuccessful. They have the right to receive economic rewards for the risk which they have undertaken.

However, our purpose, to create superior long-term economic rewards for our shareholders, can only be accomplished by providing excellent service to our clients, as our Clients are our source of revenues.

To have excellent client relations, we must have outstanding Employees to serve our clients. To attract and retain outstanding employees, we must reward them financially and create an environment where they can learn and grow.

Our economic results are significantly impacted by the success of our Communities. The community's "quality of life" impacts its ability to attract industry for growth.

Therefore, we manage our business in a long-term context, as an integrated whole, with the ultimate objective of rewarding the Shareholders for their investment, while realizing that the cause of this result is quality client service. Excellent service will be delivered by motivated employees working as an integrated team. These results will be impacted by our capacity to contribute to the growth and well-being of the communities we serve. ** [my emphasis]

Clearly, a successful business can grow without sacrificing its shareholders, or anyone else. Indeed, the well-being of consumers, employees, and communities in general is aligned with the shareholders. So for whom do the current leaders of the great American companies sacrifice their shareholders?—apparently, in order to pander to the most despicable "stakeholders" of all, the free enterprise-hating, greedy, power-lusting “socialist justice” warriors. The Roundtable’s  Purpose of a Corporation is immoral, contrary to the ethic of capitalism, and ultimately destructive of the "good" of the "social fabric" of America, which is built around the individual's inalienable right to pursue personal happiness. 

A singular focus on maximizing the long-term value for shareholders does not mean a narrow focus only on short-term profit at the expense of other considerations, or stakeholders. It means shareholders as the ultimate purpose of a business corporation. We live in an interconnected world economy, where plenty of interests coincide. There can be plenty of contributing factors to a purpose that can and should be taken into consideration. But they should never be prioritized over the primary purpose of an organization. There are plenty of other ways to prioritize those other interests. You wouldn’t prioritize monetary profit as the purpose of a charity, although a profitable enterprise may contribute to the charity’s giving purpose. And you shouldn’t prioritize jobs as the purpose of a business, even though good jobs contribute to the advancement of the business’s shareholder purpose. 

Robison, Patterson, and Allison get it right. A corporation is an association of private individual investors, and thus has a right to exist for its own sake, like any other private assembly such as a church, a charity, or a chess club. The Business Roundtable’s disgraceful pandering to collectivism—”An Economy That Serves All Americans”—“redefines” the corporation as a servant of society. But an economy does not “serve” anyone. What we call “the economy” is the sum of the trade associations of productive individuals. Those who frame the issue as “An Economy That Serves All Americans” are speaking of masters and slaves, with the most productives individuals (or their associations) as the slaves. The Business Roundtable should go back to the drawing board, and redefine its redefinition of the business corporation as a properly shareholder value-maximizer derived from its shareholders’ self-interested right to earn a living, like every other productive occupation. 

To earn a living, whether through direct work or investment of one’s savings, does imply serving others’ wants and needs. But such service to others is the means to the only proper purpose of one’s work, which is to maximize one’s own personal material (and spiritual) flourishing. A reversal of those means and ends only advances the collectivistic statist designs of the likes of anti-capitalists and socialists like Elizabeth Warren and Bernie Sanders. Businessmen need to get some philosophical backbone, because with “friends” like the Business Roundtable, capitalism doesn’t need enemies.

* [As quoted by Ayn Rand in her April 1963 Cosmopolitan magazine article, which was reprinted in The Objectivist Forum.]

** [NOTE: Allison retired a number of years ago. I do not know if the new leadership adhered to the philosophy under which Allison built the company. But it seems to have, at least in part.] 

Related Reading:



In Defense of the Corporation—Robert Hessen: This book was first published in 1979 to defend “the right of the corporation to exist and function freely.” Hessen’s goal was to counter Ralph Nader’s argument that corporations are “creatures of the state.” The book is relevant today because Nader’s call for federal chartering of corporations is the precursor to Elizabeth Warren’s neo-fascist "Accountable Capitalism Act."

The Capitalist Manifesto--Andrew Bernstein


Elizabeth Warren Plans To Destroy Capitalism By Pretending To 'Save' It--SCOTT SHACKFORD: Warren's plan would overrule corporate leaders' control over their own businesses. This is also known as "socialism."

Tuesday, October 15, 2019

On the Purpose of a Corporation by the Business Roundtable, PART 1

In a classic case of big business pandering to their anti-capitalism enemies, the Business Roundtable, a group of big business CEOs, put out a statement titled Purpose of a Corporation. The Roundtable claims to “redefine” the business corporation. It lists five primary objectives:

  • Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.

  • Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.

  • Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.

  • Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.

  • Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.

Notice what comes last—“Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate.” That statement comes across like a campaign ad for Elizabeth Warren, who has a fascist-like plan to have government dictate the governance of large private corporations, along the lines of guild socialism.

Yet Franklin J Parker, a “free enterprise analyst” at the Lone Star Policy Institute, lauds the statement, if you can believe it, as “a textbook example of free markets operating as they should.” How so? In an article run on the FEE (Foundation for Economic Education) website, of all places—Should Corporations Consider Any “Stakeholders” Other Than Shareholders?—Parker opens with:

CS Lewis, the famed author of The Chronicles of Narnia, once discussed the distinction between advancing ethics and advancing knowledge of facts. In Lewis’ view, ethics changes remarkably little over the years. What changes, and changes rapidly, is our knowledge of how the world works. This advancement of knowledge informs our application of ethical norms, and it is advancing knowledge of facts, argues Lewis, not ethics, that tends to change through time

My emphasis. Parker continues::

With respect to the operation of businesses, it was famed economist Milton Friedman who laid down the foundational ethic: Businesses should seek to maximize shareholder value only. Working toward any other end, asserts Friedman, is an unjustified exercise in “spending other people’s money.” 

So right off the bat, we automatically take established ethics on its face, without question. The established ethics of our time is altruism, the ethic that holds self-sacrificial service to others as the standard of moral behavior. From that premise, Parker goes on to put words in Friedman’s mouth:

But our knowledge of both economics and corporate management has advanced over the years. Through experience, we have learned that a singular focus on quarterly profits makes for unhealthy long-term businesses, which is bad for shareholders. 

My emphasis. Did Friedman really equate shareholder values with dogmatic focus on short-term profit? When did the accepted “knowledge of both economics and corporate management” ever hold that as its standard? From that strawman starting point, Parker claims, we now know differently. Instead of “singular focus on quarterly profits,” Parker agrees that corporations should  prioritize other “stakeholders’” interests over its own shareholders. Why? Because that’s what “society” demands. Such “social responsibility” will be “good” for shareholders. Parker writes:

For those who are unconcerned or unable to make the sacrifice, free markets allow for that, too. We should be careful, then, in our calls for new regulation. After all, if you are unwilling to make the marginal sacrifice required to express your value with your own money, how can we hope to make the required sacrifice at scale? Prices are, in effect, a mirror to society. Though we may find the mirror’s display distasteful, the problem is not solved by breaking the mirror.

The message from Parker: Sacrifice is moral. A healthy long-term business is built on sacrifice. Therefore, business should sacrifice. If it doesn’t sacrifice, the government will force it to sacrifice. Another word for this is, extortion. Is this how free markets actually work?

I'd like to know Parker's definition of "sacrifice". Rationally, a sacrifice is the giving up of a value in exchange for a lesser value or no value at all. It means making one’s situation worse off. If giving up a short-term (or any) value is in and of itself a sacrifice regardless of whether or not it is geared toward advancing one's long-term well-being, then the word "sacrifice" has no use. Sacrifice can’t be both good for you and bad for you. A tradeoff that results in a net gain is not a sacrifice, it is the opposite—rationally selfish. Yet that's how Parker seems to be muddling the term. On the one hand, he claims that "a singular focus on quarterly profits makes for unhealthy long-term businesses." If so, then if accepting a temporary lower quarterly return leads to a healthier business long term—that is, higher profits and thus higher shareholder value later on—then accepting a lower quarterly return is a net gain, not a sacrifice. On the other, he lauds the Business Roundtable for "prioritizing several other corporate commitments ahead of generating long-term value for shareholders." My emphasis. That would be a sacrifice--of the corporation’s shareholders. But, he claims, “The ethic is still the same: corporations should maximize shareholder value. We are simply witnessing a shift in the execution of that ethic.” Really? Then how does one make sense of this statement—“corporate executives have only now realized shareholder value is maximized through more than a focus on their next quarterly bonus is rather embarrassing for them.” How does one maximize shareholder value by "prioritizing several other corporate commitments ahead of generating long-term value for shareholders?" 

So, which is it? Parker is arguing completely contradictory premises, which boils down to, corporations should sacrifice for the “social good” regardless of whether it maximizes shareholder value. 

This contradiction points to the fundamental flaw in Parker's viewpoint. The core ethic of capitalism is the individual pursuit of rational self-interest coupled with respect for the rights of others and facilitated by trade; which means, no conflict between the rational interests of other stakeholders and shareholders, since all stakeholders (individuals whose choose the deal with the corporation), including employees, shareholders, consumers, suppliers,, deal with each other by mutual consent to mutual self-advantage. Since rational self-interest is by definition oriented toward one's "awareness of one's long-term well-being," making personal or corporate choices that prioritize long-term well-being over short-term gain is not sacrificial for anyone involved, since a rational perspective places a higher value on long-term well-being over immediate gratification.  

I have always thought of maximizing shareholder value as a long-term proposition that incorporates consideration of all relevant facts as one sees them affecting one's interests, long and short. As with an individual, a corporation foregoing short-term gratification in exchange for long-term shareholder betterment is hardly a sacrifice. So why the focus on sacrifice?
Parker opens with the observation that ethics doesn't change, but the facts do. This has been largely true. But is it right? Sacrifice means altruism, which is the opposite of how capitalism operates. Capitalism operates based on self-interest, not altruism. Yet Parker uncritically accepts the premise that ethics shouldn't change, so he jumbles the term sacrifice to fit capitalism. It can’t be done. Altruism--self-sacrifice for the benefit of others--is the long-accepted standard of ethics. But that contradicts capitalism's moral basis. Parker's got it backwards. Our "knowledge of how the world works" has indeed changed with the rise of capitalism. Parker's error is in not recognizing that these changing facts should lead us to question the established ethics. Instead, he twists the logic of capitalist ethics to fit the established ethics of altruism. 

That’s the problem that is steadily eroding capitalism and liberty. Capitalism is based on universal individual self-interest, not sacrifice. Universal self-interest in turn spawned modern business, which is built on maximizing shareholder value, which in turn led to the betterment of consumers, employees, investors, communities--in essence, all relevant stakeholders. What should be done is to let these facts, this "new knowledge", lead us to question our established ethical norms. Trying to shoehorn capitalism into the 2000 year-old ethics of self-sacrifice will not advance capitalism. It will destroy it, and lead to the actual system of sacrifice, which is socialism. What our advancement of knowledge tells us is that self-interest, not altruistic sacrifice, is the proper goal of morality. The tremendous rise in the general human standard of living since the emergence of capitalism is the proof.

If capitalism is to be successfully defended, we should do exactly the opposite of what CS Lewis suggests, let our knowledge inform our ethics. The rise of capitalism resulted from the Enlightenment, which discovered that the individual can use his reason to accomplish a better life for himself, and the corollary discovery that trade, not conflict, infinitely enhances that individual’s flourishing, and thus broader society’s well-being. That is why capitalism, which is based on self-interest, is the only path to general betterment. Parker sincerely tries to defend cap[italism. But until Parker and his ilk learn that sacrifice is out, trying to fit capitalism into a sacrificial straightjacket will only result in its destruction.

So, do the other corporate commitments listed by the Roundtable’s Purpose of a Corporation—Delivering value to our customers, Investing in our employees, Dealing fairly and ethically with our suppliers, and Supporting the communities in which we work—warrant any concern of the corporation? Of course they do. But proper prioritizing is key. Those commitments are not inimical to shareholder interests, or vice versa. I’ll explain myself in my next post. Here are a couple of FEE articles with a better perspective:

Milton Friedman Was Right on Corporate Guidance, and "Woke" CEOs Ignore Him at Shareholder Peril by Jon L. Pritchett: “It is the fiduciary responsibility of the directors to protect such assets…and maybe even the entire free market system, too. The resources these CEOs propose to spend in the pursuit of social good are not their own. Those resources are capital invested by shareholders; not by the growing category of “stakeholders” these modern CEOs seem so intent on pleasing.”


Shareholder Interests and Stakeholder Interests Are Not Mutually Exclusive by Gary M. Galles: “Trying to create added stakeholder rights, ex nihilo, violates the rightfully owned property of shareholders.”

Related Reading:




The Capitalist Manifesto--Andrew Bernstein


Elizabeth Warren Plans To Destroy Capitalism By Pretending To 'Save' It
--SCOTT SHACKFORD: Warren's plan would overrule corporate leaders' control over their own businesses. This is also known as "socialism."