The bill, called the Accountable Capitalism Act, won’t win Warren new fans in C-suites. But it’s telling that she premiered it in hostile territory, describing her thinking in a Wall Street Journal op-ed. That followed a sit-down three weeks ago with CNBC’s John Harwood — an interview that drew follow-up questions from my colleague Jennifer Rubin, a right-leaning columnist, about the nature of Warren’s views on free markets and regulation. Unprompted, Warren answered them.
A strategy appears to be emerging from those recent media interactions and the rollout of the bill this week. As Democrats wrangle with the new lefty momentum energizing the party’s base, Warren is defining an economic vision that’s bolder than Hillary Clinton’s incrementalism while less hostile than Bernie Sanders’s program to the underpinnings of the free market. “I am a capitalist,” she told Harwood. “I love what markets can do, I love what functioning economies can do. They are what make us rich, they are what create opportunity. But only fair markets, markets with rules.”
Her new bill would force companies with more than $1 billion in annual revenue to secure a charter from an Office of United States Corporations, which the measure would establish in the Commerce Department. The charter would require corporate boards to weigh the interests of all stakeholders — including workers and local communities, in addition to shareholders — in its decision-making. Drawing from the German concept of co-determination, workers would elect 40 percent of the directors. And three-fourths of directors and shareholders would need to sign off on political expenditures. Finally, to discourage managers from seeking to pump the share price to line their own pockets, the bill would bar executives and directors from selling stocks within five years of receiving them, or within three years of a buyback.
Robert Hockett, a professor at Cornell Law School who worked with Warren’s staff to develop the proposal, says the basic concept is simple. It seeks to restore a contract between government and U.S. corporations that existed for most of their existence: “If you’re going to get the limited liability privilege, you should show you’re giving something back to the community,” Hockett tells me. That bargain, Warren and her backers argue, has eroded since the advent in the early 1980s of a management philosophy that has elevated maximizing shareholder value as a corporation’s singular purpose.
“As more Americans become aware again of how the corporate privilege used to work, they’ll see this bill is really a modest first step in the direction of what we used to have,” Hockett says, likening the proposal to a general-purpose version of the regulatory regime that banks face today.
Hockett says he advocated going further — arguing, for example, for “a tripartite board structure, like regional Fed bank boards,” that could have included representation by local businesses — but Warren “is trying to be a little more moderate about this.”
Critics, including big business interests in Washington, disagree.
Warren name-checked the Business Roundtable in her Wednesday op-ed, noting that the lobby group for Fortune 200 CEOs stated as recently as 1981 that a corporation’s goal should be to “enhance the enterprise, provide jobs, and build the economy.” But by 1997, reflecting the shifting consensus, the BRT said the “principal objective of a business enterprise is to generate economic returns to its owners.” In a statement, a BRT spokeswoman said “it is a fallacy” to argue the two aims are mutually exclusive. “Corporate governance measures should not be based on the misconception that the objective of increasing long-term shareholder value conflicts with the well-being of workers and consumers,” the spokeswoman said. “Instead it should be based on promoting best practices of responsible corporate citizenship and supporting long-term economic opportunity and innovation in the United States, issues that Business Roundtable will continue to provide leadership on.”
Jeffrey Sonnenfeld, senior associate dean for leadership studies at the Yale School of Management, says Warren is right that so-called short-termism has proved destructive for the country’s biggest public companies. He points to a 2005 survey that found 80 percent of CFOs at 400 of the largest U.S. companies admitted they would sacrifice research-and-development spending to meet a quarterly earnings target.
But Sonnenfeld says Warren misses the mark in targeting the behavior of boards and management when the fault lies elsewhere. “Regulatory changes have made it easy for activists investors to conspire with institutional investors to promote a short term agenda,” Sonnenfeld writes in an email. “Instead of Warren’s approach, a better method is to encourage investors to hold onto assets for longer. Presently, assets held for less than one year are taxed as ordinary income, but assets held for more than a year are treated as long-term investments and taxed with a lower tax rate (15%). That could be lengthened or [subjected to] some sort of gradual tax rate, depending on the holding period.”
Clinton proposed something similar in her 2016 platform as part of an effort to curb what she called “quarterly capitalism.” Reporting on the proposal at the time, Bloomberg’s Jennifer Epstein wrote that it appeared “calibrated to hit a sweet spot that will satisfy progressive Democrats while not angering Clinton's Wall Street donors.”
William Lazonick — a University of Massachusetts economist who’s done extensive research into the surge over the last three decades of stock buybacks, a practice he describes as the “legalized looting of the U.S. industrial corporation” — says Warren’s bill “takes a big problem head on.”
“In terms of the corporate charter, it really is saying that if workers are on the boards, they’re going to start looking at who’s benefiting from this sort of corporate allocation of resources,” he says. “Right now there is absolutely no worker input, and there should be.”
|You are reading The Finance 202, our must-read tipsheet on where Wall Street meets Washington.|
|Not a regular subscriber?|
— China talks resume. Wall Street Journal: “China and the U.S. reached a modest breakthrough in their standoff over trade, saying they will hold lower-level talks later this month on the spiraling dispute. China’s Commerce Ministry said Thursday that a vice minister will travel to the U.S. at an unspecified date, at the invitation of the Treasury Department, to discuss trade issues. A senior U.S. government official confirmed the talks...The new round of discussions would be the first since May.”
— Trump's done no deals. The Washington Post's Heather Long: “President Trump touted his trade agenda Wednesday, writing in a Twitter post that his tariffs are ‘leading to great new trade deals.’ But so far, he has yet to finalize any trade deals. Trump has put hefty extra taxes on certain imports coming from China, Canada, Mexico, Japan, South Korea, Turkey, the United Kingdom and the European Union. Most of these nations were outraged by the tariffs... The result is that just over a year-and-a-half into his presidency, Trump has achieved an escalating trade war and some heated conversations about trade, but no actual deals have been signed.”
From Chad Bown, a trade expert at the Peterson Institute for International Economics:
And the South Korea agreement could come apart. Bloomberg News's Jungah Lee and Randy Woods: “The trade pact that the Trump administration renegotiated with South Korea this year is in jeopardy as the U.S. considers imposing tariffs on auto imports. While the two sides agreed in March on a revised Korea-U. S. free trade agreement, known as Korus, they still haven’t signed it into law. And the parliament in Seoul won’t be able to ratify the deal if the U.S. slaps new tariffs on Korean car imports on national security grounds, according to the ruling Democratic Party’s Hong Young-pyo. It would be ‘highly irrational’ of the U.S. to impose such tariffs after Korea met most of the U.S. demands on cars during the renegotiation, said Hong, the party’s leader on the floor of the National Assembly. ‘This would make it hard for parliament to ratify the deal.’ ”
— Trump boasts about steel tariffs. WSJ's Peter Nicholas: “Trump said that his steel tariffs on China and other countries are rescuing an iconic U.S. industry that was in danger of closing and predicted that the competition U.S. companies will face in the future will mostly be domestic due to his actions. In an impromptu, 20-minute Oval Office interview Wednesday, Mr. Trump said some people may complain that in the short term steel prices may be ‘a little more expensive,’ but that they ultimately will drop and his moves will have preserved an industry important to national security. Competition will be ‘internal, like it used to be in the old days when we actually had steel, and U.S. Steel was our greatest company,’ he said. ... In upbeat tones, the Republican president talked about the strong domestic economy and his own political power as he said was demonstrated in GOP primaries throughout the country.”
— WH eyes expanding Buy America rules. CNBC's Kayla Tausche: "The White House is preparing a new executive order expanding rules favoring American-made products in government projects, according to four administration officials and two other people familiar with the matter. The order, which is said to be nearing completion, would apply current 'Buy America' provisions to programs where they do not currently exist. In particular, the rules will apply to infrastructure projects such as roadways, pipelines and broadband. Earlier iterations of the order sought broader — and stricter — mandates for federal agencies to source U.S. goods and services, but the language was significantly tailored during the review process as procedural and ideological roadblocks arose, three of these people said."
— Breakthrough with Mexico imminent? Politico's Megan Cassella: "Trump could be poised to make a deal with Mexico on NAFTA even as he engages in a trade war with the rest of the world. Mexican Economy Secretary Ildefonso Guajardo arrived in Washington on Wednesday — as he has every week for the past month — to hammer out some of the most contentious issues on NAFTA. U.S. and Mexican officials now say they could be on the verge of announcing a preliminary agreement on everything from complicated automotive rules to environmental regulations by the end of August. The apparent turnaround after months of stalemate is a surprise outcome of discussions reaching their year anniversary on Thursday. And while the two sides have yet to bring Canada, the third partner in NAFTA, into the latest round, the negotiators’ optimistic tone could signal that Trump may be ready to extinguish at least one trade conflagration before the midterms."
— Corker revives tariffs bill. The Hill's Jordain Cairney: "GOP Sen. Bob Corker (Tenn.) is reviving his effort to rein in [Trump] on trade, setting up another fight between congressional Republicans and the White House. Corker told reporters on Wednesday that he wants to attach his legislation curbing Trump's tariffs authority to a federal aviation bill that needs to clear the Senate. 'That's the ideal place for us to be,' Corker said while discussing attaching his bill to the reauthorization of the Federal Aviation Administration. The aviation bill hasn't formally been scheduled for floor consideration, but Senate Majority Leader Mitch McConnell's (R-Ky.) office has said that it's on the Senate's to-do list. The current authorization for the agency expires Sept. 30."
— U. S-Turkey tensions continue. The New York Times's Carlotta Gall: “Turkey pushed back against pressure from the United States on Wednesday, rejecting a second legal appeal to release the American pastor Andrew Brunson and sharply raising tariffs on American goods in retaliation to the punitive levies announced by [Trump] last week. Mr. Brunson, who asked a court to free him on health grounds, was moved to house arrest last month after his initial detention 22 months ago on charges of aiding terrorist groups touched off a diplomatic dispute between the United States and Turkey.”
Investors stung by Turkey's woes. WSJ's Laurence Fletcher: “Asset management giant BlackRock Inc., a star bond trader at Barclays PLC and a major hedge fund are among the investors nursing losses from Turkey’s violent market trading in recent days. The Turkish lira’s falls on Friday and Monday, which were among the largest moves in any currency in recent years, and spikes in the country’s borrowing costs, caught several major investors wrong-footed. BlackRock, the world’s largest asset manager and the largest foreign holder of Turkish government bonds, had been running outsize positions in Turkey in some of its actively managed funds when the crisis hit. The firm’s $5.8 billion Emerging Markets Local Currency Bond Fund, for instance, has fallen 7.1% this month through Tuesday.”
The Fed is making it worse. The Associated Press's Paul Wiseman: “President Recep Tayyip Erdogan is blaming the United States for Turkey’s financial crisis, ignoring homegrown problems like high debts, raging inflation and his own erratic policies. Yet one of the threats facing Turkey and other emerging-market countries really is made-in-America: By ratcheting up U.S. interest rates, the Federal Reserve has — unintentionally — led investors to pull money out of emerging markets like Turkey, strengthened the dollar’s value and made it harder for foreign companies to repay their dollar-denominated debts. The resulting flight of capital into safer and higher-yielding U.S. investments has sent many emerging-market currencies tumbling. The MSCI Emerging Markets Currency Index has sunk nearly 8 percent since early March.”
- “Paul Manafort’s tax- and bank-fraud case is heading to the jury.” The Post's Rachel Weiner, Matt Zapotosky, Lynh Bui and Devlin Barrett.
- “Trump’s lawyers prepare to fight subpoena all the way to the Supreme Court.” The Post's Robert Costa.
- “Not even Republicans buy the Trump team’s ‘collusion isn’t a crime’ defense.” The Post's Aaron Blake.
— The Conways are divided. The Post's Ben Terris: “Here at the Conways’, it’s a house divided. She is Trump’s loyal adviser, the woman who carried him over the finish line to the White House. He is one of the president’s most notable conservative critics and wishes he had never introduced his wife to Trump in the first place. Kellyanne invited me here because she thought it would be a good symbol for her commitment to, and the enduring strength of, the Trump presidency. The White House may be shedding staff at record speed, but this new home is a sign that Kellyanne isn’t going anywhere; that she is, in fact, flourishing. And that may be true. But as I spent time with Kellyanne and George, I saw an alternative symbol: The Conways, like the rest of the country, have been jolted by the Trump presidency. They love each other, are exasperated by each other, talk about each other behind each other’s backs. They share a roof and live in different bunkers.”
— Retail sales rise. AP's Christopher Rugaber: “Americans shopped at a healthy pace in July, buying more cars, clothes and appliances, evidence that consumers are helping drive robust economic growth. Retail sales rose at a 0.5 percent annual rate in July, after a 0.2 percent increase the previous month, the Commerce Department said Wednesday. June’s increase, though, was revised lower from a previous estimate of a 0.5 percent annual rate. Consumers appear to be feeling upbeat and are in overall solid financial shape. The unemployment rate is near an 18-year low. And economic growth, along with hiring, has accelerated. On average, Americans are saving more, which may encourage future spending.”
And Americans are eating out, a lot. Bloomberg's Reade Pickert and Scott Lanman: "Spending at U.S. restaurants surged over the past three months by the most on record, making it both a bright spot for the economy and a risk if appetites for eating out return to normal. Sales at food-service and drinking establishments rose 1.3 percent in July to $61.6 billion, the Commerce Department reported on Wednesday. That brought the three-month annualized gain to 25.3 percent, the fastest pace in figures going back to 1992. Such historic gains caught the attention of economists. Kevin Cummins and Michelle Girard at NatWest Markets said the figures indicate 'consumers remain quite comfortable with their personal financial situation and the economic outlook.'"
— Productivity picks up. WSJ's Eric Morath: “U.S. worker productivity accelerated this spring at the best pace in more than three years, a possible sign stronger business investment is giving workers the tools they need to boost output. The productivity of nonfarm workers, measured as the output of goods and services for each hour on the job, increased at an annualized and seasonally adjusted rate of 2.9% in the second quarter from the first, the Labor Department said Wednesday. It was the strongest quarterly gain since the first three months of 2015. But from a year earlier, productivity advanced 1.3%, matching the average rate of growth from 2007 to 2017. Year-to-year productivity growth remains well below the 2.1% annual average recorded since the end of World War II.”
— SEC subpoenas Tesla. WSJ: "Federal regulators have subpoenaed Tesla, ramping up an investigation into Chief Executive Elon Musk’s tweet last week that he had secured funding to take the electric-car maker private. The subpoena from the Securities and Exchange Commission seeks information from each of Tesla’s directors... It isn’t known what information is being sought... The subpoena indicates senior SEC officials have authorized a formal investigation of the company, a step up from the initial inquiries the regulator made to Tesla last week. The SEC opens formal investigations when it thinks that a violation of law has occurred and that a probe is justified given the nature of the suspected misconduct and the potential harm to investors."
Stock dips. Bloomberg: “Tesla Inc. fell after a report said the U.S. Securities and Exchange Commission sent a subpoena to the electric-car maker... Wednesday’s drop of as much as 4.5 percent wiped out last week’s advance fueled by Musk’s tweets and news that Saudi Arabia’s wealth fund bought a stake in the company.”
— GE continues to slide. CNBC's Michael Sheetz: “General Electric shares fell below $12 per share for the first time since July 24, 2009, on Wednesday, plowing a new low for the stock this year as investors appear concerned about the embattled industrial company's turnaround plan. Shares of GE fell more than 2 percent in trading before paring losses to just 0.5 percent. The stock slipped as low as $11.94 per share before rebounding back above $12. The stock has fallen more than 11 percent this month, with its market value now at about $104 billion.”
— Constellation invests in cannabis. Bloomberg News's Kristine Owram, Jen Skerritt and Craig Giammona: “Constellation Brands Inc., which for seven decades has made its money off beer, wine and whiskey, sees its future in a marijuana leaf. In the biggest (legal) cannabis deal, the Victor, New York-based beverage company will spend about $3.8 billion to boost its stake in Canadian grower Canopy Growth Corp., betting legalization will gain traction around the world and especially in the U.S. ‘This is rocket fuel,’ Canopy Chief Executive Officer Bruce Linton said on the company’s earnings call Wednesday. ‘We’re going to be way more global.’ Constellation, among whose brands are Corona and Ballast Point beers and Robert Mondavi wine, will own 38 percent of Canopy, up from about 10 percent, according to a statement Wednesday.”
White House: Trump revokes security clearance of former CIA director John Brennan
Firefighters in Genoa are using drones after the bridge collapse:
As Europe battles anti-Semitism, Muslim and Jewish youth meet at Auschwitz: