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The Rebirth of Stakeholder Capitalism?

By       Message Robert B. Reich     Permalink
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Cross-posted from Robert Reich Blog

From youtube.com/watch?v=kDRW0MbHC_c: Market Basket new shopping plaza with
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In recent weeks, the managers, employees, and customers of a New England chain of supermarkets called "Market Basket" have joined together to oppose the board of director's decision earlier in the year to oust the chain's popular chief executive, Arthur T. Demoulas.

Their demonstrations and boycotts have emptied most of the chain's 70 stores.

What was so special about Arthur T., as he's known? Mainly, his business model. He kept prices lower than his competitors, paid his employees more, and gave them and his managers more authority.

Late last year he offered customers an additional 4 percent discount, arguing they could use the money more than the shareholders.

In other words, Arthur T. viewed the company as a joint enterprise from which everyone should benefit, not just shareholders. Which is why the board fired him.

It's far from clear who will win this battle. But, interestingly, we're beginning to see the Arthur T. business model pop up all over the place.

Pantagonia, a large apparel manufacturer based in Ventura, California, has organized itself as a "B-corporation." That's a for-profit company whose articles of incorporation require it to take into account the interests of workers, the community, and the environment, as well as shareholders.

The performance of B-corporations according to this measure is regularly reviewed and certified by a nonprofit entity called B Lab.

To date, over 500 companies in 60 industries have been certified as B-corporations, including the household products firm "Seventh Generation."

In addition, 27 states have passed laws allowing companies to incorporate as "benefit corporations." This gives directors legal protection to consider the interests of all stakeholders rather than just the shareholders who elected them.

We may be witnessing the beginning of a return to a form of capitalism that was taken for granted in America 60 years ago.

Then, most CEOs assumed they were responsible for all their stakeholders.

"The job of management," proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in 1951, "is to maintain an equitable and working balance among the claims of the various directly interested groups ... stockholders, employees, customers, and the public at large."

Johnson & Johnson publicly stated that its "first responsibility" was to patients, doctors, and nurses, and not to investors.

What changed? In the 1980s, corporate raiders began mounting unfriendly takeovers of companies that could deliver higher returns to their shareholders -- if they abandoned their other stakeholders.

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http://robertreich.org/

Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.


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