Building the Stakeholder State

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Andrew Stuttaford
·11 min read
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Welcome to the Capital Note, a newsletter about business, finance, and economics. On the menu today: corporatism in action, trusting China on the environment, the rise of retail investors (continued), France moves toward a ban on short-haul flights, coffee and interstates. To sign up for the Capital Note, follow this link.

Corporations, Corporatism, and Democracy
After all the discussion around corporate involvement in the debate over voting laws in Georgia and Texas, Michigan is now coming into focus:

The New York Times:

The chief executives of 30 of Michigan’s largest companies, including Ford, General Motors and Quicken Loans, announced their opposition on Tuesday to changes in the state’s election laws that would make voting harder — an apparent effort to get ahead of the issue, rather than come under pressure after laws are passed, as happened to two big Georgia-based companies, Coca-Cola and Delta Air Lines.

In a joint statement, the companies’ leaders warned against passing laws that reduce voting by “historically disenfranchised communities, persons with disabilities, older adults, racial minorities and low-income voters.’’

And in what appeared to be a shot across the bow of G.O.P. lawmakers planning to cut out the Democratic governor, the executives said election laws “must be developed in a bipartisan fashion to preserve public confidence.”

And wait, there’s more:

From the Washington Post:

More than 100 chief executives and corporate leaders gathered online Saturday to discuss taking new action to combat the controversial state voting bills being considered across the country, including the one recently signed into law in Georgia.

Executives from major airlines, retailers and manufacturers — plus at least one NFL owner — talked about potential ways to show they opposed the legislation, including by halting donations to politicians who support the bills and even delaying investments in states that pass the restrictive measures, according to four people who were on the call, including one of the organizers, Jeffrey Sonnenfeld, a Yale management professor.

While no final steps were agreed upon, the meeting represents an aggressive dialing up of corporate America’s stand against controversial voting measures nationwide . . .

Some will see this as an example of “woke capital” on the march, but, wherever one stands on the voting rules, there is a deeper issue at play, which is not only a question of how far corporations should become involved in politics, but why. And the answer to the second question profoundly affects the first.

In his article (read the whole thing!) yesterday on this topic, Dan Mclaughlin notes:

As Adam Smith — no critic of free-market capitalism — once wrote:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

When the heads of major businesses with significant market power gather to agree on steps like collectively “delaying investments,” they are on dangerous ground for society, and sometimes for themselves.

For themselves?

Dan explains:

Undoubtedly, to the extent that some of their businesses compete with each other, the corporate executives on Saturday’s call would argue that they are seeking no advantage for their companies, and it is more likely than not — even in the perennially unpredictable forest of antitrust rules — that this argument would successfully immunize them from legal liability under federal antitrust law (state laws can be another story). But they would be doing so by openly admitting that they are wielding the resources of major corporations for no economic benefit to the shareholders, to whom they owe a fiduciary duty as stewards of corporate assets.

And that is the key point. Corporations have long attempted to influence political decision-making. But it is one thing to do so in the pursuit of the bottom-line, a company’s fundamental purpose (there are rules designed to ensure, not always perfectly, that this does not tip over into bribery), but it is quite another when managements are throwing corporate muscle behind political campaigns that have nothing to do with their business.

Writing for Capital Matters yesterday (and read his article too!), Vivek Ramaswamy:

“The legislation is unacceptable. It is a step backwards and does not promote the principles we have stood for in Georgia,” declared James Quincey, CEO of Coca-Cola. “Our focus is now on supporting federal legislation that protects voting access and addresses voter suppression across the country.” Delta CEO Ed Bastian added: “The final bill is unacceptable and does not match Delta’s values.” But why should Americans care about whether an election statute matches the values of a private airline company or a soft-drink manufacturer? Mr. Bastian didn’t say. Apparently he holds such truths to be self-evident.

Quite. The shareholders of Delta and Coca-Cola should be asking what on earth is going on. To revert to Dan’s point, the Business Roundtable and the grandees of Davos might be busy proclaiming that the age of “stakeholder capitalism” (the idea that the board and management of a company owe a primary duty to a series of generously defined “stakeholders,” of whom shareholders are just one group) has arrived, but such proclamations do little or nothing to change the interpretation of what fiduciary duty to shareholders actually means, whether legally or morally.

Nor do they change the fact that what we appear to be seeing is the exercise of something subtler than the crude exercise of “corporate rule.” Rather, it is the hijacking of shareholder capital by a largely unaccountable managerial class as their contribution to the construction of a state run in the name of various interest groups (“stakeholders”) rather than by the voters. Put another way, stakeholder capitalism is an expression of corporatism, an ideology, which, despite the sound of its name, has nothing with the C-suite, except as the means to a broader end.

Corporatism has been around for a long time, and, as I noted last July:

Corporatism takes many, many forms. It can range from the relatively (relatively) benign — it runs through European Christian Democracy, and it can be detected in early-20th-century American Progressivism — to the infinitely more heavy-handed. It has been an important element in the theory, if not the practice, of some variants of fascism, most notably in Mussolini’s Italy, but not only there.

My suspicion is that what we are seeing developing here is something that is less, rather than more, benign although, as I argued back then, it would never be quite post-democratic, not quite, in any likely American form. If I had to guess, it will more likely involve either bypassing the usual democratic decision-making process or distorting it — or both.

And, yes, the agenda will be “progressive.”

Around the Web
On what parallel planet is this true?

Bloomberg Green:

An ambitious pledge to cut greenhouse-gas emissions under consideration by the U.S. gives President Joe Biden more leverage when he hosts leaders for a climate change summit later this month — presenting a particular challenge to China’s Xi Jinping.

The White House may commit to emissions cuts of 50% or more from 2005 levels by 2030, Bloomberg reported last week. Officials are looking at opportunities across the federal government on standard-setting, clean energy investments and resilient infrastructure plans, according to people familiar with the deliberations.

It’s uncertain whether the U.S. can actually deliver on such a bold plan, but the indication that Biden is willing to significantly up the ante on emissions targets may put pressure on China, which has already tried to position itself as a leader in reducing greenhouse gases . . .

Xi must be laughing.

Going Retail:

After CarParts.com reported its quarterly results last month, executives at the company, which sells replacement auto parts, did what many of their ilk do: They held a conference call with Wall Street analysts, fielding questions about inventory levels, profit margins and corporate strategy.

Roughly 30 minutes later, the same executives were on Clubhouse, hosting an entirely different kind of audience. Their 2,000 or so guests had gathered at the buzzy online meeting spot to learn about the company. Their questions were far more straightforward. How did the business work? Why was CarParts.com able to offer lower prices than brick-and-mortar rivals? Were CarParts.com shares worth buying?

David Meniane, CarParts.com’s chief financial officer and chief operating officer, called the session an experiment. “We’re trying to disrupt the way people fix their cars,” he said. “Is there a way for us to disrupt how retail investors communicate with management?”

As the stock holdings of American households have soared to a record level over the past year, dozens of companies are suddenly paying more attention to individual investors. Some, like CarParts.com, are trying to transform newly minted traders of Reddit-fueled viral “meme stocks” like GameStop into dedicated shareholders. And some of those meme stock companies, including GameStop itself, are issuing new shares.

“The individual shareholder is back,” said Lawrence Cunningham, a professor at George Washington University Law School, who researches corporate governance and runs a research project that studies individual shareholder behavior. “Corporations would do well to pay attention and cultivate them.”

Small investors who buy single stocks have not been a major force in financial markets for the better part of half a century. In the 1960s, such investors controlled over 85 percent of the stock market, with most portfolios built around concentrated holdings in a few blue-chip companies . . .

I wonder how long this lasts.

Always compulsion.

BBC:

French lawmakers have moved to ban short-haul internal flights where train alternatives exist, in a bid to reduce carbon emissions.

Over the weekend, lawmakers voted in favour of a bill to end routes where the same journey could be made by train in under two-and-a-half hours.

Connecting flights will not be affected, however.

The planned measures will face a further vote in the Senate before becoming law.

Airlines around the world have been severely hit by the coronavirus pandemic, with website Flightradar24 reporting that the number of flights last year were down almost 42% from 2019.

The measures could affect travel between Paris and cities including Nantes, Lyon and Bordeaux.

The French government had faced calls to introduce even stricter rules.

As it happens, I would always take a train rather than a flight under those circumstances. Throw in getting to the airport and going through security and the trip will almost certainly be quicker, and probably more relaxing, but I’d like the choice to do otherwise. And keep an eye on those calls for “even stricter rules.”

Random Walk
Why are there only (rarely) service plazas on the Interstate?

Reason:

If you’re like me, you may have had an experience like this. You’re driving after dark on an Interstate highway and you need a good cup of coffee. If you’re on the Florida Turnpike or the Indiana Toll Road, you could stop at the next service plaza and take your choice at an array of retail outlets. But on 95 percent of the Interstate highways, your only option is to wait for an offramp with signs pointing in either direction to gas stations and fast-food places up to several miles away. Some may be closed, and some may be hidden away in shopping plazas.

If your travels have included toll roads, you may wonder why 95 percent of all Interstate miles don’t have service plazas like the turnpikes. The answer is that it’s against federal law. Back in 1960, when the first Interstates were being built, gas station and restaurant owners along the old highways––like U.S. 66 and U.S. 41, which went right through towns and cities—feared bankruptcy because the Interstates bypassed all those towns. So they lobbied Congress to forbid service plazas on the new Interstates. This gave them the chance to stay in business by building new gas stations and fast-food outlets clustered around Interstate offramps. The fledgling truck stop industry allied itself with the small-town merchants, and built their truck stops as near as they could to Interstate offramps.

Today, 61 years later, a lot of things have changed. There’s a huge national shortage of safe overnight truck parking spaces, due to commercial trucking growing faster than land-constrained truck stops. It’s also the result of long-overdue federal enforcement of driver hours-of-service regulations, which drivers can no longer evade thanks to electronic (rather than paper) logbooks.

Second, there’s a growing need for electric vehicle (E.V.) charging stations, which have been built mostly in urban areas for commuters and service trucks, but hardly exist on major long-distance highways. The most convenient location for range-anxious E.V. motorists would be at Interstate rest areas. But unless the electricity were given away, that’s a commercial service and hence against the law . . .

— A.S.

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