4.THE PERFECT STORM

IN MANY QUARTERS THESE days, as well as in this book, the argument against the way we do business now goes like this: Instead of focusing on maximizing shareholder value as the primary or even the only goal, those who run our corporations should balance the needs of all stakeholders—employees, customers, communities—and consider the long-term interest of the corporation itself and the economy as a whole.

A thriving economy is an interdependent ecology of interests. At the center of this ecology is a robust middle class, which is the source of healthy commerce and the fuel of a growing economy. Very simply, without robust wages and benefits, spending eventually dwindles and sputters as households go into austerity mode. When that happens, profits wane and drop. Without devoted employees, customers do business elsewhere. Without vital communities providing opportunities and quality education, companies can’t hire the people they need. And so on, in a continuous downward spiral. It’s an interlocking system in which each element depends on the health of all the others.

If this sounds radical or something like a softhearted plea that promises to dull the cutting edge of profit making, it isn’t. It’s the way we did business in America when the country was sitting on top of the world and when CEOs were people who took all these responsibilities seriously. We must ask ourselves: Why did we ease away from this wisdom? Why do we continue to flee from this business model and find ourselves instead in a self-destructive spiral of chasing short-term profits?

We did it as a misguided act of compensation and self-defense—a self-defeating adaptation to changes we couldn’t control as the economy became global. To understand why shareholder primacy remains so seductive even now, even as its weaknesses become more and more apparent, it makes sense to understand how we got here.

Everything seemed to converge in the 1970s in a perfect economic storm. At the time, we thought we’d hit a big speed bump. Few realized what was really happening: our economy had tipped quietly onto a downward slope that has been steepening ever since, with only illusory phases of stock-market growth. Ever since, our economic slide has been disguised by rising corporate profits and made tolerable only through government transfer payments. In this period of steady decline, we’ve lived through the elation of financial bubbles, only to end up in worse shape when the bubbles burst, first toward the end of the 1990s and again in 2008. Over these four destructive decades, globalization, technology, education, tax policy, and business management fed off one another, each one amplifying the economic erosion of all the others. As a result, having ignored the consequences of our choices, our engine of new opportunity has stalled. Most of the population is struggling to cling to its quality of life, while few are able to climb higher and higher.