This week, the Business Roundtable put out a statement signed by 181 corporate CEOs purporting to redefine the purpose of the corporation.
The statement, which has garnered widespread praise among commentators, basically proposes to junk the idea, fashionable since the 1980s, that the purpose of a corporation is to “maximize shareholder value.” Now these captains of industry propose to have the corporation revert to something like its posture during the New Deal–Great Society era, when corporations recognized a broader duty to “stakeholders,” meaning workers, communities, and the economy as a whole.
That earlier model didn’t just happen, of course. It was the result of a power shift against capital and in favor of labor, and three decades of tough regulation.
In the press release, Jamie Dimon, CEO of JPMorgan Chase and also chairman of the Business Roundtable, is quoted as saying:
Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.
Isn’t that swell? Call me a party pooper, but I’d say: Hold the champagne.
A bit of background: The theory of “maximizing shareholder value” was always BS. It was a smoke screen for pumping up stock prices, the better to enrich executives paid substantially in stock options. The maximize-shareholder-value school also became the justification for leveraged buyouts and hedge fund takeovers, whose entire business model was to screw stakeholders.
One should always welcome deathbed conversions, I suppose, but consider who the Business Roundtable is and its role in the legislative process. The Roundtable can be counted on to oppose all regulations that require a more socially accountable brand of capitalism. They are reliably and viciously anti-union, as well as opposed to needed environmental regulation. Did you see the Roundtable oppose Trump’s $1.6 trillion tax cut for robber barons? I must have missed that.
This latest move should be seen for what it is—defensive public relations in the face of increasingly hostile public opinion. The test of good faith, of course, is not what the Roundtable says, but what it does.
JPMorgan Chase and the other big money-center banks that invented and traded toxic securities are responsible for the financial collapse of 2008; they led the lobbying to prevent regulators from doing their jobs, and still lead the lobbying to further weaken the Dodd-Frank Act. They finance vicious takeovers by hedge funds and by private equity firms. They now have more market share than they had before the collapse.
In April 2009, the aftermath of the collapse, President Obama, pleading for support from financial executives, famously told them that he was “the only thing between you and the pitchforks.”
Obama would have done much better if he had sided with the pitchforks, as FDR had done in similar circumstances. Then maybe, Obama would have been the instrument of deep reform, rather than the object of popular backlash. Maybe his party would have gained seats in the first midterm election of his presidency, as FDR’s did, rather than Obama losing a record 63 House seats for the Democrats in 2010.
What’s required of the bankers and corporate CEOs is less PR and more pitchforks. If corporate America does mend its ways, it will not be because CEOs belatedly acquire a social conscience. Reform will come because the public demands it, and Congress passes something like Elizabeth Warren’s proposed Accountable Capitalism Act.
Rather than trusting corporate CEOs to do the right thing, Warren’s legislation requires large corporations to be run in the interest of their stakeholders. One searches the Business Roundtable manifesto in vain to see if the Roundtable supports the Warren bill.
But the statement is still a very hopeful sign—because it shows that America’s business elite is running scared. It’s up to the rest of us to turn that anxiety into real reform and altered behavior.
This is not about a defensive outbreak of conscience. It’s about power. For more than four decades, America’s corporate titans have had too much power, and everyone else has had too little.
Wall Street has never reformed voluntarily, and Wall Street never will. As FDR said, rallying the people against the economic royalists, “They hate me, and I welcome their hatred.” Lyndon Johnson, speaking in a different context, put it more pungently. “If you grab them by the [private parts], their hearts and minds will follow.”