In today's
once great Washington Post Bezos Bugle, Jia Lynn Yang traces
the change in corporate culture and the "social contract", and the changes wrought in one of America's great companies, IBM, and a town in New York -- Endicott:
This town in the hills of Upstate New York is best known as the birthplace of IBM, one of the country’s most iconic companies. But there remain only hints of that storied past.
The main street, once swarming with International Business
Machines employees in their signature white shirts and dark suits, is
dotted with empty storefronts. During the 1980s, there were 10,000 IBM
workers in Endicott. Now, after years of layoffs and jobs shipped overseas, about 700 employees are left.
Why are employees doing so badly while the company is surviving?
It used to be a given that the interests of corporations and
communities such as Endicott were closely aligned. But no more. Across
the United States, as companies continue posting record profits, workers
face high unemployment and stagnant wages.
Driving this change is
a deep-seated belief that took hold in corporate America a few decades
ago and has come to define today’s economy — that a company’s primary
purpose is to maximize shareholder value.
It wasn't always so, of course:
In the decades after World War II, as the U.S. economy boomed, the
interests of companies, shareholders, society and workers appeared to be
in tune. Towns such as Endicott flourished.
Even until 1981, the Business Roundtable trade group understood the need to balance these different stakeholders.
“Corporations
have a responsibility, first of all, to make available to the public
quality goods and services at fair prices, thereby earning a profit that
attracts investment to continue and enhance the enterprise, provide
jobs, and build the economy,” the group said at the time, in a document
cited this year in an article in the publication Daedalus.
There must have been a shift in corporate philosophy, and not just at IBM, right?
In 1970, Nobel Prize-winning economist Milton Friedman wrote an
article in the New York Times Magazine in which he famously argued that
the only “social responsibility of business is to increase its profits.”
Then
in 1976, economists Michael Jensen and William Meckling published a
paper saying that shareholders were “principals” who hired executives
and board members as “agents.” In other words, when you are an executive
or corporate director, you work for the shareholders.
Stout said
these legal theories appealed to the media — the idea that shareholders
were king simplified the confusing debate over the purpose of a
corporation.
What the article goes on to show is that not only are people losing good middle class jobs, but pensions have been disappearing, and customer satisfaction is suffering. In their mania to please the shareholders (and Wall Street), executives don't concern themselves with anything other than setting ambitious Earnings Per Share targets, and sitting on record corporate profits. Not product, certainly not any "social contract" that might lead them to do what's right for the people who
are the company, or their country.
So, who comes out ahead? The shareholders (many of them fellow boomers and retirees) and the short-sighted executives. And the vicious cycle will continue until there is no more middle class to buy their products or services:
But as sales flatten, questions have emerged about how the company will hit its ambitious target, aside from slashing jobs.
“This
is a horrible business model,” said Lee Conrad, a coordinator for
Alliance@IBM, a group that advocates for company employees. “It’s all
about the EPS [earnings per share] and not about growing the business.
The customers are being impacted by this when good employees are being
cut. It’s just a mess.”
Such is the "I, Me, Mine" world in which these corporate myopes and their precious/ feared shareholders are living.