Later On

A blog written for those whose interests more or less match mine.

Socially responsible capitalism is losing

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Back in the 1970’s I recall at various business seminars the conventional wisdom about a company’s “stakeholders”: thos who benefited from (and were responsible for) the company’s success: the customers, the employees, the shareholders, and the community. The company had a responsibility to each of those.

That died. Companies now view their only responsibility is to the shareholders. Employee wages are kept to a minimum, employee benefits likewise—and if possible, employees are disguised as “independent contractors” so that no benefits are paid and labor protections are lifted. Customers are to be fleeced as efficiently as possible—for example, airline companies deliberately worsen the flying experience (tiny seats with no legroom (to encourage the payment of extra fees to get minimally better seating), no amenities that you don’t pay for, extra fees for checking luggage, more requirements that you must check luggage, beating passengers senseless to free up a seat for company employees, and so on. And the communities? Companies now feel zero loyalty to the community and shutter factories to relocate elsewhere if it even slightly improves profits.

Greed is a terrible thing, and the corrosive effect that wealth has on ethics has been demonstrated, but seldom so clearly by the wealthy Scrooges who own companies today.

Sheelah Kolhatkar reports in the New Yorker:

In December, 2015, a new startup called Juno entered the ride-hailing market in New York City with a simple proposition: it was going to treat its drivers better than its competitors, notably Uber, did theirs—and do “something that was socially responsible,” as one of Juno’s co-founders, Talmon Marco, told me last fall. In practice, that meant drivers would keep a bigger part of their fares and be eligible for a form of stock ownership in the company. But, on April 26th, when an Israeli company named Gett announced that it was buying Juno for two hundred million dollars, that changed. The merged company is dropping the restricted stock plan for drivers, and those who already hold stock are being offered small cash payments, reportedly in the hundred-dollar range, in exchange.

Juno’s founders had adopted the language of a doing-well-by-doing-good philosophy that has spread in the business world in recent years. Some call it conscious or socially responsible capitalism, but the basic idea is that any business has multiple stakeholders—not just owners but employees, consumers, and also the community—and each of their interests should be taken into account. The idea arose in response to an even more powerful principle: the primacy of investor rights. In a new book, “The Golden Passport,” the journalist Duff McDonald lays much of the blame for that thinking at the feet of a Harvard Business School professor named Michael Jensen, whose “agency theory,” developed in the nineteen-eighties, sought to align the interests of managers with those of the company’s investors. (Gordon Gekko spoke eloquently on its behalf in the movie “Wall Street.”) This alignment led to huge stock-option pay packages for top corporate managers and, McDonald argues, provided an intellectual framework that justifies doing anything (within the law) to increase a company’s stock price, whether that be firing workers or polluting the environment.

In this philosophical tension, the investors-above-all doctrine seems to have triumphed over the more inclusive approach. “I think what’s recent is maybe being so completely blatant about it,” Peter Cappelli, a professor and labor economist at Wharton, said. When American Airlines agreed to give raises to its pilots and flight attendants in April, analysts at a handful of investment banks reacted bitterly. “This is frustrating,” a Citigroup analyst named Kevin Crissey wrote in a note that was sent to the bank’s clients. “Labor is being paid first again. Shareholders get leftovers.” Jamie Baker, of JPMorgan, also chimed in: “We are troubled by AAL’s wealth transfer of nearly $1 billion to its labor groups.”

Those comments were mocked online, but similar sentiments are everywhere in the financial establishment. Both Costco and Whole Foods—whose C.E.O., John Mackey, wrote the book “Conscious Capitalism”—have been criticized by Wall Street investors and analysts for years for, among other things, their habit of paying workers above the bare minimum. Paul Polman, who, as C.E.O. of the Anglo-Dutch conglomerate Unilever, has made reducing the company’s carbon footprint a priority, recently fought off a takeover bid from Kraft Heinz, which is known for its ruthless cost-cutting.

Newer platform companies have also encountered the phenomenon. An app called Maple, which made the nearly unheard-of decision to offer health benefits and employee status to its food-delivery people, folded in recent months. Etsy, which allows craftspeople to sell their goods online, and which became known for its employee perks, has lost most of its stock-market value since it went public, in 2015; hedge-fund investors have been pushing the company to reduce its costs and to lay off employees. In the case of Juno, according to a person familiar with its operations, the founders sold the company and agreed to cut its driver stock awards because they couldn’t find new investors to finance its growth. “They were stuck from an expansion perspective, and this was what had to give,” I was told. “It came with some huge compromises.”

Many factors contributed to the troubles of these companies, but Cappelli notes how “vociferously the investment community seems to object to being nice to employees. It’s a reminder that, in the corporate world, things are constantly yielding to the finance guys—whether they know what they’re doing or not.”

This fixation on short-term stock gains is inherently unstable, Cappelli said. “The interesting thing is always to ask them, ‘What’s the value proposition for employees? Why should these people work only for the interest of the shareholders? How are you going to get people to work hard?’ ” He went on, “I don’t think they have an answer.” . . .

Continue reading.

It is the role of the government to act as a counterforce against the excesses of big business, protecting the welfare of employees (through labor laws) and of customers (through regulatory protections and oversight agencies) and of communities (by blocking inappropriate mergers and takeovers through antitrust actions). But the US government is rapidly failing, and corporations now call the shots—and the only goal of corporations is to extract as much money as possible from customers, from employees, and even from the government (with tax avoidance schemes).

Here’s a good example of (a) corporate indifference to anything but money and (b) corporate takeover of government: “How G.O.P. Leaders Came to View Climate Change as Fake Science.” That article, by Coral Davenport and Eric Lipton in the NY Times, begins:

The campaign ad appeared during the presidential contest of 2008. Rapid-fire images of belching smokestacks and melting ice sheets were followed by a soothing narrator who praised a candidate who had stood up to President George W. Bush and “sounded the alarm on global warming.”

It was not made for a Democrat, but for Senator John McCain, who had just secured the Republican nomination.

It is difficult to reconcile the Republican Party of 2008 with the party of 2017, whose leader, President Trump, has called global warming a hoax, reversed environmental policies that Mr. McCain advocated on his run for the White House, and this past week announced that he would take the nation out of the Paris climate accord, which was to bind the globe in an effort to halt the planet’s warming.

The Republican Party’s fast journey from debating how to combat human-caused climate change to arguing that it does not exist is a story of big political money, Democratic hubris in the Obama years and a partisan chasm that grew over nine years like a crack in the Antarctic shelf, favoring extreme positions and uncompromising rhetoric over cooperation and conciliation.

Continue reading the main story
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“Most Republicans still do not regard climate change as a hoax,” said Whit Ayres, a Republican strategist who worked for Senator Marco Rubio’s presidential campaign. “But the entire climate change debate has now been caught up in the broader polarization of American politics.”

“In some ways,” he added, “it’s become yet another of the long list of litmus test issues that determine whether or not you’re a good Republican.”

ince Mr. McCain ran for president on climate credentials that were stronger than his opponent Barack Obama’s, the scientific evidence linking greenhouse gases from fossil fuels to the dangerous warming of the planet has grown stronger. Scientists have for the first time drawn concrete links between the planet’s warming atmosphere and changes that affect Americans’ daily lives and pocketbooks, from tidal flooding in Miami to prolonged water shortages in the Southwest to decreasing snow cover at ski resorts.

That scientific consensus was enough to pull virtually all of the major nations along. Conservative-leaning governments in Britain, France, Germany and Japan all signed on to successive climate change agreements.

Yet when Mr. Trump pulled the United States from the Paris accord, the Senate majority leader, the speaker of the House and every member of the elected Republican leadership were united in their praise.

Those divisions did not happen by themselves. Republican lawmakers were moved along by a campaign carefully crafted by fossil fuel industry players, most notably Charles D. and David H. Koch, the Kansas-based billionaires who run a chain of refineries (which can process 600,000 barrels of crude oil per day) as well as a subsidiary that owns or operates 4,000 miles of pipelines that move crude oil.

Government rules intended to slow climate change are “making people’s lives worse rather than better,” Charles Koch explained in a rare interview last year with Fortune, arguing that despite the costs, these efforts would make “very little difference in the future on what the temperature or the weather will be.” . . .

Read the whole thing.

Written by LeisureGuy

5 June 2017 at 8:39 pm

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