Issue of the week: capitalism’s caring future
The doctrine of shareholder supremacy has reigned for nearly half a century. Is it now dead?
There’s a rumour doing the rounds on social media concerning Rupert Hogg, who resigned as CEO of Hong Kong’s Cathay Pacific airline last week, said Ian Birrell on Unherd. It’s claimed that when the Chinese authorities ordered him to submit a list of employees who’d taken part in the protests, he sent them a list which “had only one name on it: his own”. Wouldn’t it be great if this superb story, which appeared in a Taiwanese newspaper, were true? It would be such a welcome contrast to “all the grubby kowtowing” shown by other Western business leaders who all toe the Beijing line to preserve their flow of profits. At a time of immense change – in Hong Kong and elsewhere – capitalism “needs more heroes” like this. Businesses have the power to transform society, yet too many think only of maximising returns at the expense of wider society. No wonder capitalism is held to be in crisis.
What would the late Milton Friedman have made of it all, asked Quartz. The late Nobel-winning economist argued in the 1970s that business leaders who talk about corporate social responsibility are “preaching unadulterated socialism”. His line – embraced by ensuing generations of business leaders – was that shareholders, as the owners of companies, had “primacy” and that the sole duty of boards was to provide them with profits; “free markets would look after everything else”. Well, the markets haven’t held up their end of the bargain. But Friedman’s doctrine is now being challenged from the heart of the capitalist citadel itself. Last week, America’s Business Roundtable, which includes some 181 CEOs representing some of the world’s best-known brands, “issued a new definition of the purpose of a company” – placing responsibilities to customers, employees, communities and the environment “on a par with the responsibility to shareholders”.
You can understand the urgency behind the calls for change, said Andrew Ross Sorkin in The New York Times. Americans now mistrust companies to such an extent “that the very idea of capitalism is being debated on the political stage”. Moreover, the shift in attitude comes at a time of mounting global discontent over income inequality, harmful products and poor working conditions. Some reckon there’s every reason to be sceptical about this initiative – The Wall Street Journal has dismissed it as political spin that is unlikely to shield CEOs from populist attacks. And there were some “notable holdouts” from the Roundtable itself – including Blackstone and General Electric. Nonetheless, when CEOs start looking beyond shareholders – and “rebelling against shareholder democracy itself” – it amounts to quite a revolution.