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Corporate Reform in an Age of Intensified Class Warfare
In a system where corporations are central in economic activity, economic crises have always and necessarily produced plans and programs of renovation and improvement designed to make corporations more responsive to the public interest. Of course, there have always been some who urged nationalization or worker control; i.e., the replacement of the corporate system with a genuinely new order. Thus far, the system has been able to fend off all such demands, although government ownership has sometimes spurted in emergencies, so far only briefly (e.g., during World War II and as a result of the Savings & Loan crisis), followed by subsequent divestment. Over time, government ownership has declined as the business system has sought to occupy all space in which profits can be made. Thus, as the military budget has grown, in-house arms production has largely disappeared, displaced by the "contract state." The triumph of neo-liberalism and the parallel intensified class war has been associated with further "privatization," which has not only opened up more avenues for private profits, but also weakened the state as a potential agent of ordinary citizens.
A similar point can be made as regards worker control. It does not fit well into a neoliberal system in which worker protection at all levels tends to be eroded in favor of "flexible" labor markets. Workers' rights got a major boost during the Great Depression, with the Wagner Act and the federal government serving to some extent as an employer of last resort. But class warfare was renewed with the 1947 Taft-Hartley Act and the "red scare" and purges of the Truman-McCarthy era. It subsided for the next decade or so, but the Vietnam War, peace and civil rights protests, and new competition from abroad revitalized business class war aggressiveness. The resultant decline of the labor movement and reduced labor bargaining power has manifested in a weakened safety net, stagnant wages, greater inequality, and increased worker insecurity and loss of control.
Other long-standing reform strategies have been decentralization—breaking up the large corporations so as to reduce their political muscle and enhance competition—and regulation, sometimes involving the establishment of government bodies to oversee corporate activities and approve or disapprove corporate decisions. These have a long history, reflected in antitrust laws and policies and regulatory authority over many activities, from railroads, banks, and public utilities to alcoholic beverages and waste dumps. Regulation surged in the Great Depression, forcing the separation of commercial and investment banks and establishing the SEC and securities regulation. Antitrust was revitalized and public utility holding companies were broken up.
Today there is talk of breaking up the giant financial conglomerates that are "too big to fail" and there is some possibility that large companies like GM and Chrysler, as well as AIG, might be sold off in pieces as part of bankruptcy proceedings (and government ownership actions as regards AIG). But with respect to the largest financial institutions, there has been a tendency to favor them with extraordinary subsidies and guarantees and to encourage them to merge into still larger entities. The situation is still volatile, but major decentralizations would appear less likely than greater concentration, along with an increased unwillingness to allow the super-giants to fail and an even closer relationship between big finance and big government.
Regulatory changes in the 1930s included the splitting off of commercial and investment banks, required disclosure of corporate developments, bans on insider trading, tightened supervision of banks and bank holding companies, and the regulation of investment companies (mutual and closed-end funds). Equally important, of course, was that the regulators in the early years tended to believe in regulation and often actually tried to enforce the law. We had William Douglas in charge of the SEC in the 1930s, a rather marked contrast with the regulation-hostile (and incompetent) Christopher Cox chairing the SEC in the Bush-Cheney era.
Regulation in the 1930s and afterwards put a fair amount of weight on disclosure in the belief that compelling business to reveal all the relevant business facts would protect buyers of securities and other products from abuses like insider trading and market manipulation and would make markets work more efficiently. In the oft-quoted line by Louis D. Brandeis, "Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman." There is some truth in this and there is little doubt that required disclosure has been economically beneficial. But it has its limitations, as truth can be buried in an avalanche of irrelevancies ("kitchen-sinking"), important facts may not be meaningful without context, and weak regulation may make it good business to suppress inconvenient truths. The explosion in executive (over-)compensation took place in a world of theoretical "full disclosure," but with the media and government doing their duty for the vested interests, this explosion was only brought under some limited constraint by the 2007-2009 economic collapse.
In the midst of each economic crisis, there is also a regular outcry at the failure of corporate boards to keep managers in line and prevent their suddenly more evident and better publicized personal aggrandizement and mistaken policies. There is also criticism of large investors, individual and corporate, who failed to press the boards and managers to do the right thing. There is a demand for new laws and improved regulation of corporations, more independent directors, and a change in the outlook and sense of responsibility of these directors and stakeholders who should be guiding and constraining the managers.
There also has been an important line of thought that the managers themselves should take a more generous and community-oriented view and self-transform the system. This kind of thinking was encouraged by the 1932 publication of The Modern Corporation and Private Property by A.A. Berle and Gardiner Means, which argued and gave empirical evidence for the view that the wide dispersion of stock and management control of the proxy machinery led to the dominance of managers in the leading corporations. This gave the managers a fair amount of discretion, and, arguably, they could use it to benefit a range of stakeholders.
This line of argument was pursued later by A.A. Berle in articles and books on corporate responsibility and managers as trustees. The phrase "corporate soul" is traceable back to Berle, who thought corporations had them and whose soulfulness and trustee service in the larger social interest should be encouraged and would develop further. It should be noted that these ideas were evolving in the 1930s crisis, at a time when the corporate system was very much on the defensive and regulation and antitrust thinking was on the upswing. The corporate soul and corporate trustee role for society were last gasp ideas of a system and ideology in retreat, and Berle, who was an official in the New Deal and later a noted Cold War hawk, served that ideology, which later made such a spectacular comeback.
As we know, the reformers of the 1930s didn't depend on soulful managers doing their duty to society, but from then up to the present corporate law was grounded in the belief that the directors, and especially the independent directors, would keep managers in line, and in particular help make them agents of the shareholders. This has never worked, because the directors are not very independent—they are selected or approved by the top managers, who may be their friends, are well paid, lack the knowledge or time needed for effective surveillance or challenge, and who may have or want business relationships with the companies they serve as directors. Deference by leaders of other companies may be part of a system of reciprocal behavior. It is especially hard to actively intervene and constrain managers when companies prosper.
Of course, in theory and law the directors represent the shareholders, but the managers themselves are also supposedly agents of the shareholders. There is a long tradition of belief that, especially with the growth of large institutional holdings of stock by mutual funds, pension funds, bank trust departments, and other substantial investors, that these would intervene, individually or collectively, to press the directors and keep managers from looting or making grave decision errors. This also has never worked because the big holders don't have the staff to intervene and, more important, don't want to disaffect the managers and lose access to useful corporate information. When they lose faith in the managers, they sell the companies' stock and go elsewhere. This is called the "Wall Street Rule."
It is interesting and even amusing to see Gretchen Morgenson in the New York Times building the case for activating those big investors as the route to corporate reform, using as her source John Bogle, the retired head and founder of the Vanguard Group of money managers and mutual funds ("He doesn't Let Money Managers Off the Hook," April 12, 2009). Bogle complains that the big investors have failed to serve as shareholder agents, as they did 50 years ago. He calls for passing a law "establishing the basic principle that money managers are there to service their shareholders...[and that] fiduciaries act with due diligence and high professional standards."
As it happens, in 1962 a Wharton School group, of which I was a member, working under the auspices of the SEC, published "A Study of Mutual Funds," the first large-scale study of that rapidly growing institution. John Bogle was one of a group of mutual fund representatives who met with the group and worked hard to soften any criticisms of the industry. The study was critical of the high management fee rates charged by the funds, which often failed to decline as a rate even with major asset growth; and it pointed up the fact that investment advisers charged higher fees to their affiliated mutual funds than to outside clients (a continuing problem mentioned by Bogle to Morgenson, but definitely not new). The study also described the wide use of mutual fund brokerage to reward people who sold a lot of mutual fund shares, a use of brokerage fees that served the advisers but surely not the mutual fund shareholders.
Most interesting, the 1962 study featured the fact that the mutual funds were quite inactive in using their holdings to discipline portfolio company managers (this was a part of the study that I worked on and wrote). Rather than intervening to serve the fiduciary interests of the company's shareholders, they followed the Wall Street Rule when managerial behavior displeased them. So there was no golden age of mutual fund (or other institutional investor) behavior 50 years ago. John Bogle has changed and become something of a moral force and conscience in the industry, but he remains an exception. Laws and exhortations are not going to make institutional investors into manufacturers of a corporate soul.
Z Magazine Archive
AnnouncementsLABOR - May 1 is May Day. Workers of the world will celebrate the 124th anniversary of International Worker’s Day. Born out of a call for an 8-hour workday in the United States, this day is an opportunity for all workers to show their solidarity with one another, as well as to renew the call for labor rights.
FARM CONFERENCE - The Farm Conference on Community and Sustainability will be held May 24-26 in Summertown, TN, in partnership with the Fellowship of Intentional Communities. Tour green homes, see sustainable food production, learn about solar installations, alternative education, midwifery, and more.
Contact: Douglas@thefarmcommunity.com; http://www.thefarmcommunity.com/.
PALESTINE - The Conference of the Palestinian Shatat in North American will be held June 3-5 in Vancouver. The conference will examine the future of the Palestinian liberation movement.
Contact: email@example.com; http://www.palestinianconference.org/.
LABOR - The Pacific Northwest Labor History Association’s 45th annual conference will be held May 3-5, in Portland, OR. This year’s theme is Labor Under Attack: Learning from the Past and Preparing for the Future. A call for presentations, workshops and papers is currently underway.
Contact: PNLHA, 27920 68th Ave. East, Graham, WA 98338; 206-406-2604; PNLHA1@aol.com; http://www3.telus.net.
MARIJUANA - On the first Saturday of May marijuana legalization activists will hold informational and educational events, rallies and marches in over 300 cities around the world.
ECONOMICS - The Union For Radical Political Economics will hold its 39th annual conference May 9-11 in New York City.
RECLAIM THE DREAM - The 2013 Poor People’s Campaign & March from Baltimore to Washington D.C. will be May 11. Communities, schools and unions interested in participating are encouraged to contact the Baltimore People’s Assembly.
Contact: 410-500-2168; 410-218-4835; BaltimorePeoplesAssembly@gmail.com; Southern Christian Leadership Conference of Baltimore and the Baltimore Peoples Power Assembly, 2011 N. Charles St., Baltimore, MD 21218.
MOTHER’S DAY - The 17th Annual Mother’s Day Walk For Peace will be May 12th, in Dorchester, MA. The walk began in 1996 for families who had lost children to violence. The day has become a way for thousands of people to financially support the work of the Louis Brown Peace Institute.
Contact: http://www.ldbpeaceinstitute.org/; http://mothersdaywalk4peace.org/.
NATO 5 - An International Week of Solidarity with the NATO 5 has been called for May 16-21. Supports call on supporters to raise awareness of the NATO 5 and support funds for the defendants on the one-year anniversary of their preemptive arrests.
Contact: firstname.lastname@example.org; https://nato5support.wordpress.com.
MOUNTAINTOP - The 2013 Mountain Justice Summer Activist Training Camp will be held May 19-27 in Damascus, VA. It will be a week of workshops, field trips to view Mountain Top Removal coal mines, direct actions, and service project.
FEMINIST SCI-FI - The feminist science fiction convention WisCon 37 is scheduled for May 24-27 in Madison, WI.
Contact: WisCon, ? SF3, PO Box 1624, Madison, WI 53701; email@example.com; http://www.wiscon.info/.
ANARCHY FEST - A month-long Festival of Anarchy is scheduled for May in Montreal. The festival includes The Montreal Anarchist Bookfair (May 19-20).
Contact: http://www.anarchistbookfair.ca/; http://www.radicalmontreal.com/.
LABOR - The International Labor Rights Forum will present: Down the Supply Chain, Driving Corporate Accountability, on May 22 in Washington, DC. The Labor Rights Awards Ceremony and Reception will honor pioneers in supply chain worker organizing, working solidarity and international labor rights policy.
MULTICULTURE - The 26th annual National Conference on Race & Ethnicity in American Higher Education (NCORE) will take place May 28-June 1, in New Orleans.
Contact: SWCHRS, 3200 Marshall Avenue, Suite 290, Norman, OK 73072; 405-325-3694; firstname.lastname@example.org; www.ncore.ou.edu.
MEDIA - The 2013 Alliance for Community Media Annual Conference will be held May 29-31, in San Francisco, CA. Participants will include educators, community leaders, media professionals, journalists, nonprofit leaders, policymakers and students.
RADIO - The 38th Annual Community Radio Conference is schedule for May 29-June 1, in San Francisco, CA, with discussions and workshops.
Contact: 1101 Pennsylvania Ave. NW, Suite 600, Washington, DC 20004; 202-756-2268; email@example.com; http://www.nfcb.org/.
BRADLEY MANNING - On June 1, a rally will be held at Fort Meade in support of Bradley Manning.
BIKES - Bikes Not Bombs is holding its 24th annual Bike-A-Thon and Green Roots Festival in Boston, MA on June 3, with several bike rides scheduled, music, exhibitors and more.
Contact: Bikes Not Bombs, 284 Amory St., Jamaica Plain, MA 02130; 617-522-0222; firstname.lastname@example.org; www.bikesnotbombs.org.
LEFT FORUM - The 2013 Left Forum will be held June 7-9, at Pace University in New York City.
Contact: 365 Fifth Avenue, CUNY Graduated Center, ? Sociology Dept., New York, NY 10016; http://www.leftforum.org/.
VEGAN FEST - Mad City Vegan Fest will be held in Madison, WI, June 8. The annual event features food, speakers, and exhibitors.
Contact: 122 State Street, Suite 405 B, Madison, WI 53701; email@example.com; http://veganfest.org/.
ADC CONFERENCE - The American-Arab Anti-Discrimination Committee (ADC) holds its annual conference June 13-16, in Washington, DC, with panel discussions and workshops on civil rights, media and other topics.
Contact: 1990 M Street, Suite 610, Washington, DC, 20036; 202-244-2990; firstname.lastname@example.org http://convention.adc.org/.
CUBA/SOCIALISM - A Cuban-North American Dialog on Socialist Renewal and Global Capitalist Crisis will be held in Havana, Cuba, June 16-30. There will be a 5 day Seminar at University of Havana, plus visits to a cooperative, urban garden, community development project, social research centers, and educational & medical institutions.
Contact: email@example.com; http://www.globaljusticecenter.org/.
NETROOTS - The 8th Annual Netroots Nation conference will take place June 20-23 in San Jose, CA. The event features panels, trainings, networking, screenings, and keynotes.
Contact: 164 Robles Way, #276, Vallejo, CA 94591; firstname.lastname@example.org; http://www.netrootsnation.org/.
MEDIA - The 15th annual Allied Media Conference will be held June 20-23, in Detroit.
Contact: 4126 Third Street, Detroit, MI 48201; http://alliedmedia.org/.
GRASSROOTS - The United We Stand Festival will be hosted by Free & Equal, June 22 in Little Rock, Arkansas. The festival aims to reform the electoral process throughout the U.S.
SOCIALISM - The Socialism 2013 Conference is scheduled for June 27-30 in Chicago, featuring talks and panel discussions.
Contact: email@example.com; http://www.socialismconference.org.
LITERACY - The National Association for Media Literacy Education (NAMLE) will hold its conference July 12-13 in Los Angeles under the heading, Intersections: Teaching and Learning Across Media.
Contact: 10 Laurel Hill Drive, Cherry Hill, NJ 08003; http://namle.net/conference/.
IWW - The North American Work People’s College will take place July 12-16 at Mesaba Co-op Park in northern Minnesota. The event will bring together Wobblies from branches across the continent to learn new skills and build One Big Union.
PEACESTOCK - On July 13th, the 11th Annual Peacestock: A Gathering for Peace, will take place at Windbeam Farm in Hager City, WI. The event is a mixture of music, speakers and community for peace. Sponsored by Veterans for Peace.
Contact: Bill Habedank, 1913 Grandview Ave., Red Wing, MN 55066; 651-388-7733; firstname.lastname@example.org; http://www.peacestockvfp.org.
CHILDREN’S DEFENSE - July 15-19, join clergy, seminarians, Christian educators, young adult leaders and other faith-based advocates for children at CDF Haley Farm in Clinton, Tennessee, for five days of spiritual renewal, networking, movement building workshops, and continuing education about the urgent needs of children at the 19th annual Proctor Institute for Child Advocacy Ministry.
Contact: email@example.com; http://www.childrensdefense.org.
ACTIVIST CAMP - Youth Empowered Action (YEA) Camp will have sessions in July and August in Ben Lomond, CA; Portland, OR; Charlton, MA. YEA Camp is designed for activists 12-17 years old who want to make a difference in the world.
Contact: firstname.lastname@example.org; http://yeacamp.org/.
LA RAZA - The annual National Council of La Raza (NCLR) Conference is scheduled for July 18-19 in New Orleans, with workshops, presentations and panel discussions.
Contact: NCLR Headquarters Office, Raul Yzaguirre Building, 1126 16th Street, NW, Washington, DC 20036; 202-785-1670; www.nclr.org.
LABOR - The Eastern Conference For Workplace Democracy: Growing Our Cooperatives, Growing Our Communities, will be held at Drexel University in Philadelphia, PA, July 26-28.
Contact: email@example.com; http://east.usworker.coop/.
WOMEN/LYNNE STEWART- Radical Women is asking for support letters and cards to be sent to Lynne Stewart. Stewart is a civil rights attorney and political prisoner who is currently in jail. She has breast cancer and authorities have denied her request for transfer from her Texas prison to the New York City hospital where she received medical attention during a prior bout of breast cancer. Send messages and cards to: Lynne Stewart 53504-054, Federal Medical Center Carswell, P.O. Box 27137, Fort Worth, TX 76127.
Contact: 747 Polk Street, San Francisco, CA 94109; 415-864-1278; RadicalWomenUS@gmail.com; http://lynnestewart.org/; http://www.radicalwomen.org/.
HAITI/WOMEN - Haiti’s government is considering a legal reform measure that would prohibit and punish all sexual assault, including marital rape. MADRE and the International Campaign to Stop Rape & Gender Violence in Conflict are launching a petition to raise international support for this push to address violence against women in Haiti.
Contact: 121 West 27th Street, #301, New York, NY 10001; 212-627-0444; firstname.lastname@example.org; http://www.madre.org.
SYRIA/MIDDLE EAST - The Middle East Children’s Alliance (MECA) is currently seeking funds to assist more than 200,000 refugees fleeing violence in Syria.
FOLK FESTIVAL - The Falcon Ridge Folk Festival will be held August 2-4, in the Berkshires, NY.
Contact: http://www.falconridgefolk.com/; email@example.com.
WAR RESISTERS - The War Resisters League will hold its 90th anniversary conference, Revolutionary Nonviolence: Building Bridges Across Generations and Communities, August 1-4, at Georgetown University. The event will focus on the U.S.’ long history of antimilitarism.
Contact: 339 Lafayette Street, New York, NY 10012; 212-228-0450; firstname.lastname@example.org; http://www.warresisters.org.
POPULAR ECONOMICS - The Center for Popular Economics is holding its 2013 Summer Institute August 4-9 at Hampshire College in Amherst, MA. No background in economics is needed for this intensive training. This year’s theme is, The Care Economy: Building a Just Economy with a Heart.
Contact: Center for Popular Economics, PO Box 785 Amherst, MA 01004; 413-545-0743; email@example.com; www.populareconomics.org.
VETERANS - Veterans for Peace is holding the 28th annual convention August 6-11 in Madison, WI. This year’s theme is, Power To The Peaceful.
DEMOCRACY - The Democracy Convention will take place August 7-11 in Madison, WI. The convention brings together nine conferences including topics such as media, education, defense, race, environment and others.
MEN - The 38th National Conference on Men & Masculinity: Forging Justice: Creating Safe, Equal and Accountable Communities, presented in partnership with HAVEN, will be held in Detroit, MI, August 8-10.
Contact: firstname.lastname@example.org; http://www.nomas.org/.
OCCUPY - An Occupy National Gathering will be held in Kalamazoo, MI, August 21-25.
Contact: email@example.com; http://occupynationalgathering.net/.
COMMUNITIES - The Communities Conference is a networking and learning opportunity for co-operative or communal lifestyles, with workshops, events and entertainment; scheduled for August 30-September 2 at the Twin Oaks Community in Louisa, Virginia.
LABOR DAY - The 29th annual Bread and Roses Festival, a celebration of the ethnic diversity and labor history of Lawrence, MA, will be held September 2, in honor of the 1912 Bread and Roses Strike. There will be music, dance, poetry, drama, ethnic food, historical demonstrations, walking & trolley tours.
Contact: PO Box 1137, Lawrence, MA 01842; 978-794-1655; http://www.breadandrosesheritage.org/.
OCCUPY WALL STREET - September 17 is the two-year anniversary of the Occupy Wall Street movement. Events are planned in New York City and worldwide.
TEACHERS - The 13th Annual Conference, “Teaching for Social Justice: The Politics of Pedagogy,” will be held October 12 in San Francisco, CA. The free event features workshops, resources, and free childcare.
Contact: 415-676-7844; firstname.lastname@example.org; http://www.t4sj.org/.
HAITI - International Action, which brings clean water and chlorinators to Haiti, seeks office space capable of housing up to six people and their office equipment.
Contact: Zach Bremer, Zbrehmer@haitiwater.org; 202-488-0735; http://www.haitiwater.org/.
MEDIA - The Union for Democratic Communications and Project Censored are sponsoring a joint conference on media democracy, media activism and social justice to be held November 1-3 at the University of San Francisco. Proposals for presentations, workshops and panels from activists and critical scholars are invited.