Charles Dharapak/AP Photo
JPMorgan Chase Chairman, President and CEO Jamie Dimon (second right) listens as President Barack Obama addresses business leaders, March 12, 2009.
This article is a preview of the Fall 2019 issue of The American Prospect magazine. Subscribe here.
The list of signatories to the Business Roundtable’s revised statement of corporate purpose—replacing its devotion to the primacy of shareholders with a new commitment to customers, employees, and communities as well—makes for some discombobulating reading. Here are the CEOs of American and United Airlines, companies that have reduced the experience of standard air travel to a scrunched, benumbed ordeal; of Boeing, whose inattention to safety took hundreds of lives; of Johnson & Johnson, whose sales of opioids took thousands of lives; of Comcast, whose regional cable monopolies routinely and inexplicably hike their prices; of Abbott, Allergan, and Pfizer, whose drug oligopoly makes Comcast look like a piker; and of ExxonMobil and Chevron, whose—well, you know.
Moving from concern for the planet to concern for their own employees, here’s the CEO of Amazon, next to whose un-air-conditioned warehouses ambulances were regularly stationed to whisk away workers passed out from heat exhaustion; and of Walmart, the company that responded to the efforts of meatcutters in one Texas store to join a union by shuttering the meat department in that store, in all of its Texas stores, and in all its stores in five nearby states.
CEOs have thrived under shareholder capitalism as never before. A report this August from the Economic Policy Institute (EPI)—issued five days before the Business Roundtable’s pronunciamento—showed that CEO compensation has risen by 940 percent since 1978, a period that roughly coincides with the onset of conducting business to maximize shareholder value. During the same four decades, median worker compensation rose by a bare 12 percent.
The cognitive dissonance that arises from reading the Roundtable’s new affirmation of stakeholder capitalism and the list of corporations whose CEOs put their names to it, combined with the EPI report, makes one thing unmistakably clear: Stakeholder capitalism does not trickle down—nor has it ever trickled down—from CEOs and corporate boards, whose care and feeding depend on their control and pocketing of corporate resources. Stakeholder capitalism appears only when stakeholders force it on CEOs and their boards. It happens when workers become so militant and have amassed enough power to take some of that power from their bosses; and when workers, consumers, and voters team up at the polls to compel the creation of a more egalitarian and democratic polity and economy.
IT MAY WELL BE THAT the Roundtable signatories have had it with some aspects of shareholder capitalism, but that the form of capitalism they truly pine for isn’t stakeholder, but managerial. That form of capitalism was first described by Gardiner Means and New Deal brain-truster Adolf Berle in their landmark 1932 book The Modern Corporation and Private Property. In it, they noted that the corporations then dominating the American landscape—corporations like Standard Oil, U.S. Steel, and General Electric—were no longer controlled by once-dominant owners like John D. Rockefeller, Andrew Carnegie, or J.P. Morgan, but by corporate managers who had a good deal of autonomy when it came to investment and other business decisions. The era of managerial capitalism extended from the 1920s, with the maturation of corporate structure and the professionalization of the managerial class, through the 1970s, when rising competition from German and Japanese imports and heightened inflation engendered by the rise in oil prices weakened profits, diminished managers’ standing, and helped create a more assertive generation of speculators posturing as market-perfecting shareholders.
From the junk bond dealers of the 1980s to today’s “activist investors,” CEOs have spent decades fending off or, more commonly, succumbing to shareholders threatening them, ultimately, with job loss unless they funneled more money to those persistent pests. The signatories to the Roundtable’s statement may hope that doctrinally disavowing shareholder capitalism will somehow diminish the challenges to CEO suzerainty from private equity predators and such shakedown artists as Carl Icahn and Nelson Peltz.
But managerial capitalism and stakeholder capitalism are by no means the same thing. Both may have peaked in the decades after World War II, but they came together from different directions, with different aims, and produced distinctly different results. Indeed, when Berle and Means described the several-decade rise of managerial capitalism in 1932, stakeholder capitalism had yet to be born. From the end of World War I through the mid-1930s, the managerial capitalism of General Motors CEO Alfred P. Sloan and the top managers at such dominant companies as U.S. Steel and General Electric involved the forcible suppression of unions and the underpayment of their workers, who also received no benefits from their jobs and routinely faced arbitrary terminations.
It was only in response to the nationwide progressive uprising of the mid-1930s—from general strikes to the legalization of collective bargaining to factory seizures by organized workers—that the managerial capitalists were compelled to accept a diminution of managerial autonomy—that is, unions. Crucially, for a time, workers as stakeholders also had the support of the state.
During World War II, corporations involved in war production were effectively compelled to unionize, and were subjected to the wage and price supervision of government agencies consisting of public, managerial, and labor representatives. When the war concluded, unions were at the peak of their power, and the most aggressive and powerful union—the United Auto Workers—took on the nation’s most powerful company (and largest employer), General Motors, in an effort to extend that tripartite control of wages and prices into the postwar era. UAW Vice President (and shortly to become President) Walter Reuther led a 113-day strike of hundreds of thousands of GM workers with the demand that the company “open its books” so that workers and the public could see how much GM could afford to raise wages without having to raise the prices of its cars.
Managerial capitalists everywhere blanched at the prospect of having their key management decision—product pricing—made subject to public scrutiny and, perhaps, even control. Responding to unions’ power and popularity, however, President Harry Truman appointed a three-member commission (one of them Kansas State University President Milton Eisenhower—Ike’s brother), which calculated that the company could raise wages by an average of 19.5 cents a hour—real money in 1945—without raising prices. Not surprisingly, GM disputed that figure, though at the strike’s end, the UAW workers won something close to that: an hourly raise of 18.5 cents.
Nonetheless, GM had narrowly held the line on its managerial authority. The experience had been so searing, however, that in the subsequent GM contracts of 1948 and 1950, the UAW won not only substantial raises, but also company-provided pensions and health insurance, an annual cost-of-living increase, and a productivity benefit atop the contracts’ stipulated raises. The provisions in these contracts set the pattern for the entire auto industry, and many of those provisions became standard in other major corporations as well—not, however, without unions exercising their power to disrupt to win them. During the supposedly somnolent Eisenhower 1950s (Dwight this time, not brother Milton), America averaged roughly 300 major strikes every year.
That was stakeholder—definitely not managerial—capitalism. Compelled to confront that level of worker militancy and power on a regular basis, many managers became resigned to worker power as the price of doing business. “The job of management is to maintain an equitable and working balance among the claims of the various directly affected interest groups: stockholders, employees, customers, and the public at large,” said the chairman of Standard Oil of New Jersey (later renamed Exxon) in 1951.
The chief consequence of this modus vivendi between capital and labor was broadly shared prosperity. During the three decades of postwar stakeholder capitalism, the real median income of American workers doubled, while the highest marginal tax rates of the immediate postwar years—topping 90 percent during the early 1950s—placed a weighty cap on CEO pay.
BY THE MID-SEVENTIES, however, the assault on stakeholder capitalism was taking off. In 1970, Chicago economist Milton Friedman, in a disastrously influential essay for The New York Times, argued that the sole purpose of a corporation was to increase its profits. In 1976, Harvard economist Michael Jensen co-authored an equally damaging article with William Meckling, contending that corporate boards could and should ease the pain top managers might feel from losing power to major shareholders by scaling CEO pay to increases in share prices, thereby aligning CEOs’ (ballooning) fortunes with shareholders’. In time, this proved to be a happy harmonic convergence for everyone except the 99 percent—and the chief reason why the CEOs’ repudiation of shareholder capitalism may run no deeper than a couple millimeters.
The assault on the stakeholder postwar order went well beyond the doctrinal. In 1981, Ronald Reagan’s mass firing of striking air traffic controllers led to open season in the corporate sector on unions, while his proposed elimination of high taxes on the highest incomes, which Congress enacted, jump-started the renaissance of the American super-rich. In the same year, General Electric CEO Jack Welch proclaimed that his company would shed all but its most profitable divisions, a policy which benefited shareholders but also by 1985 had reduced the number of GE employees (in what previously had been regarded as lifetime jobs) by more than 100,000. In business schools, the business press, and boardrooms and C-suites everywhere, Welch was acclaimed as the model CEO of the age. And one year later, Reagan’s Securities and Exchange Commission effectively removed the penalties for corporate leaders when they authorized the repurchase of their companies’ stock, even if they stood to gain (and how) from the process.
It’s now increasingly clear that maximizing shareholder value has led to minimizing everything else a corporation could and should do. Today, the dividend and share buybacks of our publicly traded corporations amount to roughly 100 percent of their after-tax profits; in 1972, they amounted to just 24 percent of profits. Under shareholder capitalism, both wages and investment have been starved.
A 2016 paper by Simcha Barkai of the University of Chicago’s Stigler Center found that the labor share of the national income declined by 6.7 percent between 1984 and 2014, while the amount corporations invested in new or expanded ventures also declined by 7.2 percent. The sum of those totals was redistributed to shareholders over those years, whose share of the national income rose by an almost corresponding 13.5 percent. Similarly, a study earlier this year by economists Daniel Greenwald of MIT’s Sloan School of Management, Martin Lettau of Berkeley, and Sydney Ludvigson of NYU attributed 92 percent of the rise in share prices between 1952 and 1988 to economic growth, but found that from 1989 through 2017, growth accounted for just 24 percent of the rise in the value of shares. More than half of that rise—54 percent—came from redirecting income away from employees.
This doesn’t validate Proudhon’s famous charge that “property is theft,” but it doesn’t invalidate it, either.
CLEARLY, WHAT MOVED Roundtable Chair Jamie Dimon of JPMorgan Chase and his fellow CEOs to issue their statement was the avalanche of polls documenting the growing disenchantment with them and with American capitalism generally, and the growing levels of support, particularly among the young, for unions and even socialism. The evident popularity of Bernie Sanders’s and Elizabeth Warren’s proposals for social democracy and stakeholder capitalism must have figured in as well.
If the CEOs want to demonstrate an actual commitment to stakeholder capitalism, there are some changes in the way they do business that could demonstrate good faith—changes that, in theory, the CEOs could institute by themselves or, that failing, lobby Congress to mandate. Herewith, a few stakeholder-ish suggestions:
They could cease contractually forcing their employees and consumers to forgo the courts when they have a grievance, and to instead submit their grievances to company-backed arbitration. (EPI recently reported that in five years’ time, 80 percent of U.S. employees will be compelled by their employers to go to arbitration.)
They could cease opposing their employees’ efforts to unionize—or support a law to enable workers to unionize by signing union affiliation cards, and to require binding arbitration if the workers and bosses can’t agree on a contract.
They could support the proposals of Senators Tammy Baldwin and Elizabeth Warren to enable employees to elect at least one-third of the members of corporate boards, and proposals to grant shares, with voting rights, to employee organizations within every corporation.
Simply to enumerate such particulars of stakeholder capitalism as these, of course, is to make clear how inconceivable it is that the Roundtable signatories would actually move to a stakeholder model. As was the case in the 1930s, ’40s, and ’50s, it’s stakeholders, not CEOs, who create stakeholder capitalism—and only then by driving a stake through actually existing capitalism’s heart.
