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Fanfare Over Business Roundtable’s Commitment to Responsible Leadership Undercut by Investors

September 29, 2019

This morning’s NYTimes features an article by business writer David Gelles titled “The Week CEOs Got Smacked“, a recounting of the decision of boards of directors to fire some of the leaders from the Business Roundtable who advocated corporate responsibility. I read this article on the heels of watching the Netflix Documentary “American Factory“, a clear-eyed look at the trade-offs necessary if our country hopes to re-enter the manufacturing marketplace given the current political and corporate governance structure. That governance structure is controlled by a small group of plutocrats who explicitly set government policy in China and Russia and have an increasingly large voice in setting government policy in our country. I have long believed that both economic systems are regressing toward a mean where a small group of shareholders of borderless corporations and autocratic governments control the remainder of the global workforce. This perspective makes me want to strengthen democracy in hopes that our elected officials will create a government that will develop regulations that assure corporate responsibility.

China’s de facto form of economic control is best described by the term “command capitalism”, which is defined in a 1998 book by J. L. Porket here,  The current US economy is best described as “state capitalism”, which is defined by Wikipedia here. Neither of these systems has a place for corporate responsibility and neither has a place for democracy.

Porket’s description of “command capitalism, as noted above, was written in 1998— before the advent of Big Data and before China emerged as the economic powerhouse that it is today. One section of Porket’s analysis of the inherent flaws of command capitalism should be re-examined. He suggests that the government cannot exert full control over the economy because “...at least some information received by it is insufficient, incomplete, unreliable, inaccurate and distorted.” With todays trove of data and the ability to synthesize that data to identify consumer tastes and trends, the government may be able to exert near full control over the economy. Moreover, as the American Factory movie illustrated, the lack of opportunities for unskilled labor in the US is compelling our country to accept the wages, hours, and working conditions that exist in China in the name of “efficiency” and profit.

At the same time, our country is increasingly beholden to a faceless group of “shareholders” whose insatiable demand for profits drives corporate and government policy. This section of the Wikipedia definition of “state capitalism” describes my perception of where the US economy stands:

Noam Chomsky, a supporter of libertarian socialism, applies the term ‘state capitalism’ to economies such as that of the United States, where large enterprises that are deemed “too big to fail” receive publicly funded government bailouts that mitigate the firms’ assumption of risk and undermine market laws and where private production is largely funded by the state at public expense but private owners reap the profits.[11][12][13] This practice is in contrast with the ideals of both socialism and laissez-faire capitalism.[14]

Chomsky’s description of the economy is captured in the aphorism that in our economic system today “corporate leaders pocket profits while taxpayers cover the costs of risk”. In the movie, Fuyao Glass received $10,000,000 from the taxpayers in Dayton Ohio to bring 800 jobs to the area, which sounds like a large number until that is compared to the 2000 jobs that GM provided… and sounds even worse when views learn that the new jobs pay $14/hour, roughly half of what GM workers received.

American Factory describes the course we are on… one where the need to reward shareholders exceeds the need to retain a civil democracy where the pursuit of happiness is differentiated from the pursuit of money or, as is increasingly the case, the pursuit of survival.

How can we change direction?

On the governance level, we need corporate leaders to stay the course of the direction of the Business Roundtable and, ideally, advocate that all corporations adopt the B-Corp principles that place employee well being in the forefront of their mission.

On the political level, we have to place a higher value on the “pursuit of happiness” and a lower value on the pursuit of material well being. In the framework described by Arthur Brooks at a recent lecture at Dartmouth College, we need to emphasize endogenous goals and deemphasize exogenous goals.

But the ultimate transformation that is necessary to change our thinking is one of spirit. We need to spend more time and energy helping each other and less time trying to “beat out” the competition.

And last, we might want to examine our compulsion to be as efficient as possible. Throughout the movie there was a relentless focus on efficiency— a focus that was in place in the factory where I worked in Work Standards in Dearborn Michigan in 1966. In the concluding scene of the movie, a Chinese engineer was proudly demonstrating how he would improve efficiency in the Fubayo glass factory: he had designed robots to replace the humans. The ultimate standard for efficiency IS a robot: it will do a job with repeated and uncomplaining precision for hours on end without any interference from life outside the factory. Humans cannot compete with robots if efficiency is the standard.

 

 

 

 

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