I’m not holding my breath and have never even heard of the Business Roundtable. Do you think this is a bunch of bull puckey? Could corporations have realized that income inequality may be good for them in the short term but bad for them for the long term? I doubt it but am wondering if anyone else has a more informed opinion.
They can say anything they want. Let’s see them actually do it (and prove that they’re doing it).
Also, how many of those CEO’s are volunteering to cut their own salaries to within, say, a couple of decimal places of their lowest-paid employee?
This is something that makes them feel good to say. Ever heard that Louis CK bit about giving up his first class airline seat to a service member on board? He says he didn’t actually give up his seat, but that he felt good about himself for even considering it.
Yeah, I’m not sure what they’re up to. I figure it’s nothing, but I’ll try to remember they said this if future actions are surprising. I’m happy for them that they’re enjoying themselves…
I’m not a corporate lawyer (or really any sort of lawyer), but doesn’t management hold a fiduciary responsibility to maximize shareholder return? So what happens if and when one of these CEOs does something, like give the employees a raise, or not fire a thousand people or not close a factory, and someone sues them for not looking out for the shareholders first and foremost?
Based on Jeff Immelt’s track record at General Electric I’d say he was a good twenty years ahead of the curve on that one. During his tenure GE shares lost 30% of their value and market capitalization dropped by $150 billion US.
The Business Roundtable article on Wikipedia is interesting. Some things I would consider really bad for consumers and employees back in the 1970s and 1980s. I don’t have time to look at it all right now but it appears that Jeff Bezos and Tim Cook from Apple are among the signatories of this new statement.
Not inciting a public uprising leading to laws restricting corporate earnings and so forth seems like a reasonable approach these days. Better for shareholders to get lower dividends than to have the entire stock evaporate.
They damn well better view shareholder return as the top priority. I don’t want to have to eat cat food in a few years because CEOs suddenly want to use my retirement funds to show they now feel some kind of “social responsibility”.
I believe what is driving this type of thing are the studies that show millenials include corporate behavior when they make buying decisions, much more than generations in the past.
I think our capitalist system tends to do “pendulum swings” between “shareholder value is #1” on one side and “shareholder value, happy employees and good community citizenship have equal value”. For the last couple decades we’ve been on the one side and it may now be swinging back toward the other.
My stance is that a company that values shareholders above all cost, abusing their workers and polluting their community/environment, is a company that may not last very long. It all has to find a balance.
(Quoted in the OP, not by the OPer.)
That’s not an age-old notion. It’s a fairly recent notion (for some definitions of ‘fairly recent’, as in, developed gradually over the last several hundred years.) Corporations started off, in large part, as chartered by governments to serve a specific public purpose, sometimes for a certain set period of time, and could often legally have their charters withdrawn if they weren’t serving their purpose and/or were doing damage. We’ve still got a remnant of this in the ‘incorporation’ of municipalities.
Shareholders were supposed to get profits in joint stock corporations, but this was originally a necessary tradeoff in order to get the desired purpose of the corporation accomplished.
No. Publicly traded corporations are required to have a board of directors, and the board of directors is responsible for looking after shareholder interest. They often do this poorly because they’re too cosy with the CEO and the executive management. The CEO and executive management, in theory, are supposed to look after the company’s long term prospects and its stakeholders including shareholders, customers, employees, and the surrounding community. Unfortunately, they too often spend time looking after themselves, structuring bonus schemes and then pursuing stock price gains to achieve their bonus targets. The maximisation of stock prices isn’t a corporate duty; it’s self interest. Having said that, there are many, probably most, smart and responsible CEO’s who look after their business first and trust that the market will respond if they run their companies well.
How do you feel about not being able to pay for cat food because the cat food maker has discovered he can maximize profit with higher prices?
It seems to me that you can observe a clear difference between companies that are independently owned and those that are publicly traded. Once you get the pressures of the stock market to always gain value, the company leaders slip into short-term thinking.
similarly, I don’t want to have to eat cat food in a few years because I was laid off (despite the company being profitable) so your shares can go up a quarter of a point.
Totally not my area of expertise, but I thought there was a healthy body of law consistent with this interpretation - or at least strongly supporting shareholders’ rights to sue for breaches of such duty.
I’ll ask my wife who teaches BusLaw. I seem to recall her mentioning something along those lines. (I really ought to pay more attention when she talks about her classes!) :o
Economic populists (particularly on the left but also potentially on the right) think this is how public stock companies should be run but are not particularly enthusiastic about this new Business Round Table proclamation because they doubt the CEO’s really mean it.
Free market proponents do not think this is how companies should be run, but are not despairing…because they doubt these CEO’s really mean it.
I’m in latter category, no libertarian extremist but I believe collective action for social welfare should be taken collectively, by the govt, separately from the free market system, funded by taxes on the income that system generates. Although there’s plenty of room for debate what the collective actions and level of taxation should be. CEO’s pretending they are benefactors of society OTOH are frauds, even if they do follow through on diverting the money from shareholder value*. Because it’s simply not their money. It’s the shareholders’ money. It’s up to the shareholders to contribute that money voluntary, or the body politic to decide how much of it to tax from the shareholders for collective societal needs.
*if ‘investing in employees’, environmentally sustainable corporate processes etc. are in the interest of increasing long term profit for the company then that’s more than fine. Primacy of shareholder value doesn’t mean ‘make money for shareholders now but lose it all back and then some later on because of short sightedness’. And this manifesto doesn’t even deal with short term v long term. If all the things you do boost company profit (even if perhaps only in the ‘long run’) you should still be able to say ‘shareholder value is job 1’. Which it should be. But again since relatively few people on either side of the question believe the manifesto…
I think they’re trying to get away from Dodge v Ford. That case ruled that directors are bound by shareholder interests, but directors prefer to do whatever they please. Cases in some courts have explicitly overruled Dodge. I mean if they had an actual fiduciary responsibility then how would they be able to justify high ceo pay, which doesn’t even correlate with performance, or political contributions or the pet cause of some executive?
They are trying to give themselves cover, in case Bernie Sanders or Elizabeth Warren wins the election, and they have to deal with a president whose policies are detrimental to shareholder value.