It has succeeded admirably — if one discounts national borders and citizenship as important factors in society. Shareholders today are usually large institutions or wealthy individuals, and they demand efficient production of ever-increasing profits. Adapting to these pressures, U.S. firms aggressively automated and outsourced their operations. This has led to a dramatic increase in global wealth, massive declines in global poverty and high levels of returns to U.S. executives and shareholders. In theory, this is a classic “win-win.”
In the real world, however, nations still matter. The gains reaped by U.S. managers and investors and foreign workers had to come from someone, and the losers increasingly were U.S.-based factories and native-born workers. If nations didn’t matter, these losers could be safely ignored. But nations do matter, at least as long as those nations are democracies, and the losers are striking back with a vengeance.
President Trump’s rise and the increasing anti-corporate, anti-global-trade sentiments within the Democratic Party are tributes to this discontent. Democratic politics is also a free market, and the customers up for grabs in this market want protections against the downsides that the shareholder value theory helped bring out. They are increasingly willing to vote for leaders who promise those protections, and their votes determine the outcomes in the Midwestern states whose electoral votes often decide who wins the presidency.
The roundtable’s statement, then, should be seen as a prudent decision. These economic titans rightly see the direction the country is headed and have decided they need to get in front of the parade if they don’t want to be trampled by it.
And there is ample historical precedent for such a moment. Many large U.S. businesses adopted similar theories of management in the aftermath of the New Deal and World War II. Having experienced the political backlash against the early version of shareholder value capitalism that arose in the 1930s and 1940s, these wise managers sought to provide the job security and material benefits their workers sought rather than fight tooth and nail for every last nickel. In the words of legendary General Electric executive Lemuel Boulware, they sought to “do the right thing voluntarily.”
Hewlett-Packard was a prime example of this approach. Under the tutelage of moderate Republican David Packard, “the HP Way” expressly rejected the idea that a corporation exists solely to make money. Instead, Packard emphasized that a company provides more than that. It provides its workers with a sense of worth and value. As the David and Lucile Packard Foundation puts it, he believed that “management has a responsibility to its employees, to its customers, and to the community at large.”
That philosophy took its most concrete application in HP’s “no layoff policy.” While Packard ran the company, HP would not lay off employees during short economic downturns in a bid to quickly restore profits. Packard knew that the practice of discarding employees at the slightest hint of a downturn would destroy employee morale. HP’s management and shareholders would instead bear the brunt of these misfortunes, banking that the loyalty this policy engendered would help the company quickly recover.
That approach worked wonders for decades as HP grew dramatically. HP slowly moved away from Packard’s wisdom after he stepped down, though, finally making a clean break under chief executive Carly Fiorina, HP’s first leader from outside the company, who laid off thousands of workers over the objections of board members and the founders’ families.
Treating employees like discardable machines rather than human beings can produce short-term financial results. But in the long run, it makes people distrust the engines of capitalism that provide such great wealth. Today’s political upheavals are a direct consequence of the rejection of the post-New Deal wisdom of leaders such as Packard and Boulware.
The roundtable statement will amount to nothing if it doesn’t change these attitudes. If it is simply a public relations stunt or serves as a justification for adopting woke business practices instead of fundamentally reshaping the employer-employee compact, then it will simply be another corporate misstep on the road to semi-socialism. If, on the other hand, it leads to the rediscovery of wise employee relations that puts the interests of U.S.-based workers first, it will likely be regarded as the moment when the socialist and populist tides started to recede.
Dean Baker: CEOs say shareholders won’t be No. 1 anymore. Turns out they already weren’t.
Megan McArdle: It’s hard to argue against firms looking beyond investors. But let me try.
Harold Meyerson: The myth of maximizing shareholder value
Luigi Zingales: Don’t trust CEOs who say they don’t care about shareholder value anymore
David Ignatius: Even the business moguls know it’s time to reform capitalism