Investors are no more important to companies than workers- so why do they get all the goodies?
By Craig Cox, Utne Reader
| July/August 2002 Issue
The idea that corporations exist for the sole purpose of maximizing a shareholder’s investment has been an unchallenged capitalist creed since the Michigan Supreme Court ruled on Dodge v. Ford Motor Co. in 1919. But Marjorie Kelly, author of The Divine Right of Capital (Berrett-Koehler, 2001), argues that the rights conveyed to corporate shareholders are a relic of feudal days and serve only to justify shortsighted business decisions that have long-term social consequences."Why have the rich gotten richer while employee income has stagnated?" she asks. "Because that’s the way the corporation is designed. It is designed to pay stockholders as much as possible, and to pay employees as little as possible. . . . Why are [companies] cutting down 300-year-old forests? Because that’s the way the corporation is designed. It is designed to internalize all possible gains from the community, and to externalize all possible costs onto the community."This entire worldview, writes Kelly, is based on the myth that shareholder investment is vital to the health of publicly traded companies. It’s commonly assumed that companies rely on shareholders for capital, but that occurs only when a company sells common stock, an occurrence that has become as rare as a Fortune 500 CEO turning down a pay raise. Only about 1 percent of shareholder investment actually reaches publicly traded companies each year. "In the life of most major companies today, issuance of common stock represents a distant, long-ago source of funds, and a minor one at that," she writes. "What’s odd is that it entitles stockholders to extract most of the corporation’s wealth—forever."Where does the rest of that vital shareholder investment go? It’s simply traded in the speculative market, Kelly explains. So, by putting the interests of its shareholders above those of its workers, customers, and communities, corporations are doing no more than ensuring that the Dow Jones casino stays open.It is also widely accepted that shareholders own corporations, a concept that Kelly says leads us also to believe that companies are objects that can be owned and that stockholders can do what they want with them. Trouble is, a company is really nothing more than a "network of human relationships," she explains. Take the case of St. Luke’s advertising agency in London. When Omnicon purchased the London office of Chiat/Day’s advertising agency in 1995, staffers abandoned ship with the agency’s clients and started their own firm. Without the agency’s employees or its clients, the sale was suddenly rendered moot. The company was worthless. (Actually, Omnicom got $1 and a percentage of St. Luke’s profits.) Still, Kelly says it proves the point: "No one thinks to object when employees are called ‘assets’—or sold in acquisitions," she writes. "We accept these notions, because we operate from the unconscious assumption that corporations are objects, not human communities. And if they’re objects—akin to feudal estates—then they’re something outsiders can own, and the humans working there are simply part of the property."We accept this unjust and largely illogical favoritism toward shareholders over all others because it is the law of the land. Corporations operate this way because if they do anything that imperils the quarterly dividend (like keep a struggling inner-city plant open to save jobs) they are subject to shareholder lawsuits. CEOs get fired over such fits of altruism. "Return on equity functions a bit like the Mafia, demanding a larger and larger payment every year, or the hostile takeover folks come and break the CEO’s kneecaps," Kelly writes.Rather than sound economics, this exaltation of shareholder interests is actually a form of discrimination—valuing money invested by rich people more than the contributions of workers and others. But just as activists successfully struggled for legislative remedies against racism and sexism, so can we fight wealth discrimination.To battle this wealthism, though, we must first name it and acknowledge its influence in our corporate-dominated life, Kelly argues: "Because we fail to name this discrimination precisely, we fail to see how it functions (how many people understand how financial statements work?) and we fail to claim its history."Next, we must understand the possibilities. Already, groups across the country are organizing around efforts to revoke corporate charters, and shareholder activism has become a regular feature of corporate annual meetings. Plus, the anti-globalization/pro-democracy movement is successfully drawing attention to global corporate piracy on a variety of fronts. Multinational corporations have never seemed so dominant, yet never been so shaky."There are seams of vulnerability here, once we think to look for them. Great seams of illegitimacy, of a creaky antiquity," Kelly writes. "Change might result more quickly than we imagine."