DealBook Briefing: C.E.O.s Look Beyond Their Shareholders

 “At last CEOs are pushing back on the Milton Friedman ideology of “shareholder value as primary“!  As Prof. Lynn Stout has stressed in her books, e.g. “The Myth of Shareholder Value” there is no such legal requirement for management and they were always free to use the stakeholder model!

Prof Stout explained the misconception of Chicago School economists like Friedman:  as economists, rather than lawyers, they did not understand that when a share of a company’s stock  is bought, it is a contract that has been purchased, not a living piece of a company!   Yet Friedman’s intellectual outreach and his status as a Bank of Sweden Prizewinner (often confused with a Nobel) spread his ideology.  The sensible response was the brilliant development of B-Lab and the B Corporation  by Jay Gilbert Coen, Andrew Kassoy and Bart Houlihan.  B Corporations took off and now CEOs are at last reacting to  the truth: all stakeholders are to be considered!

Hazel Henderson, Editor“

 

Doug McMillon, Walmart’s C.E.O., at the company’s annual shareholder meeting last year. Rick T. Wilking/Getty Images

Why C.E.O.s are rebelling against shareholder democracy
Shareholder democracy hasn’t worked, Andrew writes in his latest column. Exhibit A: Nearly 200 corporate leaders — including Tim Cook of Apple, Ginny Rometty of IBM and Jamie Dimon of JPMorgan Chase — declared yesterday that companies shouldn’t make shareholders their sole focus.
For half a century, companies were mostly run for all stakeholders, Andrew notes. (That’s how they’re still run in much of Europe.) The economist Milton Friedman helped change that by declaring that businesses should focus solely on profits.
“Layoffs increased, research and development budgets were cut, and pension programs were traded for 401(k)s” as a result, Andrew adds. “There was a rush of mergers driven by ‘cost savings’ that grabbed headlines while profits soared and dividends increased.”
“Americans mistrust companies,” writes Andrew, “to such an extent that the very idea of capitalism is now being debated on the political stage.” And populism has been embraced by both ends of the political spectrum, from President Trump to Senator Bernie Sanders.
Now, companies should think beyond shareholders, the Business Roundtable said yesterday, adding that they should also invest in their employees, protect the environment and deal fairly with suppliers. “We share a fundamental commitment to all of our stakeholders,” the group, which represents many of America’s biggest companies, said. “We commit to deliver value to all of them.”
“The shift comes at a moment of increasing distress in corporate America, as big companies face mounting global discontent over income inequality, harmful products and poor working conditions,” David Gelles and David Yaffe-Bellany of the NYT write.
And there’s reason to be skeptical. Not every member of the Business Roundtable signed on: Blackstone and G.E. were among the notable holdouts. And the WSJ editorial board dismissed the move as political spin that is unlikely to shield C.E.O.s from populist attacks.
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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.
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Larry Kudlow, the White House’s top economic adviser. Evan Vucci/Associated Press

The White House is worried about a recession
President Trump continues to boast that the U.S. economy is “doing tremendously.” But in private, his economic advisers are preparing options to help prevent it from falling into a recession, Maggie Haberman, Jim Tankersley and Annie Karni of the NYT report.
Administration officials have explored cutting payroll taxes, which would immediately increase workers’ paychecks, and lowering capital gains taxes. They’ve also considered potentially reversing some of Mr. Trump’s tariffs.
White House officials dismissed a payroll tax cut — for the moment. “Cutting payroll taxes is not something that is under consideration at this time,” one told the NYT.
It’s also unclear if such cuts would get political traction in Congress, since the Democratic-led House would be unlikely to agree to the idea in an election year.
But “that the White House is even discussing ways to stimulate an economy that Mr. Trump on Monday called ‘very strong’ underscores a growing concern in the administration about slowing economic growth,” the NYT reports.
And Mr. Trump clearly worries about the economy, despite bragging about its current strength. He tweeted yesterday that the Fed should cut interest rates by at least one percentage point, “with perhaps some quantitative easing as well.”