Reinventing business “ethics”: How corporate honchos gave themselves cover to be as rapacious as they wanna be

Shareholder primacy

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Attention class! Here’s our word of the day: “Hegemony.” Can you say heh-jeh-meh-nee, boys and girls? The word describes a situation in which some force (a group, a creed, a strongman, an ideology, etc.) becomes the domineering power over a society. Think of a gang of schoolyard bullies. Like them, various kinds of hegemonies have arisen throughout history to rule local, national, and even global “schoolyards,” shoving other interests aside and subordinating the whole community to their will.

Today, we Americans (and indeed, most people around the world) are facing an especially virulent, plutocratic version of this overbearing power. It’s called Shareholder Hegemony.

Cartoon by Brian Duffy
Cartoon by Brian Duffy

Never heard of it? No surprise. It is rarely mentioned by the mass media, not taught in our schools, and politicians almost never it bring to public attention. Also, it can’t be seen, for it’s not an incarnate hegemony, like an emperor, church, cartel, or occupying army. Rather, it’s an ideological concept, really nothing more than a figment of the corporate imagination. And yet, during the past three decades, it has become the preeminent force shaping everything from economic and political inequality to global climate change and your civil rights.

Shareholder hegemony is a doctrine asserting that the first, foremost, and only moral obligation of corporate executives is to maximize the profits of their shareholders. Absurd? Yes. What about customers, workers, communities, suppliers, the environment, the nation, the common good, and all the other legitimate interests directly impacted by corporate decisions? “Not our problem,” the proponents say, “for our strict duty is to do whatever it takes to make as much money as we can for those who own our stock—everyone else be damned.”

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This grotesquely shriveled ethical standard has been fabricated and foisted on us by a tiny group of insiders who comprise what amounts to a cult of Machiavellian corporatists. They number only a few thousand people, including CEOs, board members, in-house lawyers, Wall Street money managers, lobbyists, right-wing think tank ideologues, and business school deans. Yet, collectively, these elites have become the formulators and promulgators of the corporate order that now dominates our nation of 323 million supposedly sovereign people.

The recent ascendancy of corporate supremacy in America is not happenstance. It has come over us incrementally during the past 30 years or so by the deliberate design of moneyed interests. Key to their steady rise has been the corporate cult’s use of rhetorical flimflammery to make our society accept their fantastical “shareholder über alles” tale as something real, something we should believe and adopt as a core governing principle.

Their big breakthrough came in 1970, when their ideological mumbo jumbo received a veneer of academic legitimacy from the University of Chicago’s reigning guru of laissez-faire economics, Milton Friedman. He embraced shareholders-above-all as an absolute truth: “Do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible?” he asked, before he answered unequivocally, “No, they do not.”

It’s the law

Surely Friedman snickered when he added that sly qualifier “provided they stay within the law.” As we’ve all learned, corporations write the law, routinely dumping millions of dollars a year into lobbyists, lawyers, legislators, and judges to ensure that the definition of what’s legal will stretch like a giant prophylactic over practically any corporate sin.

Indeed, in an amazing demonstration of the cult’s manipulative magic, by the mid-1990s it had elevated its shareholders-first postulation into such widespread public use that it was perceived as law: Enough professors, CEOs, lobbyists, reporters, et al. had repeated the phony notion of shareholder primacy so often and so emphatically that they managed to weasel it into America’s vast and vacuous trove of conventional wisdom.

Not only had they created a lie that wouldn’t die, but they beefed up its hegemonic punch by proclaiming that corporate managers are legally bound to act to harm workers or any others if those actions financially benefit shareholders. Even many progressives were caught up in the powerful riptide of this “legal obligation” excuse. Watchdog Ken Jacobson notes in a 2012 Alternet article that our solidly progressive friend, Sen. Al Franken, hornswoggled by the corporate claim, once declared: “It is literally—literally—malfeasance for a corporation not to do everything it can to maximize its profits. That’s a corporation’s duty to its shareholders.”

Subsidizing malfeasance (with your taxes!)

Headlines periodically blare that this regulator or that has imposed a jaw-dropping assessment on some corporate criminal … [read more]

In fact, there is no legal basis for ranking stock prices and corporate owners above any other interest. No national law requires it, nor does any state law. More tellingly, not even one corporate charter has been found that so much as mentions a duty of executives to increase stock prices to maximize stockholder profits. To the contrary, until the 1970s, when the cultists started pushing their radical (and ridiculous) model of “shareholder capitalism,” a more humble corporate culture preached and practiced “managerial capitalism,” to balance the drive for profits with the needs of various other constituencies. Jacobson cites a 1943 “credo” penned by Robert Wood Johnson, founder of Johnson & Johnson, designating five groups to be served: Customers were first, workers second, managers third, and communities fourth. Shareholders, he declared, were the “fifth and last responsibility” of the company.

Johnson also wrote that, while “business must make a sound profit,” much more is required from corporate executives:
“We must be a good citizen—support good works and charity, and bear our fair share of taxes. We must maintain in good order the property we are privileged to use. We must participate in the promotion of civic improvement, health, education, and good government…”

In another excellent report on the fallacy of shareholder supremacy, written two years ago for The American Prospect, business journalist Steven Pearlstein noted the abrupt shift that the Business Roundtable had made in its definition of corporate responsibility. In the 1980s, the Roundtable (a lobbying collective for large US corporations and banks) formally recognized the important “symbiotic relationship” that the corporate community enjoys with the larger community from which it benefits. The group publicly acknowledged the “responsibility” of corporations to provide “first of all” quality goods and services at fair prices, as well as providing jobs and building the economy.

By 1997, however, the Roundtable’s statement of corporate purpose withered from serving the public good to serving shareholders alone. Singing from Friedman’s one-note hymnal, the group decreed: “The principal objective of a business enterprise is to generate economic returns to its owners.” As for everyone else: Adios, chumps.

Shareholders made me do it

What we have here is a massive and pernicious corporate fraud, perpetrated in the name of common shareholders, but that is, in fact, aimed at enthroning avaricious corporate executives as America’s true sovereigns. “Shareholder primacy” is nothing but a naked power play, a fictional construct to rationalize the most selfish, anti-social behavior of profiteering corporations.

Want to offshore middle-class jobs? Bust unions? Gouge consumers? Crush small businesses? Swindle poor people? Poison a town’s water or Earth’s climate? Cut your taxes to zero? Abandon communities? Steal elections?

Corporate officials are doing all of these things to us every day, but by enshrouding their devious ploys in the fog of our culture’s conventional wisdom and by inventing the ethical imperative to maximize shareholder profit, they’ve given themselves cover to be as rapacious as they wanna be. “Yes, it has some unfortunate consequences,” the barons say of any particular perfidious act, “but our fiduciary obligation mandates such actions.”

This turns America’s sense of justice topsy-turvy. Prosecutors, legislators, and the media are condoning destructive corporate actions when the “shareholders-made-me-do-it” legal defense isn’t actually in the law.

This is an immoral scam of, by, and for the 1-percenters (and particularly the multi-millionaires dwelling in the rarified air of the top tenth of 1-percenters). The concept of shareholder hegemony is intended to rig the system for them and against middle-class and poor people. For anyone who wonders what’s behind our society’s ever-widening chasm of inequality, here it is: the intellectual framework for imposing corporate and public policies that enrich the few by directly impoverishing the many.

But wait [ALERT: SHOCKING REVELATION COMING UP]–the term shareholder hegemony is itself a fraud. The vast majority of shareholders have no power at all over the decisions of corporate officials. None! Maybe you own a bit of stock through a mutual fund or pension plan, but a mosquito in the boardroom would get more attention from the bosses than you. The idea that shareholders form the bulwark of “corporate democracy” is a hoax. In fact, in 2014, some 45 percent of Americans owned zero stock in any form, and the vast majority of those who do own stocks exercise no control over corporate decisions.

The only shareholders who actually matter are (1) huge institutional investors, (2) manipulative global speculators, and (3) hedge-fund raiders holding billion-dollar stakes in a company. Oh, and there’s one more group that matters most: a corporation’s top executives and board members. Their gluttonous paychecks, bonuses, and perks are almost entirely based on the price of the company’s stock. So their primary financial incentive is to inflate the stock price by any means necessary, including cutting wages, firing workers, hiding profits in Cayman Island tax havens, defrauding small investors, and otherwise jacking up the value of their own stocks by afflicting pain on others.

Thus, “shareholder” hegemony is actually a hegemony of executives, directors, and big investors who are perverting the whole economic system to cause our society’s rivers of income and wealth to flow uphill into their coffers. Adding to the irony, the insiders who promote the fiction of shareholder primacy have simultaneously built walls, moats, and barricades around their fiefdoms to keep shareholders at bay and prevent the putative “owners” of the corporation from having any substantive impact on how, and for whom, it is run. See, for example, how furiously they fight to prevent shareholders from having any say in how much the CEO is paid.

The corporate cult has “fixed” our economic and governing systems in the same sense that veterinarians use the term—they have neutered the rightful power of the people themselves to be sovereign over (or at least to have a meaningful say in) the decisions that affect their lives. So let’s admit where we are: America, the Land of Opportunity, is presently a land ruled by opportunistic plutocrats.

Bosses behaving badly

Corporate World has never been a pristine place. After all, no matter how well manicured a CEO is or what product the corporation is peddling, the work comes down to grubbing for money. Lots
and lots of money. And there have always been rascals at the top willing to run over anyone and any law to grab an extra dollar bill.

But it’s no longer a matter of some rogues in the system skimming, stiffing, and otherwise stealing from workers and customers. The system itself has gone rogue. The self-bestowed imperative to maximize stock prices at all cost has radically warped executive suite ethics, scrapping what Pearlstein calls “norms of behavior that once restrained the most selfish impulses of economic actors.”

THE BRAT. Martin Shkreli, the 32-year-old former CEO of Turing Pharmaceuticals, is such an arrogant, creepy, self-serving narcissist that even Donald Trump called him “a spoiled brat.” Shkreli launched Turing last year, but rather than developing new medicines, he simply bought the rights to Daraprim, a 62-year old, effective treatment for a parasitic disease that can be fatal to fetuses and patients with HIV and cancer. Shkreli’s only improvement to this life-saving drug was to “enhance” the profit he could extract it. How? By abruptly increasing its price by 5,000 percent—from $13.50 per pill to $750! Public outrage at this over-the-top greed erupted worldwide, but the brat blithely said that if given a do-over: “I probably would have raised the price higher,” explaining that, “my investors expect me to maximize profits.”

Disgusting, yes, but give Shkreli points for candor. The soulless punk is only doing what the chieftains of most mainline, brand-name corporations are also doing without broadcasting it—namely, supplanting America’s democratic commitment to “we” with their ignoble ethos of “me.” As a result, bad executive behavior is no longer shocking; rather, it’s the ordinariness of corporate nefariousness that is so stunning these days.

Even more stunning than the daily parade of malfeasance is the attitude of Rich People’s Entitlement that fuels it, such as:

  • Pfizer Pflees America. To dodge paying taxes to the country that has nurtured its success, the drug giant recently moved its corporate domicile to the notorious tax haven of Ireland. Of course, its executives will remain headquartered in the good ol’ USA to take advantage of the tax-supported benefits they enjoy here. It’s a case of Pfizer pfleecing the American people in order to further enrich its big shareholders (which notably include the scurrilous top executives who plotted the scam).
  • Big Oil Fracks Democracy. Nearly 60 percent of voters in Denton, Texas, supported a 2014 people’s initiative to ban any more drilling of destructive fracking wells in their city limits. No worries, though—last year, Exxon et al. simply got Gov. Greg Abbott and the gutless Texas legislature to suspend democracy by retroactively preempting (think about that convoluted concept!) the right of local citizens to “interfere” with frackers. Abbott, richly funded by Big Oil and other moneyed powers, declared that the state must prevent the people’s democratic authority from infringing on a corporation’s right to profit.
  • Georgescu to the Rescue! Peter Georgescu, the former head of one of the world’s largest corporate advertising empires, is rallying billionaires to reverse income inequality in America, fearing that “social unrest” could (horror of horrors) lead to “oppressive taxes” on the superrich. To avert that, he proposes that CEOs start paying decent wages. But, alas, he concedes, few will do this, because it would cut into shareholder profits. So Peter, a bold thinker, is a man with a plan to loosen the corporate purse strings: Have government provide subsidies to corporations so they can pay more to workers.
  • Not COOL. Corporations aren’t called special interests for nothing. When such oligarchic meat packers as Tyson Foods were unable to stop Congress from passing (and our courts from approving) COOL—the country-of-origin labeling law that tells consumers where their meat comes from—they ran off to a very special, corporate-run tribunal set up by the World Trade Organization. Sure enough, this kangaroo court (unavailable to consumers, farmers, and other people’s interests) decreed last year that COOL was a “technical barrier” to free trade, so the US either had to repeal the law or face billions of dollars in trade sanctions. Just before Christmas, Congress and the White House repealed COOL, meekly surrendering to what is, in effect, a corporate claim of sovereignty over the will of the people.

This hegemony of corporate profiteers is crushing the life out our democratic ideals. An ethos of “anything goes” now rules at nearly all major corporations, and those self-enriching princes of plutocracy are extending their unethical and hegemonic control over the rest of us. Greed has taken America’s true ethics prisoner, and moneyed elites now call the devil “partner.” That’s the core immorality that we progressive populists must defeat.

Do something!

Here are two good reads that flesh out the intellectual shenanigans behind the rise of “shareholder hegemony.” Share what you learn with friends and neighbors!

  • “When Shareholder Capitalism Came to Town,” by Steven Pearlstein, in The American
    Prospect ( Pearlstein, a Pulitzer Prize-winning columnist for The Washington Post, traces the notion of shareholder primacy back to its roots—and digs up the fraud.
  • In “The Myth of Shareholder Capitalism,” two business school profs note that in a survey of 34 corporate directors (each of whom sits on an average of six Fortune 200 boards), 31 “said they’d cut down a mature forest or release a dangerous, unregulated toxin into the environment in order to increase profits. Whatever they could legally do to maximize shareholder wealth, they believed it was their duty to do.” The authors decry, “the election of directors who, frankly, don’t know what their legal duties are.” Nor their moral ones.

I’m making moves!

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