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For decades, the driving goal for corporate America has been maximizing stockholders' profits. So what made nearly 200 of the country's most prominent companies issue a joint statement this week, representing a major philosophical shift? John Yang talks to Steven Pearlstein of The Washington Post and author of "Can American Capitalism Survive?"
For decades, maximizing profits for stockholders has been the driving goal for corporate America. But there's a growing populist backlash, as more and more Americans believe that goal has led to great social inequality.
This week, nearly 200 of the country's most prominent companies issued a joint statement that represents a major philosophical shift.
The CEOs said that corporate leaders should take into account all stakeholders. That means employees, customers, suppliers, and society in general.
That's the focus of this week's Making Sense segment.
And for it, we turn to Steven Pearlstein, Pulitzer Prize-winning columnist for The Washington Post, professor of public affairs at George Mason University, and author of the book "Can American Capitalism Survive?"
Steve, thanks for joining us.
A year ago, you wrote in your column that the decision to declare maximizing value for shareholders as the sole purpose of a corporation is the source of much of what has gone wrong with American capitalism.
How big a deal is this shift?
Well, it's a big deal not so much because of this — what the roundtable says has any legal force on any of its members.
It's important because it signals a shift in attitude in norms. That's already occurring. It's sort of confirming something that's happening that's, I think, the pendulum swinging back in the right direction, after having swung too far in favor of shareholders.
So it's important for this sort of signaling value and for the signaling to other kinds of businesses and other businesses that this is now a new norm, and signaling to the other stakeholders to begin to, I think, assert some of their influence and their leverage.
Now, after you wrote that column, Jamie Dimon, the chairman of J.P. Morgan Chase, reached out to you. What happened?
We know each other. And I was having breakfast.
And I picked up the phone and somebody said: "That was the stupidest column I ever read."
And I said: "Good morning, Jamie. How are you?"
And we had a frank discussion. At the end of it, I said: "Look, why don't you have a dinner somewhere? You can come in here. I will host one here. Or we will do it in New York, and you have some of your guys and I will have some of the other journalists there."
And the reason was because he thought we journalists were misportraying this issue, that he said: "We don't run our companies in the ruthless, profit-maximizing way that you suggest."
And I said: "Well, first of all, I'm not sure that's always the case, but even if it were, then why don't you just say that is not the — that that shouldn't be the norm??
And he didn't really have an answer for that. And that's sort of what — what — eventually, we did have this meeting in New York in his office, and we hashed things around.
And I think, you know, we acknowledge that, no, they don't all run their companies in a ruthless way 100 percent of the time. And he acknowledged that maybe they needed to think about reframing the purpose of a corporation.
You say this move has — this shift has been going on for a while. So why now? Why make this formal declaration now?
Well, several, but one of which is the political environment, where, you know, you have the two leading — or two of the three leading Democratic presidential candidates going around saying the big problem is corporate greed.
And they probably overstate the case and are pretty harsh about their populist complaint. But, you know, that's added to fact that for years businesses and business leaders have been held in lower and lower regard by the public.
And I think, you know, they have had a period of time, John, as you know, for the last 20 years, where their allies in the Republican Party have pretty much controlled things in Washington, particularly in the Congress. And they're looking at a period of time where that might not be the case.
And so I think they probably need to establish some credibility in the public marketplace, because they have been playing an inside game for the last 20 years, quite successfully. But they probably have to start playing an outside game. And they need to establish legitimacy with the public for, you know, the views that they have.
And are the — are they also getting pressure from within from employees?
Yes, I think that's the other thing.
I'm not a big fan of social media, but social media has made them extremely sensitive to the reactions of consumers, consumer boycotts or threats. They read their social media very carefully.
And it also — and I think this is perhaps the most important thing — companies are in a battle for talent, for top talent. And there are a lot of young people — I know this as a college professor — who won't go work for a company that they think is a ruthless profit maximizer.
And so they also need that to recruit talent.
So, they're getting pressure from below.
But so many of the incentives at the top, profit — you know, compensation, bonuses tied to hitting stock prices, hitting quarterly earnings marks. How much is really going to change?
Well, the incentive structure has changed.
They don't — in fact, they have tried over the years — and this is something under criticism. They have made the stock-related compensation much more long-term. So it isn't quarterly anymore.
And, you know, I think those improvements have been there. But, you know, they can still do really well under these compensation things by changing things a little bit.
And, you know, it's a sort of collective action problem. They all know, frankly, that they needed to change the way they behaved. The problem was that no one could do it, because, if one did it, and the others didn't, then they would get called out, and their stock price would get hammered, and they would be criticized by Wall Street.
So, one of the reasons something like the roundtable exists is for them to do it collectively, so it's a sort of mutual protection society. They can do what they think is the right thing and not get called out individually for it.
You mentioned the political environment.
The two Democratic candidates — the Democrats may take Congress back. Why shouldn't we just see this as a P.R. gimmick, as trying to get out ahead of an issue, of trying to trying to look good?
Well, to me, that's progress.
When the corporate community tries to get out ahead of something like that and acknowledges that they may have overdone things, and then that's a win.
I mean, I don't know how that — yes, it is good for P.R., but if they don't follow through, if we continue to see companies that say, I'm giving up my American citizenship so that we don't have to pay U.S. taxes anymore because our shareholders are making us do it, if companies say, we're going to crush our unions because our shareholders are making us do it, they won't be able to get away with that anymore.
Steven Pearlstein of The Washington Post and George Mason University, thanks so much.
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