Some Thoughts on the Accountable Capitalism Act

17 08 2018

Over in the US, Senator Elizabeth Warren has published the details of a proposed law that would fundamentally change US corporate governance. Matt Yglesias has given us an excellent summary of Elizabeth Warren’s corporate governance bill. Yglesias draws on a great deal of academic research to show why the bill’s core idea, requiring large US corporations to give workers’ representatives board representation, is a good idea. As is typical in a Vox piece by Yglesias, there are copious references to academic research on the problems with US corporate governance (e.g., the short-termist approach that was promoted by the rise of shareholder value ideology in US boardrooms in the 1980s).

Ygelsias writes:

Warren wants to eliminate the huge financial incentives that entice CEOs to flush cash out to shareholders rather than reinvest in businesses. She wants to curb corporations’ political activities. And for the biggest corporations, she’s proposing a dramatic step that would ensure workers and not just shareholders get a voice on big strategic decisions.

Warren hopes this will spur a return to greater corporate responsibility, and bring back some other aspects of the more egalitarian era of American capitalism post-World War II — more business investment, more meaningful career ladders for workers, more financial stability, and higher pay.

Later on he writes

What’s more, while the codetermination aspect of Warren’s proposal does draw inspiration from Germany, fundamentally, the pitch for the overall package is a lot closer to “Make America Great Again” than to “make America like Scandinavia.” The basic notion is that the American private sector used to operate in a better, more inclusive way before the rise of shareholder supremacy and with a couple of firm regulatory kicks we can get it to work that way again.

My late grandfather, who was an old-line communist in his day, used to tell me with mixed admiration and regret that FDR had saved capitalism by entrenching institutions that guaranteed broadly shared prosperity. Those institutions, fundamentally, are what was undone in the shareholder value revolution.

Warren’s bet is that at a time when the political right is increasingly not even bothering to pretend to offer economic solutions anymore, America can pull off the same trick a second time — offering the public not a huge new expansion of government programs, but a revival of the midcentury stakeholder capitalism that once built a middle class so prosperous that the idea of surging mass interest in socialism was unthinkable.


I’ve co-authored a historical paper that deals with many of the issues mentioned here (fingers crossed, it should come out later this year).  I am, therefore, fascinated by the debate that Warren’s bill has sparked. For a gateway into this debate, see here, here, here, here, here, and here. I will continue to follow this debate and will doubtless have more to blog about in the future. Right now, I have four main thoughts about the bill.

  1. First, as a business historian, I am fascinated by how history has been used by the advocates of co-determination in US companies. As I see it, history is being used in two main ways: to try to understand what the hell is going on in the world right now (let’s call it sense-making use of history) and then to persuade others that the corrective to the problems now facing US capitalism include co-determination (you can call it the use of history for sense-giving or rhetorical history, depending on which academic clique you prefer to get your jargon from). In terms of the use of history for thinking about problems, we see this use of history in the prominent role that historical scholars, including Business History Conference member William Lazonick (U Mass Amherst), played in helping to work out the ideas that went into this bill. (Other academics also appear to have been part of the Brains Trust behind this bill). For years, Lazonick has been writing about the terrible effects  the adoption of Shareholder Value Ideology in US firms has had on R&D expenditure, treatment of workers, etc. In his scholarly works, he has contrasted SHV with the philosophy that informed how US companies were run in the period from the 1940s to about 1980. Lazonick’s jeremiad against the post-1980 excesses of SHV can be viewed, in part, as a call for a return to “the Good Old Days.” It’s interesting to see how the historical research done by Lazonick and others (e.g., Emeritus Dean Roger Martin of Toronto’s Rotman School of Management) is now starting to inform the thinking of policymakers (e.g., Warren) and journalists (e.g., Yglesias). As the popularity of slogans such as “Make America Great Again”, appeals to restore a previous (imagined and vaguely defined golden age) can be effective in political communication.
  2.  Warren’s bill says that the requirement that workers have board representation in corporations would only kick in once a firm’s revenues hits the arbitrary threshold of $1Billion per year. I think that companies could evade this requirement via the subdivision of firms owned by a single holding company. Obviously this provision of the bill needs more thought.
  3. What about the representation of the overseas workforces of US companies? What about the representation of workers based in the US who aren’t US citizens? The cosmopolitan internationalist in me is sympathetic to the idea of giving non-citizen workers the right to vote for representatives on US corporate boards. However, if I were a political strategist advising Warren on how to sell this proposal to working-class native-born Americans, I would suggest that she create a conceptual linkage between national democracy and workplace democracy by restricting the right to vote for board representatives to those workers who also have the right to vote in US elections (i.e., to citizens of adult age).
  4. My libertarian friends ought to support this measure as involves less bureaucracy and less state control of firms than the main alternative mechanism for limiting shareholder power that is being discussed right now (i.e., more intensive regulation of firms by the state). Indeed, I envision a grand bargain whereby the core reforms in Warren’s bill were coupled by de-regulation. I think that libertarians ought to agree that Warren’s short bill is preferable to the massive Dodd-Frank legislation and thousands of pages of regulatory rules that grew out of it.



Weston Library Opens

19 03 2015

The £80m Weston Library opens in Oxford today. It is named after Canadian philanthropist and businessman Garfield Weston.

Killing the Golden Goose: Corporate R&D and Shareholder Value Ideology

5 02 2015

An article in Vox reports on new academic research on the plunging percentage of corporate revenues that are devoted to R&D. The paper that is the basis for this article is by Ashish Arora, Sharon Belenzon, Andrea Patacconi.

In the early 20th century, universities weren’t doing as much cutting-edge research themselves (though they were producing a flood of PhDs). So firms like DuPont began investing heavily in scientific capacity. Later, when companies like AT&T and IBM had monopolies in their respective fields, they could afford to continue funding huge scientific research labs.

But while all this corporate research was hugely beneficial to society, it didn’t always produce huge returns for shareholders. Many companies simply failed to commercialize their own discoveries. Xerox’s PARC famously invented the graphical user interface — only to see Apple and Microsoft got rich off of it.

Arora, Belenzon, and Patacconi document that the percentage of revenues devoted to corporate R&D has fallen since 1980. However, they don’t consider the most obvious explanation for this decline: the rise since 1976 of the pernicious ideology of shareholder value. The money that should be going into corporate R&D is being wasted on stock buybacks and other expenditures driven by the fixation on shareholder value.

The Chicago-trained academics who convinced a generation of MBA students that the sole responsibility of a CEO is to increase the share price have a great deal to answer for. Thank god not all CEOs believed that idea: if they had, we never would have had the iPad or continuous price cuts for the Model T. Steve Jobs and Henry Ford both challenged shareholder value ideology and made the world a better place for it. For Jobs, see here, for Ford’s famous fight with shareholders, see here.

The fixation of shareholder value is dangerous, as Roger L. Martin and others have documented. The solution, however, is not for more government regulation but for entrepreneurs and company executives to push back against this idea with both words and deeds.

Personally, I think that the paper by Arora, Belenzon, and Patacconi could benefit from more engagement with the literature by business historians on the evolution and impact of the ideology of shareholder value.  They could start with:

Lazonick, William, and Mary O’Sullivan. “Maximizing shareholder value: a new ideology for corporate governance.” Economy and Society 29, no. 1 (2000): 13-35.

P.S. I’m working on a paper with Kevin Tennent (York Management School) that deals with shareholder value ideology. It is called “Stock Markets, Corporate Governance, and Financial Capitalism”