The Rebirth of Stakeholder Capitalism? by Robert Reich

[Crewleader]

Saturday, August 9, 2014

Robert Reich

In recent weeks, the managers, employees, and customers of a New England chain of supermarkets called “Market Basket” have joined together to oppose the board of director’s decision earlier in the year to oust the chain’s popular chief executive, Arthur T. Demoulas.

Their demonstrations and boycotts have emptied most of the chain’s seventy stores.

What was so special about Arthur T., as he’s known? Mainly, his business model. He kept prices lower than his competitors, paid his employees more, and gave them and his managers more authority.

Late last year he offered customers an additional 4 percent discount, arguing they could use the money more than the shareholders.

In other words, Arthur T. viewed the company as a joint enterprise from which everyone should benefit, not just shareholders. Which is why the board fired him.

It’s far from clear who will win this battle. But, interestingly, we’re beginning to see the Arthur T. business model pop up all over the place.

http://robertreich.org/post/94260751620

[danriker]

1. Additional factors leading to the dominance of shareholder capitalism

- Under Reagan the antitrust laws stopped being enforced, and they really haven't been enforced since then. As a result there has been massive consolidation of industries into multinational oligopolies.
- The development of the 401-K in the 1980s caused many corporations to drop their pension plans (mine did, but fortunately for me not before I was vested). 401-K plans dramatically increased the ownership of stock by mutual funds. For the first time mutual funds owned more than 50% of public stocks. Most mutual funds are focused on shortterm results and they put pressure on corporate managements to achieve quarter to quarter gains, and if companies don't their stocks are dumped and their managements are fired.
- The SEC in the early 90s adopted a couple of regulations that tied executive compensation to stock performance. One of them limited the tax deductibility of executive compensation to no more than $1 million unless the compensation was directly tied to stock performance.
- The personal computer appeared in the 1980s and began to undermine the corporate MIS empires, and made remote management more feasible.
- Fiber optic cables were deployed by the telecoms in the 1980s and across the oceans in the 90s.
- The Internet appeared at the end of the 80s and when combined with the Internet and fiber optic cables there was a huge opportunity to flatten management structures and move operations to low cost countries.

The result of the impact of the 401-K and the SEC regulations was to strongly orient corporate managements to quarter to quarter performance. Aided by the new communications and computer capabilities, performance was improved by thinning middle management, and moving functions overseas, including call centers and tech support centers for all kinds of businesses.
Businesses that could not maintain increases quarter to quarter became targets for takeovers, and without any antitrust actions, industries were consolidated.
All of this occurred without regard for any stakeholders other than the shareholders. Millions of good jobs were lost or moved. Communities that had supported companies for generations were devastated with no compensation. Local vendors lost their primary sources of business.
The B and Benefit corps rose in response to all of this, but it remains to be seen if they can attract Wall Street investment.

[Crewleader]

2. Thank You danriker

For covering the last 30 years with the additional factors leading to the dominance of shareholder capitalism.