The New Commandment: Thou Shalt Maximize Shareholder Value at Any Cost

On August 5, 2014, Patrick O’Connor wrote in the Wall Street Journal about a WSJ/NBC poll that had just been released. It was a real downer, reflecting great unease about conditions in the US based on substantial economic anxiety and overwhelming pessimism about future prospects for the nation’s children. By a significant margin, the respondents placed the blame on Washington and both political parties. The primaries for both major parties this year, and numerous accompanying polls reported in the press, have demonstrated that the 2014 attitudes have not changed. But the truth is this: the responsibility primarily lies elsewhere. It rests with those corporate chieftains whose recklessness and indifference have brought us the economic havoc, injustice and hardship which led to the terrible poll numbers, and whose political clout through the corrupting influence of political money has caused the virtual paralysis in Washington.

Why has our corporate sector acted so badly? Why the colossal selfishness? Why the inequality so emphatically denounced by Pope Francis and of great concern to so many? I believe the answer can be traced to the arrival, as if from on high, of something I call “the New Commandment.” Here’s why:

My dad was an altar boy in the North End of Boston. He graduated from Boston College, a Jesuit university. I did not attend a Catholic school, but learned about the faith in after-school catechism classes. My three sons attended Catholic high schools, and one went on to St. Joseph’s in Philadelphia, another Jesuit university.

Of course over the years, there were occasional discussions about lessons learned in the various Catholic religious classes or instructions we attended. But never did they include anything about this powerful new commandment that today seems to be the dogma guiding the corporate world: the chief responsibility of corporate management is to enhance shareholder value. Imagine that. Instead, we were taught: “thou shalt not kill”; “thou shalt not steal”; “thou shalt not bear false witness” and “thou shalt love thy neighbor as thyself.” We also learned, “When you did this to the least of my brethren, you did it to me.” But about the commandment to enhance shareholder value, we were taught nothing.

Where did this new commandment come from? Did a great prophet (not profit) preach it from a mount, such as that on which Jesus taught us how we treat one another? No, that didn’t happen. In fact, as Jia Lynn Wang wrote in The Washington Post, there is “… no statute in state or federal law requiring corporations and executives to maximize shareholder value.” So it did not come from our secular legislatures either. No, this commandment was given to us by Professors Michael Jensen of the Harvard Business School and William Meckling of the Simon School at the University of Rochester in a paper published in 1976 entitled, “A Theory of the Firm: Governance, Residual Claims and Organizational Forms.” Wow! Holy writ from business school heaven! In a startling coincidence, 1976 also was the year that the US Supreme Court struck a key provision of the Federal Election Campaign Act in Buckley v. Valeo, handing us the concept that money equals free speech. This decision has been followed by others that built upon this idea, giving money heavenly power in elections by essentially conferring human rights upon non-human corporations, allowing Mitt Romney to utter his immortal phrase: “Corporations are people too.” Was this a miraculous virgin birth? Or was it the creation of a non-fiction Frankenstein monster?

The new commandment to enhance shareholder value was repeated over and over again, sinking into the public consciousness, until it was fully embraced in 1997 by the Business Roundtable with the kind of fervor only devoted disciples could demonstrate. As reported by Wang, “[The Roundtable] stated that the principal objective of a business enterprise ‘is to generate economic returns to its owners…'”

Clearly, this new commandment is not a guide for how to do justice to all touched by a corporation’s activity. It is not a prescription for fairness. It is not a call to embrace the community. It is not a reminder that we are our “brother’s keeper.” It does not tell us to “do unto others as we would have done to ourselves.” It does not echo the words of Ebenezer Scrooge’s late partner, Jacob Marley, after Scrooge told him, “But you were always a good man of business,” to which Jacob Marley’s ghost emphatically but mournfully replied, “Mankind was my business.” No. This commandment is permission for corporate management to do exactly the opposite. Just think through its implications: management now has an excuse, indeed an incentive, to:

1. Ignore the needs of workers by sending their jobs overseas, cutting their pensions, manipulating their hours to avoid providing health care, fighting the existence of unions with all their considerable might, demonizing an increase in the paltry minimum wage paid to millions who, in turn, cannot pay for necessities;

2. Ignore the needs and safety of their customers, workers and fellow citizens by both fighting and ignoring laws and regulations to insure the safety of products and the working environment. Think General Motors’ faulty switches; the Upper Big Branch Mine deadly disaster in West Virginia; the salmonella outbreaks from tainted uninspected food; the inability of the Food and Drug Administration to certify the safety of literally thousands of additives in our foods; and illnesses linked to air and water pollution;

3. Ignore their responsibility to share the burden of financing the government by pursuing every option — from tax subsidies, to tax avoidance schemes, to mergers with overseas companies — so as to be taxed at lower rates, even though the bulk of their customers and facilities are in the US. Remember the report about Walgreen’s attempt to change its incorporation to Switzerland to avoid US taxes after receiving millions in incentives from its home state of Illinois, and receiving billions from their fellow US taxpayers annually in the form of Medicare payments for its prescription drugs. Walgreens was shamed into abandoning this action, but other US companies have decided to abandon their obligations to the country that nurtured and protected them, for they have no shame; they are “enhancing shareholder value.”

4. Ignore the financial security of their fellow citizens by fighting mightily to weaken the agencies which protect them, like the Securities and Exchange Commission and the Consumer Financial Protection Bureau. Think of Bernie Madoff and the people he robbed; think of the $13 billion fine levied against JP Morgan, the $16 billion fine levied against Bank of America and other huge fines levied against the “too-big-to-fail” financial giants who devastated the lives of millions of their fellow Americans, brought us to the brink of another Great Depression, successfully sought the help of the US taxpayers and now react with anger at any effort to reign them in and prevent another catastrophe.

Now contrast the passes given to the financial titans with the case of Richard Van Horn, age 60, of Alabama, laid off in 2012 after four years on a job. He was unable to find steady work while caring for an infirm wife, step-daughter and her 1-year-old infant. He could not pay the trash bill for three months for the rental property in which he and his family were struggling to survive, and was charged with a misdemeanor. Despite the fact that such a charge carries no jail time, he was indeed jailed and required to put up a $500 bond for release. Naturally, he could not afford that, so he faced the prospect of almost two months in jail before his court date, with no one able to care for his wife. When the SPLC learned about this atrocity, their lawyers went to work and rescued Van Horn. So there you have the contrast: the privileges enjoyed by our corporate elite — billions of dollars in fines for ruining the lives of millions of people, but no indictments or prosecutions — and months of jail time for some poor guy willing to work, but unable to find a steady job leading to inability to pay a paltry trash fee whose failure hurt no one.

The actions described above have resulted from the worship of the new commandment to “enhance shareholder value” and these actions have been abetted by five (including the late Antonin Scalia) members of a US Supreme Court seemingly in love with the idea of corporations having the same rights as real human beings, the latest being “religious rights.”

So who benefits from the new commandment? Certainly not workers whose wages have remained virtually stagnant for years. Perhaps the clue to the real beneficiaries lies in the makeup of the CEO compensation packages we read about, which include huge awards of shares. Is it not conceivable that the shareholder value which they are most concerned to “enhance” is their own? If corporate management is so concerned about shareholders, why is it that they fight with all their might to beat back any attempt by shareholders to enhance their influence over the management of the company?

This is the reality: Corporations are not human beings, therefore they have no consciences. The people who run them are human beings, and this new commandment has given them license to ignore their consciences. The effectiveness of the new commandment has been tested and results have been disastrous for everyone except the corporate chieftains who religiously abide by it.