Capitalism: Should we be shareholders or stakeholders?

wordsmythe wrote:

Because nobody else has said it: But won't a shift to stakeholder mindsets drive away investment?

(Perhaps we need to break apart "investment" into two different terms--one for financial speculation and one for actual investment.)

Exactly.

Costco tried to offer its employees health insurance. The market punished them for it. That is what the market does.

The answer is regulation. This "stakeholder" business is a mathematical non-starter.

I don't know if anyone else saw this article in the NYTimes today about Apple, but it is quite disheartening.

Here are two passages that floored me:

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Privately, Apple executives say the world is now such a changed place that it is a mistake to measure a company’s contribution simply by tallying its employees — though they note that Apple employs more workers in the United States than ever before.

They say Apple’s success has benefited the economy by empowering entrepreneurs and creating jobs at companies like cellular providers and businesses shipping Apple products. And, ultimately, they say curing unemployment is not their job.

“We sell iPhones in over a hundred countries,” a current Apple executive said. “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”

I am pretty sure I am safe in saying that Apple is not interested in being a stakeholder.

Oh, yeah, I saw that article the other day and didn't think to link it mentally to this discussion. Good call, Phoenix Rev.

That's exactly the paragraph that jumped out at me... American workers aren't willing to be abused like that. It's the old saw of 'poor planning on your part does not constitute an emergency on mine'. There's a difference between getting up early to put in some OT to help make the quarter, and getting dragged out of bed at midnight because some primadonna has a stick up his ass.

Also the total BS about "Apple employs more workers in the United States than ever before." That would be great if they were skilled manufacturing staff but they are mostly part of their Apple's stores operation; nominally trained sales staff and the management to look after the operation.

Paleocon wrote:

The answer is regulation. This "stakeholder" business is a mathematical non-starter.

I want to push back on this, not because you're necessarily wrong, but because regulation as an answer seems dead on arrival to me. I don't believe it can be done at scale and without side effects which rival the disease, simply because regulations (good or bad) are a reactive measure, and for every bureaucrat trying their hardest to draft fair and effective rules, there are ten lobbyists and GE tax lawyers trying to flank them.

I think the change agent here would have to be altering the legal responsibility and culpability of management of a public company. Right now they've a legal and fiduciary duty to the shareholder, and they do an excellent job in that regard. I'm no expert in the legal origins of the arrangement, but suspect it's at least in-part because shareholder value is easily measured. I wonder, would it be possible to create a similar, empirical, legally defensible definition for stakeholder value?

The astounding thing to me about that article is the scale. 230,000 people working in one (extended) manufacturing plant? Holy sh*t, that is a lot of people.

Roughly a quarter the size of San Francisco, working in one factory.

Hypatian wrote:

The astounding thing to me about that article is the scale. 230,000 people working in one (extended) manufacturing plant? Holy sh*t, that is a lot of people.

On that topic: http://www.thisamericanlife.org/radi...

johnny531 wrote:
Paleocon wrote:

The answer is regulation. This "stakeholder" business is a mathematical non-starter.

I want to push back on this, not because you're necessarily wrong, but because regulation as an answer seems dead on arrival to me. I don't believe it can be done at scale and without side effects which rival the disease, simply because regulations (good or bad) are a reactive measure, and for every bureaucrat trying their hardest to draft fair and effective rules, there are ten lobbyists and GE tax lawyers trying to flank them.

I think the change agent here would have to be altering the legal responsibility and culpability of management of a public company. Right now they've a legal and fiduciary duty to the shareholder, and they do an excellent job in that regard. I'm no expert in the legal origins of the arrangement, but suspect it's at least in-part because shareholder value is easily measured. I wonder, would it be possible to create a similar, empirical, legally defensible definition for stakeholder value?

You're right that appropriate regulation is hard, especially in the current lobbying environment. I also think the legal responsibilities C-level executives have to shareholders need to be broadened to give them some responsibility to their broader ecosystem.

That said, I don't think there's a direct conflict here. A new "theory of the firm" that encompasses the responsibilities companies have toward stakeholders can guide legislation, judicial interpretation and regulation. And regulation is a necessary component of this -- just look at mortgage securitization. The law was very, very clear, but that meant nothing without oversight.

Personally, I don't think we can define stakeholders with the same clarity as shareholders, and that makes it more important to run a full-court press. Start with elaboration of the theory, then embody the theory piecemeal in legislation, case law and regulation. It's a lot of work, but Law and Economics did it. It's possible, with time, money and dedication.

Apple was apparently rather stung by that TAL episode. They've released a PDF of all their suppliers, and are apparently hiring a third party to go inspect factories. How meaningful that will be, I dunno, announced inspections can miss an awful lot, but I suppose it's better than nothing.

More info in this Metafilter thread.

I was at the doctor's office and read a fascinating article on how a "stakeholder" economy can work, and work quite well. That economy is Germany:

Instead, the German economy is based on close partnerships between the public and private sectors — and between management and workers. A network of state-funded research institutes helps incubate innovation, and worker representatives have long sat on German corporate boards. Before the euro crisis hit, these partners hashed out a scheme called Kurzarbeit, or short-time work, under which the government agreed to supplement wages if companies reduced hours for skilled workers rather than laying them off entirely. Bertram Caspari, personnel director of a Mercedes truck factory south of Berlin, was told in 2008 to slash production by half. "We did not fire a single person," he said. "Not one." If Germany has a lesson for other nations, it's that far-sighted political and business leadership can work wonders, especially if they work together, says Steven Rattner, the financier and former Obama administration auto-industry czar. "The German model shows that a developed country can remain competitive even in a world where new economic giants, such as China, India, and others, are emerging," Rattner says.

http://theweek.com/article/index/223...

Of course, one thing I'll say about a stakeholder economy - it also requires workers to be partners with management. American unions are not particularly strong, but they always seem to be at odds with the CEOs. It's even worse in the public sector unions.

Double post - sorry.

jdzappa wrote:

American unions are not particularly strong, but they always seem to be at odds with the CEOs.

That might have something to do with the fact that CEOs have been incredibly hostile to any hint of organization of labor since the 1830s. It's hard to be buddy-buddy with someone who responds to your calls for better wages or working conditions with bullets and batons.