Capitalism: Should we be shareholders or stakeholders?
Since my secular job involves project management in an investment group, the Romney/Bain debacle is certainly generating buzz with our internal portfolio managers, especially those in the private equity section. That is why this opinion piece that popped up on CNN.com today also generated buzz during my workday today.
In essence, the editorial asks if capitalism should be guided by shareholders or stakeholders:
The choice is between "stakeholder capitalism" and "shareholder capitalism." According to the theory of stakeholder capitalism, corporations are and should be quasi-public entities with responsibilities to the nation-state and to the communities in which they are embedded. The corporation should make a profit and provide a fair return to investors. At the same time, workers who contribute their labor to the company have a legitimate interest in it as well as investors who provide capital. Managers serve the company and the country, not merely the investors.
In the theory of "shareholder capitalism," the corporation exists solely for the purpose of the investors, whom the managers serve as agents. In shareholder capitalism, short-term profits are the only goal, and if that means laying off workers instead of retraining them or reassigning them, breaking up the company and selling the assets to enrich private equity partners and shareholders, so be it.
The title of the piece is "What kind of capitalist is Romney?"
That's a very good question.
I know that I would definitely like to see America be in the stakeholder camp. Even as someone who is in the Bernie Sanders "democratic socialist" camp, I am not opposed to anyone becoming wealthy. However, I do feel a bit sick in the stomach when I hear that a group like Bain Capital can rake in the dividends for its shareholders while the employees get pink slips.
While we were discussing the editorial during a staff meeting today, I was reminded of an article I read in the Wall Street Journal quite a while ago about how Wall Streeters were squawking at the CEO of Costco because he 1) paid his workers too much, 2) gave his workers too many benefits, 3) treated his customers too well, and 4) didn't always think of the shareholders first.
"From the perspective of investors, Costco's benefits are overly generous," says Bill Dreher, retailing analyst with Deutsche Bank Securities Inc. "Public companies need to care for shareholders first. Costco runs its business like it is a private company."
I wonder how much better our nation would be if we did, in fact, care about the shareholders, but not at the expense of the employees, the customers, the community and the nation.