Tuesday, August 20, 2019

Seductive Questions

     Certain questions have a terrible power about them. They can stop the mind of him who confronts them. That derives in part from the questions themselves, but in equal or greater measure from the context in which they’re posed. Not all questions are proper in all contexts.

     Here’s a Wall Street Journal article that creates a context for such questions:

     The leaders of some of America’s biggest companies are chipping away at the long-held notion that corporate decision-making should revolve around what is best for shareholders.

     The Business Roundtable on Monday changed its statement of “the purpose of a corporation.” No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said. Rather, corporate leaders should take into account “all stakeholders”—that is, employees, customers and society writ large.

     It is a major philosophical shift for the association, which counts the chief executives of dozens of the biggest U.S. companies as its members. The group, led by JPMorgan Chase & Co. CEO James Dimon, is a powerful voice in Washington for U.S. business interests. It represents a broad swath of American industry, counting among its members the leaders of technology giants and manufacturing companies, airlines and institutional investors, to name a few.

     The Business Roundtable’s old statement of purpose espoused economist Milton Friedman’s decades-old theory that companies’ only obligation is to maximize value for shareholders.

     “Each of our stakeholders is essential,” the new statement says. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

     It all sounds quite noble, doesn’t it? Though it approaches hubris to differ with Milton Friedman, one of the Twentieth Century’s few genuine geniuses. But here come the unpleasant questions:

  • Who identifies those “stakeholders” and by what criteria?
  • Who determines the priority order of those “stakeholders?”
  • Who determines when some “stakeholder’s” claims have been adequately addressed?
  • Is that prioritization absolutely rigid – i.e., the higher must be fully satisfied before the lower may be addressed at all – or flexible?
  • What effect on the answers to the above questions might arise from the passage of time?

     He who must answer those questions swiftly realizes – or reveals – what the proposed shift from stockholders to “stakeholders” is really about: power.

     Think about that for a moment while I fetch more coffee.

     Allow me, yet again, to quote the great Herbert Spencer:

     A blade which is designed both to shave and to carve, will certainly not shave so well as a razor or carve so well as a carving-knife. An academy of painting, which should also be a bank, would in all probability exhibit very bad pictures and discount very bad bills. A gas company, which should also be an infant-school society, would, we apprehend, light the streets ill and teach the children ill. [From Spencer’s essay “Over-Legislation”]

     Brilliant and perfectly apposite. The more “purposes” one attempts to assign to a “living machine” such as a corporation, the less well it will serve any of them. It will be riven by internal conflicts over resources, the roles of critical personnel, trade-offs that arise among the contending priorities, and other factors that will arise as time passes. You can’t find one single analyst who would dispute the inevitability of that dynamic, even among those such as Dimon who argue for the dilution of corporate priorities. So what’s the real point?

     Well, in a hierarchical organization, which is the inevitable structure of a for-profit corporation, someone, or some entity, must have the authority to resolve those conflicts. And of course, that same entity would necessarily decree the answers to the five questions posed in the previous segment. Any attempt to separate those authorities would result in the emergence of a still higher authority empowered to settle the conflicts among them. Yes, really.

     Power, both inside and outside the corporation, is the whole point. The corporate form was devised to make it possible to pursue a single objective: material gain for the stockholders. As long as that remains the case, the performance of the corporation’s hierarchy can be accurately judged by the Board of Directors, which has that as its sole responsibility. But with the defocusing suggested in the WSJ article comes a diminution of the Board’s authority, and therefore a transfer of the ultimate authority from the stockholders to other persons...persons unlikely to have the stockholders’ interests at heart.

     So how does that noble-sounding shift from stockholders to “stakeholders” sound now?

     At this point a range of objections intended to confuse the issue erupts from the “social-justice warriors.” The more rhetorically skilled among them ask seductive questions that begin with “But aren’t there” or “But don’t you think.” The objective is to lure the businessman into making statements about “other priorities,” at which point the SJW will declaim that “important institutions” (i.e., corporations) have a “responsibility” to attend to them. The more aggressive ones await the replies, then immediately and viciously denounce anyone who dares to deviate from the SJW gospel. And of course, now and then there’ll be disruptions and violence.

     The questions have a single, all-embracing answer:


     A for-profit corporation has no responsibility other than to its owners. It must remain within the law, but apart from that it need only satisfy those who own it: its stockholders. Their representatives on the Board of Directors periodically judge the corporation’s performance and adjust its management accordingly. The stockholders’ decisions to buy or sell their stock constitute their verdict on the corporation’s future.

     That valuable movie Other People’s Money provides a glimpse at a more extended rejoinder:

     Other organizations exist to pursue priorities other than material gain. There are plenty of them. Persons more concerned with those other priorities should put their attention, their efforts, and their money elsewhere. That, of course, runs counter to the Left’s overriding objective, which is the politicization of everything.

     Dismiss the seductive questions. Insist upon the corporation's one original, wholly moral, easily understood purpose. Don’t let the Left pervert corporate America. You wouldn’t care for the consequences, especially if you’re a stockholder!


Paul in Boston said...

I saw the WSJ article and immediately thought of Ann Rand’s “Atlas Shrugged” where all the big corporations have been run into the ground by exactly the same thinking. She was at least as prescient as Milton Friedman, possibly earlier.

You are absolutely correct in stating that the purpose of all this is to inject politics into every decision, at which point every decision becomes a lie.

Lurking Reader said...

That is why "America First" is so abhorrent to SJW's and Globalism.