...headlines in New York Times by Gelles and Yaffe-Bellany (2019), and in the Wall Street Journal by The Editorial Board (2019)
This new proclamation from Chief Executives of the Business Roundtable fits within the general realm of the change in frame perhaps needed in business and industry in order to deal with the Failures of Capitalism (see Why Liberalism Failed). This need to better balance the focus fits nicely with the list from the Blog on Sociopaths (i.e., extreme focus on profits-only for shareholders and Corporate Executives) wherein we cited Sorkin (2019), who pointed to a Jamie Gamble (Corporate Lawyer) suggestion for new governance rules for Businesses in the Market (and, we might add, for politicians, bureaucrats and appointees in Government):
should “adopt a binding set of ethical rules, approved by stockholders (and, we might add voters) and addressing the key ethical dimensions of corporate (and government) life” including:
■ Their “relationships with employees.”
■ Their “relationships with the communities in which they produce and sell.”
■ Their “relationships with customers.”
■ Their “effects on the environment.”
■ And their “effects on future generations.”
This new proclamation by the Business Roundtable focuses on the Stockholders themselves, i.e. too much focus on strategies that increase income and wealth for the stockholders without enough attention paid to employees, customers, communities (present and future), and the environment. Gelles and Yaffe-Bellany (2019) point to how Corporate Executives in attendance "... pledged to compensate employees fairly and provide “important benefits,” as well as training and education. They also vowed to “protect the environment by embracing sustainable practices across our businesses” and “foster diversity and inclusion, dignity and respect.” ... It was an explicit rebuke of the notion that the role of the corporation is to maximize profits at all costs — the philosophy that has held sway on Wall Street and in the boardroom for 50 years. Milton Friedman, the University of Chicago economist who is the doctrine’s most revered figure, famously wrote in The New York Times in 1970 that “the social responsibility of business is to increase its profits.”...This mind-set informed the corporate raiders of the 1980s and contributed to an unswerving focus on quarterly earnings reports. It found its way into pop culture, when in the 1987 movie “Wall Street,” Gordon Gekko declared, “Greed is good.” (see Blog page herein about Excessive Greed) More recently, it inspired a new generation of activist investors who pushed companies to slash jobs as a way to enrich themselves. .... “The ideology of shareholder primacy has contributed to the economic inequality we see today in America,” Darren Walker, the president of the Ford Foundation and a Pepsi board member, said in an interview. “The Chicago school of economics is so embedded in the psyche of investors and legal theory and the C.E.O. mind-set. Overcoming that won’t be easy.”
This mindset from Chicago School representations of Neoclassical Economics (Microeconomics Framing and Single Interest Theory) needs to be replaced by Metaeconomics Framing and Dual Interest Theory (See Main Website). Metaeconomics teaches (and demonstrates in empirical research) that the Self-interest needs to be Tempered, hopefully through Self-governance and Self-control by the Corporate Executives themselves, with the shared Other-interest ... shared with employees, customers, suppliers, stockholders, communities (present and future), and, yes, with the environment on this Spaceship Earth... influencing choices. And, when Nudging of this sort (in this case by the Corporate Executives themselves, as represented in the Business Roundtable) does not work... Self-governance and Self-control fails to dampen the excesses in the Market... then Regulation and Law in Government becomes essential. As Lahart (2019) says it, "An environment in which companies face growing skepticism over the morality of big business certainly has something to do with the stakeholder focus." Metaeconomics points to the need to put attention to the Moral Dimension.
Maybe more Corporate Executives will also, someday, recognize the Moral Dimension as it pertains to problems caused by excessive CEO compensation, too? This could be the ultimate in re-framing, to think in terms of Tempering Self-interest in CEO pay? (See Blog herein on the $70000 Minimum Wage and Income and Wealth Inequality as a Public Health Problem )
So, would paying more attention to all stakeholders, and, even perhaps tempering Corporate Executive compensation packages, which really is about a Business Ethic in the Moral Dimension, and is about nudging the business environment toward a Good Capitalism, appease the "Socialists?" According to The Editorial Board (2019), moving on a shared Ethic to find more balance in how employees, customers, suppliers, shareholders (company owners) and the larger community, the latter including the environment, are considered in business choice is a move to socialist framing. As the Board would have it:
There is .. more than a whiff of pre-emptive politics here. The executives—the Business Roundtable is led by JPMorgan CEO Jamie Dimon —know they are political targets.
They see socialism on the rise, with Senator Elizabeth Warren proposing to redefine corporate governance in law with explicit direction to serve “stakeholders.” Her goal is to redirect corporate capital to serve political goals favored by unions, environmentalists and trial lawyers. The CEOs no doubt want to get out in front of this by showing what splendid corporate citizens they are. ... Yet these CEOs are fooling themselves if they think this new rhetoric will buy off Ms. Warren and the socialist left. It may even embolden them by implying that corporate rules that require a focus on achieving value for shareholders are somehow morally insufficient. The Roundtable CEOs may be selling Ms. Warren the political rope to hang them.
This kind of rhetoric points to how historically, in the US, the word "socialism" and labeling Progressives as "socialists" has been used to put a dark frame on anything that might lead to a more Tempered (recognizing the need to rein in the excesses) and potentially a Better, if not a Good Capitalism. Metaeconomics suggests this would come from a kind of Empathy based Other(shared with all stakeholders)-interest working to temper the more primal Ego based Self-interest which tends to lead to excesses (it is in our DNA!). That is, with everyone sacrificing a bit in the domain of Self-interest in order to achieve some gain in the shared Other-interest, we enhance the potential for everyone becoming better off (path 0Z with balance rather than the extreme Greed path 0G or what could be deemed by some a more "socialist" path 0M). Metaeconomics suggests not using labels to put fear into business leaders, and voters, but rather to ask the empirical question about the role of Business Ethics, Balance, and the Moral Dimension in building a truly sustainable, viable Good Capitalism.
That is, Metaeconomics suggests that what in most cases is being framed as "socialism on the rise" is rather about re-balancing the Capitalism System. This appears to be what CEO Dimon is saying, a re-balancing to include payoff for all the stakeholders, which holds the potential for building a truly sustainable system for all Travelers on this Spaceship Earth writ large. Like The Editorial Board (2019) says, Corporate Executives, the CEOs, need "... to defend the morality of free markets as the greatest source of prosperity for the most people in human history." This will be far easier if the Markets are truly sensitive to the Moral Dimension shared with all the stakeholders.
Gelles, D. and Yaffe-Belanny, D. Shareholder Value is No Longer Everything, Top C.E.O.s Say. New York Times, August 19, 2019.
Lahart, J. The Rise of 'Stakeholders' Isn't So Sudden. Wall Street Journal, August 20, 2019.
Sorkin, Andrew Ross. "An Idea: Rein in ‘Sociopaths’ in the Boardroom." New York Times, Section B, p. 1, July 28, 2019.
The Editorial Board. The ‘Stakeholder’ CEOs: Executives Who Abandon Shareholders Won’t Appease the Socialists. Wall Street Journal, August 19, 2019.