Continuing the discussion about “stakeholders” vs. “shareholders,” Karen De Coster suggests here that: “[John] Mackey [CEO of Whole Foods] openly supports the notion of hangers-on (stakeholders) having a stake in a corporation without having purchased an investment in that corporation.”
Perhaps I over-interpret this, but the use of the term “hangers-on” should be explored. De Coster is clearly correct that employees may well not have invested capital in a corporation. Nor have vendors or the community. But to call them “hangers-on” is, to me, troubling. If all employees of a corporation quit en masse one day, I’m pretty darned sure that news of this would drive a stock price to zero. If all vendors stopped supplying a corporation, ditto. And certainly if all customers stopped patronizing a corporation, the managements and boards of directors would quickly lose their jobs, too.
It could well be that the term “stakeholders” is like fingernails on the chalkboard to some who favor free markets. Fair enough. Perhaps the semantics of the word “constituencies” would be less abrasive.
But De Coster goes further. She suggests that “Mackey [has fallen] prey to collectivist hogwash.” Perhaps. Looking at Whole Foods’s stock chart vs. the S&P 500, however, the investor class would do well if more CEOs fell similarly prey.
More importantly, everything about a corporation says that it is a collective, but a cooperative, voluntary one. The various constituencies contribute what they contribute in the hopes of a return, in the form of compensation for the staff, an ongoing revenue stream for vendors, and a satisfying shopping experience for customers. Investors, of course, seek risk-adjusted returns.
De Coster sums up by saying: “Mackey does nothing objectionable in the operation of his business, but his visions concerning corporate responsibility pander to the anti-capitalist yelpings of the collectivist parasites that look to feed off of the blood, sweat, and tears of others.”
While Mackey needs no defense from me, this statement does not conform to what he wrote. He said: “How can Whole Foods’ philanthropy be ‘theft’ from the current investors if the original owners of the company unanimously approved the policy and all subsequent investors made their investments after the policy was in effect and well publicized?”
At the risk of generalizing, I suggest that a lot of free marketeers may be in denial about what has transpired over these past 10 years especially. De Coster sites an article by Jeff Scott, a financial analyst at Wells Fargo Bank in San Francisco, who wrote: “Corporations work because shareholders expect exclusive loyalty from the [board of] directors.”
Where to begin? My years in Corporate America included sitting in board of directors meetings, and following closely their pronouncements. While anecdotal, I assure Scott that boards often do not act in “exclusive loyalty” for the shareholders. In fact, boards are generally made up of buddies of the chairman and CEO, and it is exceedingly rare that shareholders nominate and elect truly independent board members. “Expecting” anything other than conflicted (at best!) behavior from boards is a mistake, I’d suggest to any investor.
Mackey is, in my opinion, at the forefront of a paradigm shift, one that is at once pro-liberty, but which rejects the old atomistic worldview that is not working, and cannot work.
-Robert Capozzi