A few days ago, I posted an excerpt from a New York Times op-ed written by Peter Georgescu, the Young & Rubicam chairman emeritus, who believes wealth inequality must be remedied by corporations (not particularly likely) or we’ll have social uprisings and ginormous tax increases. Well, something’s got to give.
The essay touched a nerve, leading to a raft of Facebook questions directed at the writer. He answered some of them for the Times. Unfortunately, none address automation potentially adding to the short- and medium-term woes with technological unemployment.
One exchange about what the questioner and Georgescu see as the precarious position of contemporary capitalism:
Question:
A quick prelude is that I fear that our capitalist model is in danger. In the early days of capitalism (here in the US and elsewhere) companies were mostly family owned and run even for generations. Now we have the board, stockholders and CEO model, which appears very flawed. The stockholders often are just looking for short term gain, the board has no real ties to or ‘skin’ in the company, and the CEO is often colluding with the stockholders for short term gain.
After that long-winded lead in, do you share those fears? Any thoughts on improving the current public corporate model? How about the German system of requiring public corporations to have a union representative on the board?
Peter Georgescu:
I fear for the future of capitalism in our country and around the world. Capitalism really means free enterprise. The name came from the resource that once drove the free-market engine. Capital no longer plays that prominent role. Creativity and innovation drive global business today. Capital is just one resource, important, but no longer the major differentiator. Historically, this so-called capitalist free-enterprise engine achieved extraordinary results. It propelled America into the superpower that is it today. It lifted hundreds of millions of people from deep poverty to a more humane standard of living. (Think China, India, Brazil, countries in Africa and more.)
But that extraordinary engine has been hijacked by a rogue philosophy that says that shareholders’ interests come first and which threatens to destroy both this magnificent engine and our very way of life. The misguided philosophy says that one of a corporation’s stakeholders, the shareholders, deserves to have their value maximized in the short term. The three other vital stakeholders are not adequately represented at the decision-making table and inadequately compensated. First, the employees — who are the real value creators. They have been turned into a cost to be squeezed. Then, the corporation itself, where investment in R&D and innovation is grossly inadequate. Finally, a business’s customers, who should be a corporation’s prime stakeholder — not the shareholders.
Even the moral justification that the shareholder is the owner and an owner gets what they want when they want it is a myth. In fact the shareholder is a mentor at best. They come into stock when they want and leave at their will. And they are of course immune from any corporation liabilities. That’s not ownership. The preponderance of legal opinion is clear. The corporation owns its own assets, not the shareholder.
So yes, we must rebalance a business’s incremental value returns among the key stakeholders — the employees, the shareholders and the corporation itself. And we must always put the customer’s interests first.
If we do that, we can liberate free enterprise from its present-day shackles.•
