A recent article in The Washington Post criticizes the recent announcement by the Business Roundtable—an organization of corporate CEOS– that its members are “redefining the mission of their companies ‘for the benefit of all stakeholders.’ “
The article argues that the new policy reflects a lack of faith in capitalism, asserting that “capitalism done well will benefit the so-called stakeholders, but they are not its purpose.” The article cites the example of Warren Buffett’s purchase of the Berkshire Hathaway mill in 1965 and his eventual closing of the mill—a painful move for many “stakeholders” including the mill’s employees and the town of New Bedford as a whole—but ultimately a move that reflected “benevolent capitalism.” Berkshire then diversified into insurance, media, candy, furniture and a portfolio of stocks and saw the firm’s share price rise by 190 times over the next twenty years. By contrast, competitor Burlington Industries, which consistently channeled profits back into textiles, saw its share price remain flat for those same twenty years, the article notes.
According to Buffett, Burlington’s story showed what happens when “much brain power and energy are applied to a faulty premise.”
The Roundable’s new policy, the article contends, “is the latest shot in the struggle between corporate owners and the hired hands that has bedeviled American business for a century” as it will put management in the position to “hijack the corporation’s purpose.”
The article concludes, “CEOs are, already, the most coddled and overpaid class in America,” adding, “But the remedy for capitalism done poorly, or greedily, is not to scrap it for a fluffy social agenda. The remedy is capitalism done better.”