For today's Common Good Forum, we invited our board member Benjamin Palumbo to write about the culture of corruption that has permeated through corporate America. He argues that a new business elite has established a new commandment that guides so much of corporate decision making today: "maximize thy shareholders' value."
James Madison once said: “if men were angels, government would not be necessary.”
In early August, the latest Wall Street Journal/NBC poll was released: a real downer. It reflected great uneasiness about the current status of the US, substantial economic anxiety, and overwhelming concern that the future prospects of the nation’s children are bleak. By a significant margin, the respondents placed the blame on Washington and both political parties. But the truth is this: The responsibility lies not in D.C. but elsewhere. It rests with those corporate chieftains whose recklessness and indifference have brought us the economic havoc, injustice, and hardship which led to the terrible poll numbers. These corporate “leaders” have proven James Madison right. And the battles in D.C. are between those who serve these so-called leaders and those who believe in Madison’s analysis of the nature of man.
But why has our corporate sector acted so badly? Why the colossal selfishness? Why the growing inequality so emphatically denounced by Pope Francis and of great concern to us at Catholics in Alliance for the Common Good and so many others? I believe the answer can be traced to the arrival, as if from on high, of something I call “The New Commandment”. Here’s why:
My dad was an altar boy in the North End of Boston. He graduated from Boston College, a Jesuit university. I did not attend a Catholic school but learned about the faith after school in catechism classes. My three sons attended Catholic high schools, and one went on to St Joseph’s in Philadelphia, another Jesuit university.
Of course over the years there were occasional discussions about lessons learned in the various Catholic religious classes or instructions we attended. But never did they include anything about this powerful new commandment that today seems to be the dogma guiding the corporate world: The chief responsibility of corporate management is to enhance shareholder value. Imagine that. Instead, we were taught: “thou shalt not kill” and “thou shalt not steal” and “thou shalt not bear false witness.” We did learn that the greatest commandment is “Thou shalt love the Lord thy God with thy whole heart, thy whole soul and thy whole mind, and the second is thou shalt love thy neighbor as thy self”; and, we did learn, “When you did this to the least of my brethren, you did it to me”. But about the commandment to enhance shareholder value, we were taught nothing.
Where did this new commandment come from? Was there an event similar to Moses on the mountain receiving the sacred Ten? No, there wasn’t. Did a great prophet (not profit) preach it from a mount, such as that on which Jesus taught us how we treat one another? No, that didn’t happen either. In fact, as Jia Lynn Wang wrote in the Washington Post on August 26, 2013, there is “…no statute in state or federal law requiring corporations and executives to maximize shareholder value.” So it did not come from our secular legislatures either. No, this commandment was given to us by Professors Michael Jensen of the Harvard Business School and William Meckling of the Simon School at the University of Rochester in a paper published in 1976 entitled, “A Theory of the Firm: Governance, Residual Claims and Organizational Forms.” Wow! Holy writ from business school heaven.
The new commandment to enhance shareholder value was repeated over and over again, sinking into the public consciousness, until it was fully embraced in 1997 by The Business Roundtable with the kind of fervor only devoted disciples could demonstrate. As reported by Wang: “It (the Roundtable) stated that the principal objective of a business enterprise ‘is to generate economic returns to its owners…’”
Clearly this new commandment is not a guide for how to do justice to all touched by a corporation’s activity. It is not a prescription for fairness. It is not a call to embrace the community. It is not a reminder that we are our “brother’s keeper”. It does not tell us to “do unto others as we would have done to ourselves”. It does not echo the words of Ebenezer Scrooge’s late partner, Jacob Marley, after Scrooge told him “But you were always a good man of business”, to which Jacob Marley’s ghost emphatically but mournfully replied: “Mankind was my business”. No. This commandment is permission for corporate management to do exactly the opposite. Just think through its implications. Management now has an excuse, indeed an incentive, to:
- Ignore the needs of their workers by sending their jobs overseas, cutting their pensions, manipulating their hours to avoid providing health care, fighting the existence of unions with all their potential counter-weight, demonizing an increase in the paltry minimum wage millions are paid who, in turn, cannot pay for necessities;
- Ignore the needs and safety of their customers, workers and fellow citizens by both fighting and ignoring laws and regulations to insure the safety of products and the working environment: think General Motors’ faulty switches, the Upper Big Branch Mine deadly disaster in W. Va., past salmonella outbreaks from tainted uninspected food and the report in the Washington Post just this week of the inability of the FDA to certify the safety of literally thousands of additives in our foods; the proliferation of deaths by guns and rejection by the gun manufactures’ mouth-piece, the NRA, of safe guns, and illnesses linked to air and water pollution;
- Ignore their responsibility to share the burden of financing the government by pursuing every option, from tax subsidies, to tax avoidance schemes, to mergers with overseas companies so as to be taxed at lower rates even though the bulk of their customers and facilities are in the U.S. Note the recent report about Walgreen’s attempt to change its incorporation to Switzerland to avoid U.S. taxes after receiving millions in incentives from its home state of Illinois, and receiving billions of dollars from their fellow U.S. taxpayers annually in the form of Medicare payments for its prescription drugs. Walgreens was shamed into abandoning this action, but almost a dozen other U.S. companies—Medtronic and Chiquita Bananas for instance - have decided to abandon their obligations to the country that nurtured and protected them, for they have no shame because they are “enhancing shareholder value”;
- Ignore the financial security of their fellow citizens by fighting mightily to weaken the agencies which protect those citizens, like the Securities and Exchange Commission and the new Consumer Financial Protection Bureau. Think of Bernie Madoff and the people he robbed; think of the $13 billion fine levied against JPMorgan, the $16 billion fine levied against Bank of America, and other huge fines levied against the “too big to fail” financial giants who devastated the lives of millions of their fellow Americans, brought us to the brink of another Great Depression, successfully sought the help of the U.S. taxpayers, and now react with anger at any effort to rein them in and prevent another catastrophe.
Now contrast the passes given to the financial titans with this case uncovered by The Southern Poverty Law Center. Richard Van Horn, age 60, of Alabama, was laid off in 2012 after four years on a job and unable to find steady work, caring for an infirm wife, stepdaughter and her one year old infant, and was unable to pay the trash bill for three months for the rental property in which he and his family were struggling to survive. He was charged with a misdemeanor. Despite the fact that such a charge carries no jail time, he was indeed jailed and required to put up a $500 bond for release. Naturally, he could not afford that, so he faced the prospect of almost two months in jail before his court date, with no one able to care for his wife. When the SPLC learned about this atrocity, their lawyers went to work and rescued Van Horn. So there you have the contrast: the privileges enjoyed by our corporate elite—billions of dollars in fines for ruining the lives of millions of people but no indictments or prosecutions—and months of jail time for some poor guy willing to work but unable to find a steady job leading to inability to pay a paltry trash fee. Thank God for the SPLC whose attorneys rescued Van Horn, whereas Dimon and the rest are rescued by an economic system flagrantly skewed in the direction of “The Masters of the Universe”.
The actions described above have resulted from the worship of the new commandment to “enhance shareholder value”; and, these actions have been abetted by 5 members of a U.S. Supreme Court seemingly in love with the idea of corporations having the same rights as real human beings, the latest being religious rights. The court seems anxious to replicate God’s feat of creating human beings, only the real humans being harmed by this court do not live in a Garden of Eden.
So who benefits from the new commandment? Certainly not workers whose wages have remained virtually stagnant for years. Perhaps the clue to the real beneficiaries lies in the make-up of the huge CEO compensation packages we read about, which include huge awards of shares. Is it not conceivable that the shareholder value which they are most concerned to “enhance” is their own? And is this question not appropriate: If corporate management is so concerned about shareholders, why is it that they fight with all their might to beat back any attempt by shareholders to enhance their influence over the management of the company?
This is the reality: Corporations are not human beings, therefore they have no consciences. The people who run them are human beings, but this new commandment has given them license to ignore their consciences. The effectiveness of the new commandment has been tested and the results have been disastrous for everyone except the corporate chieftains who religiously abide by it.
Washington’s political parties can continue to fight it out to a standstill, as has been the case until now. But unless there is a return to an ethos that requires our corporate decision makers to put the common good first, those at the top will enjoy ever fatter compensation, and the rest of their fellow Americans will experience ever increasing hardship.