The Capital Letter: What Is a Company For?

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The week of January 24: the function of a corporation, ‘social function’ commercialism, Ukraine, energy policy, and more.

The increase of stakeholder commercialism has actually concentrated on the concern of what a business is for. In the U.S., a minimum of, that concern was believed to have actually been responded to years back. The main function of an organization was that it ought to be run for the advantage of its owners — the investors — a view talked about and safeguarded at length by Milton Friedman in a short article for the New York City Times (those were the days) back in 1970.

The idea of investor primacy has, nevertheless, been under attack for some years, particularly because a a great deal of CEOs co-signed a Company Roundtable redefinition of “the purpose of a corporation” in a manner created to style “an economy that serves all Americans,” language not too far eliminated from the “common prosperity” that is now (presumably) the objective of the Chinese Communist Celebration, as the CCP control China’s economic sector. That both business Roundtable (with its promo of the concept that a business must fulfill “the needs of all stakeholders”) and Beijing have both welcomed principles that owe not a little to corporatism stands out. That stakeholder commercialism has actually discovered an usually warm welcome throughout the Atlantic is rather less so: Christian Democracy and other definitely less mouthwatering European handles corporatism (stakeholder commercialism is basically an expression of corporatism) have roots on the continent that extend back to the premodern age. Lastly (change your tinfoil hats please), I’d include that stakeholder commercialism has long been a fixation of Klaus Schwab, the creator and executive chairman of the World Economic Online Forum (“Davos”).

As a rule, the extent to which a company can dedicate itself to its stakeholders depends on managements and, ultimately, the shareholders to whom managers owe a fiduciary duty. But what if companies could be restructured in a way that makes it easier to “go stakeholder”? In certain jurisdictions that option exists, as Jamie Dimon — the chairman and CEO of JPMorgan Chase, and the former chairman of the Business Roundtable during its redefinition of corporate purpose — was reminded last year.

Reuters (February 2021):

JPMorgan Chase & Co CEO Jamie Dimon has led calls for companies to consider the needs of workers, communities and customers as well as those of shareholders.

But now it is clear: investors come first.

That is how activist investor John Harrington interprets a recent decision by JPMorgan’s board – chaired by Dimon – not to convert itself to a “public benefit corporation,” a Delaware legal structure gaining attention among would-be financial reformers.

JPMorgan’s board cited a legal review it commissioned stating, among other things, that when the interests of stockholders and other constituencies conflict at a corporation like JPMorgan, “the board’s fiduciary duties require it to act in a manner that furthers the interests of the stockholders.”

That would not be the case for a public benefit corporation, however. Directors at such companies must balance stockholder interests with the interests of other constituencies, according to the review sent to shareholder Harrington, who had requested it.

And Delaware is not alone in having such a structure on the books.

In 2020, shareholders in the French food-products group Danone became (the FT reported) the first big listed French company to approve its change into an enterprise à mission, or purpose-driven company. Its CEO exulted that the shareholders had “toppled the statue of Milton Friedman.” A year later, it was the CEO’s turn to be toppled. That’s another story, but let’s just say that shareholders were none too pleased by the way things were working out. While the CEO’s critics were careful not to criticize the stakeholder model, they felt (to quote the FT) that “the balance between shareholders’ interests and others had been lost under Faber [the then CEO], who has become the face of sustainability in corporate France.”

We don’t give investment advice at Capital Matters, but let’s just say that if a company in which I had invested transformed itself into a Delaware “public-benefit corporation” or a French enterprise à mission, I’d move on.

All this is by way of introduction to a recent article by Adrian Wooldridge for Bloomberg on the subject of corporations and “social purpose.” Unsurprisingly BlackRock’s Larry Fink gets a shout-out (for more on him, please see last week’s Capital Letter), but so do developments elsewhere, such as France’s PACTE Act (2019), which, as Wooldridge explains, “gives companies more freedom to pursue social as well as profit-maximizing purposes.” This was the act that gave birth to the enterprise à mission, but it doesn’t stop there.

Meanwhile, notes Wooldridge, “almost every management consultancy or accountancy worthy of the name has a practice devoted to the promotion of the p-word.” Of course. “Purpose” can be a good source of profits, if not for shareholders in companies taking such advice.

In a recent post, I noted that McKinsey (who would have guessed it?) has been active in this area. Here’s an extract of just a few words and phrases from something that the firm recently put out:

Purposeful work, purposeful activity, purpose and sustainability, embedding purpose, [a] more balanced capitalism, turning purpose intent into purpose action, measuring purpose, bold road map, a trajectory to improvement, pivot points.

Wooldridge notes that the infatuation with “purpose” has come to Britain, “the country that invented the limited liability company”:

The British Academy, a club of prominent academics, recently concluded a four-year project on the future of the corporation with a tortuously alliterative definition of the purpose of business: “creating profitable solutions for problems of people and planet, and not profiting from creating problems.” More than 900 British businesses, from local firms to high-street brands, have jumped on the “purpose” bandwagon.” . . .

There is undoubtedly lots of verbiage and virtue signaling going on here. But so is something much more dangerous: The people at the heart of the social-purpose movement want to reprogram corporations to solve social problems that governments and voluntary organizations have proved incapable of solving.

Translation, what voluntarism and democracy won’t deliver, business must.

And so:

Corporate activists have drafted a Better Business Act to update the 2006 Companies Act and put “social purpose” at the heart of British law. The British Academy has provided a blueprint for a new corporate regime . . .

Directors will be held to account for reaching social purposes rather than financial goals. Shareholders will have a duty to advance corporate purpose as well as their right to derive financial benefit from ownership. Auditing committees, consisting of both insiders and outsiders, will hold companies to account for their impact on “people and planet” equipped with new measurement systems and the ability to deprive the business of its corporate charter. Colin Mayer, the founding director of Oxford’s Said Business School and the leading guru of the movement, lists as examples of “social purpose” tackling inequality, social exclusion, climate change, biodiversity loss and the future of work.

As Wooldridge notes, many companies already play the stakeholder game and others can become benefit corporations (a phenomenon not confined to Delaware), or choose to be certified as a “B Corp.” Then there are ESG investors set on using their influence to push companies down a “socially responsible” path. But for supporters of the Better Business Act (and, doubtless, their counterparts elsewhere), that’s not enough:

“This change must apply to all businesses by default,” say the supporters of the Better Business Act. “It must no longer be optional to benefit wider stakeholders beyond shareholders.”

Wooldridge then turns his attention to history:

The “purpose” movement is much more than stakeholder capitalism in new clothes. The advocates of stakeholder capitalism only want to undo the Chicago School revolution of the 1970s that put shareholder value at the heart of the corporation. The advocates of social purpose want to go much further and undo the liberal revolution of the 1850s. Before the liberal revolution, businesses had to demonstrate that they were pursuing a social purpose in order to earn the privilege of limited liability. This might mean anything from building a bridge or colonizing the New World, but it inevitably involved going cap in hand to the government to plead your case, a process that could take months and cost serious money.

The liberal revolution made incorporation both quick and easy — a right rather than a privilege, argued Robert Lowe, the author of the 1856 Joint Stock Companies Act and, more than anyone else, the father of the limited liability company. All that was needed was for a group of people to sign a memorandum of association for the company to be registered.

If stakeholder capitalism is an expression of corporatism (and it is), then, as mentioned earlier, its origins lie in the premodern (including ancient ideas of society as an organic whole and the role of guilds in the medieval world). The “purpose” movement has those same roots. Wooldridge downplays the dangers of stakeholder capitalism when he argues that “purpose-driven capitalism would put politics back at the heart of the corporation: Deciding what the world’s problems are, let alone how to solve them, is an inherently political task.” That’s true, but stakeholder capitalism is already marching companies down that route.

Likewise, when Wooldridge writes that the “purpose formula” will, “at worst,” “lead to the rule of the ‘purpose police,’ a self-selecting group of politicians, regulators, and managers who take it upon themselves to define what social purpose means in practice and then harass companies who fail to meet their prescribed goals,” he is downplaying the extent to which the machinery to ensure such a regime has been under construction for some time. In many respects, purpose-driven capitalism is just another turn — no, make that several turns — of the ratchet.

Wooldridge rightly takes aim at the argument that “social purpose” will “calm the anti-business storm that is reshaping the politics of the West.” Indeed it won’t. And nor will stakeholder capitalism. If anything, these evil twins will institutionalize it.


“Social purpose” will make it harder for companies to do their basic job — competing with each other to produce the best products and services at the lowest prices. The historic sustained growth that followed the liberal legislation of the mid-19th century can hardly be an accident. The enshrinement of social purpose will provoke accusations of hypocrisy, as CEOs make grand statements from the slopes of Davos, or else adopt one set of standards for America and another for China.

“Above all,” believes Wooldridge, it “will stoke cultural resentment,” adding fuel to the populism “driven by a sense that the sort of people who talk loftily about ‘social purpose’ — our high-minded credentialed elite — have taken over an ever-wider range of institutions from universities to the media.” In his view, adding “companies to their list of trophies . . . will feed the forces of revolt.” It should be added that those forces are already dining very well. Suspicion of today’s preachy, highly politicized C-suite has created a reaction on the right, which should not be dismissed as mere populism.

But this pushback is about more than just culture, anger over double standards, or irritation over being talked down to. It is about a sense of being excluded from the political process.


There is nothing to be gained by mixing politics and business even more than they are already mixed. Problems such as inequality and, yes, climate change, are political problems best solved with democratic input. Subcontract them to members of the Davos class and you hollow out democracy while kindling popular fury. And revolutionary entrepreneurs do their productivity-raising wonders not because they listen to well-credentialed people talking about “social purpose,” but because they are monomaniacs in the grip of world-changing ideas.

The genius of the mid-19th century reforms was that they let business be business. We reverse that singular innovation at our peril.


The Capital Record

We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.

In the 51st episode David is joined by Dr. Jennifer Roback Morse of the Ruth Institute, who unpacks bit by bit the centrality of the family to economic life, the ways in which the sexual revolution has damaged our cultural soul, and embraces all the conversation topics David throws at her! A pivotal conversation that too many on the left — and right — are unwilling to have.

The Return of the Regional Seminars

National Review Institute is back on the road with their biennial Regional Seminars. This year’s event series, titled “Creating Opportunity,” will feature panel discussions and one-on-one conversations that make the moral and practical case for free enterprise.

Notable speakers include William B. Allen, David L. Bahnsen, Jack Brewer, Dale R. Brott, John Buser, Veronique De Rugy, Kevin Hassett, Pano Kanelos, Rich Lowry, Karol Markowicz, Andrew C. McCarthy, Andrew Puzder, Amity Shlaes, Kevin D. Williamson, and, less notable, me.

The series of half-day conferences is slated for seven cities across the country: Palm Beach, Newport Beach, Silicon Valley, Dallas, Houston, Chicago, and New York City.

On February 16th, I’ll be speaking with Kevin Hassett in at the Sailfish Club, Palm Beach, and Rich Lowry, Jack Brewer, and Karol Markowicz will also be there. More details here.

We hope you will join us.  You can learn more and purchase tickets here.

The Capital Matters week that was . . .

The Pandemic

Joseph Sullivan:

The data call attention to a contrast between Mayor Bowser’s approach toward gun violence — which she has declared a public-health crisis — and her approach to Covid-19. Focused “on the people and the places most likely to experience gun violence using a collaborative, whole-community, public health approach,” the District’s latest anti-crime interventions target high-risk city blocks. Its latest series of Covid-19 mandates, by contrast, does not make any set of distinctions between high and low-risk parts of the city.

Mayor Bowser’s public-health policies, then, offer a new twist on Nietzsche’s aphorism that “there are no facts, only interpretations.” There are facts, it seems, that caution against interpreting them as reflections of a coherent set of public-health principles.

Joel Zinberg:

Realizing that Congress had never enacted a law requiring American civilians to be vaccinated, and that it is unclear whether it has the constitutional authority to do so, the administration sought — in the words of White House chief of staff Ron Klain — “work-arounds.” The administration issued four Covid-19 vaccination mandates by borrowing authority from the nooks and crannies of existing laws.

The Supreme Court recently reviewed the two mandates that were issued via administrative-agency regulations. In the first case, dealing with the Occupational Safety and Health Administration’s (OSHA) mandate for businesses with 100 or more employees, the Court found that the agency had exceeded its statutory authority, and it halted enforcement of the mandate. The rule would have affected 84 million private-sector workers. If Congress intended OSHA “to exercise powers of vast economic and political significance” the Court wrote, it had to “speak clearly” in its statutory language.

Dominic Pino:

Vaccine mandates for truckers are causing a ruckus north of the border.

As of Saturday, both the U.S. and Canada have mandates in effect that require truck drivers who cross the border to be vaccinated. Hundreds of billions of dollars of trade pass between the U.S. and Canada every year by truck. The vast majority of Canadians live within 100 miles of the U.S. border, and they are especially dependent on the U.S. for fruits and vegetables in winter, given the cold climate. These mandates are hitting Canadian drivers harder than Americans, since Canadian drivers carry about 75 percent of that cross-border trade . . .


Andrew Stuttaford:

It’s hardly a secret that, even if it has the political will (or inclination) to do so, Germany’s willingness to push back against a Russian incursion (“minor” or otherwise) is severely constrained by its dependence on Russian gas (I included some statistics on this here), a dependence that, for various reasons, the opening of the Nord Steam 2 pipelines will (if it happens, and I think that it’s highly likely that it will) make even more dangerous than it already is.

In an article for the Daily Telegraph that is gloomy even by his standards, Ambrose Evans-Pritchard contemplates Putin’s next move with regard to Ukraine. He thinks that Putin might go for something rather more major than “minor.” That’s a continuing debate, although Evans-Pritchard is probably right about stock markets being too insouciant about what might be coming next (the recent weakness has been unrelated to Ukraine), but it’s worth taking a look at what he has to say about what would happen if Russia were to cut off its gas supplies to Europe . . .

Robert Zubrin:

It is now apparent that unless further actions are taken to deter him, Vladimir Putin intends to proceed with his plan to mount a full-scale invasion of Ukraine.

Yet any effective military or economic deterrent is being undermined by Germany, which has refused to agree to any meaningful threat of sanctions. Indeed, Germany has gone so far as to attempt to block other NATO nations from sending Ukraine any arms to defend itself. According to the Germans, Putin needs to be free to slaughter and subjugate Ukrainians, because otherwise he might cut off Germany’s natural-gas supplies.

In fact, Germany’s dependence on Russia for its natural gas is an entirely self-inflicted weakness . . .

The Economy

Michael Strain:

The “misery index” is dramatically named and simple to construct: Take the month’s inflation rate and include to it that month’s unemployment rate. The idea is to capture how economic conditions are affecting typical workers and households. Can they get a job? And what is happening to the purchasing power of their wages?

The index is registering high values. You have to go back to the period of stubbornly high unemployment following the Great Recession to find the index registering as much “misery” as it does today. Prior to that, the index hasn’t been this high since the recession of the early 1990s.

The States 

Jonathan Williams:

Just a few of Utah’s many impressive policy achievements include public pension reforms for government workers that began to address unfunded liabilities, the “Truth in Taxation” law that has added needed transparency and accountability to property taxes, and the “Financial Ready Utah” package of legislation that analyzes federal funds and works to protect Utah taxpayers from many of the risks attached to the “free lunch” promised by Washington.

While these reforms have worked to keep Utah at the top in the Rich States, Poor States economic outlook rankings, other states are also making impressive strides. For instance, Florida, a state without a personal income tax, now ranks second best in economic outlook.

North Carolina has dramatically improved and now has the fifth-best outlook, after passing comprehensive tax reform throughout the last decade, a process that continues. In recent weeks, North Carolina just passed significant new tax relief that will further reduce individual income tax rates, provide enhanced school choice for families, and completely eliminate the corporate income tax over a number of years.

Energy Policy

Benjamin Zycher:

Notwithstanding the fervent prayers of many special-interest groups, Congress has promulgated no such laws in the context of climate policies and greenhouse-gas emissions. But climate obsessions are fashionable, and invitations to the right cocktail parties yield the kind of high that the smugglers cannot deliver. Like most public officials, FERC commissioners feel political pressures, and have incentives to yield to them as they contemplate the future trajectories of their careers. Moreover, some of the FERC commissioners believe in the climate “crisis” narrative, and are determined to do something about it, notwithstanding the absence of any attendant legal mandate.

And so we now observe a growing penchant on the part of FERC’s majority to implement favoritism toward unconventional energy, wind and solar power in particular, combined with a real bias against fossil fuels whatever the competitive advantages of the latter. However unsurprising, this shift is deeply inappropriate and will yield increasingly adverse impacts over time . . .


Steve Hanke and Matt Sekerke:  

From its debut in 2009 until late last year, the price of Bitcoin increased by several orders of magnitude, while inflation was even lower than the Federal Reserve had intended. By the end of 2021, Fed chairman Jerome Powell finally threw in the towel and acknowledged that the recent uptick in inflation would not be transitory. Bitcoin has since proceeded to lose half of its value. Perhaps it’s an egregious case of “buy the rumor, sell the news,” but to the naïve observer, Bitcoin is a lousy hedge for inflation . . .


Jimmy Quinn:

Yale’s divestment committee is investigating whether companies that the university’s endowment is invested in have links to China’s ongoing human-rights abuses, according to the Yale Daily News. That probe could well result in the $42 billion endowment’s divestment from certain Chinese firms.

The Yale student newspaper broke the news just weeks after a student from China, writing anonymously in its opinion pages, called on the school to “divest from China.” . . .

Health Care

Tomas Philipson:

Pharmaceutical companies often offer co-pay assistance to help commercially insured patients afford the co-payments that health plans impose on them for innovative prescription drugs. In an era when many insurance plans do not provide adequate coverage, the drug industry has come to the rescue. These co-pay cards are made available to commercially insured patients to help them access and stay on certain medicines for often life-threatening conditions. They come in to reduce large co-pays after determining the financial burden implied by the patient’s plan. In a study I co-authored, we find evidence of the figure below showing that, in recent years, co-pay assistance has reduced the amount that patients have had to meet with co-pays, even though overall co-pay amounts have been increasing . . .

Stakeholder Capitalism

Andrew Stuttaford:  

When CEOs deploy their companies’ power and money for sociopolitical ends unconnected, on any reasonable reading, to the economic objectives of those businesses, that is not only something they shouldn’t be doing — if shareholder commercialism is to mean anything — but it is also a threat to the democratic order. And to point that out is not an attempt to “silence” CEOs, but merely to remind them that the megaphone that they have been lent should be used solely to advance or defend the interests of the investors who have paid for it. If, instead, those CEOs wish to take a public position on political topics unrelated to the businesses they are managing, they should do so on their own dime and their own time, whether as activists or by running for office . . .

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Jobber Wiki author Frank Long included to this report.