The Business Roundtable, an organisation consisting of chief executives of most of the largest companies in the US ranging from Apple to Walmart, issued a new statement last month on the purpose of a corporation. In 1997 it had issued a statement declaring that shareholder profit is the sole purpose of a corporation. Now it has reversed and instead declared that, “while each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.”, arguing that companies should advance not just the interests of shareholders, but also employees, customers, the environment and the communities they operate in. Nancy Koehn, a historian at Harvard Business School, described this as a manifestation of a shift in the Zeitgeist.
Some of the executives are more blunt (or honest) than others regarding this. Jack Welch, the former CEO of general electric from 1981-2001, a time when the company saw its value increase by 4000%, said the principle of shareholder profit maximisation as the sole purpose of a corporation was the “dumbest idea ever”. Similarly Xavier Huillard, the CEO of the Vinci group, the largest non-Chinese construction company in the world called the principle “totally idiotic”.
The chief economics commentator of the Financial Times, Martin Wolf, recently published an article in which he “reluctantly” came to the conclusion that “capitalism is broken”, because corporations only seek to maximise shareholder profit. He states:
"Shareholders are least committed, because, unlike employees, dedicated suppliers and the locations in which businesses operate, they can divest themselves of their engagement in the company in an instant. Shareholders are the least knowledgeable, because they are not engaged in the activity of the company.
…contrary to economic wisdom, shareholders are not the bearers of the residual risks in the business… employees, suppliers and locations also bear substantial risk… stock markets allow shareholders to diversify their risks across the world, something employees, for example, cannot hope to do… Moreover, everybody else is at risk from shareholders’ opportunistic behaviour. This has to weaken the commitment of everybody else.
…given the mantra of shareholder value maximisation and the inability of shareholders to monitor management, rewards have increasingly been linked not to the performance of the business in delivering on its purposes, but to accounting profits and the share price. Yet both are subject to manipulation. Some would argue that the result has been excessive remuneration… and chronic under-investment, too.”
It seems we are in an ‘emperor has no clothes’ situation of epic proportions. Everyone accepts that the shareholder profit maximisation as a principle is not working - not even those for whom it is working for better than for anyone else. Yet it remains the principle that our global economic system is based on more than anything else. It is hard to overstate the importance of this principle. For example, “Theory of the Firm” by Michael Jensen and William Meckling, argued that the fundamental problem corporations seek to tackle is to get directors and executives to maximise shareholder profits and this is the most cited paper in business literature. The New York Times article by Milton Friedman titled “The Social Responsibility of Business is to increase its profits” has been described as the the most read article ever written by a Nobel Laureate economist. There is no single goal that our societies are more programmed to achieve than this.
We are at a stage comparable to the Soviet Union’s collapse, that Russian linguist Elena Gorkhova described as, “The rules are simple: they lie to us, we know they're lying, they know we know they're lying, but they keep lying to us, and we keep pretending to believe them.” The difference is no one is even pretending anymore.
The last century was characterised by a great struggle between democracies and authoritarian states; it saw the collapse of most monarchies, fascist regimes, the European empires and the USSR. It also saw the birth of the first parliament elected by universal suffrage in Finland in 1916 and the creation of the first parliament elected transnationally in the European Union in 1979. Currently around 4 billion people live in (more or less imperfect) democracies.
There is also a struggle going on between democratic and authoritarian businesses, between cooperatives owned democratically by their members and shareholder businesses where those who have the most shares have the most votes. These two struggles are intertwined - the Labour movement, that the first examples of universal suffrage happen, was also the cradle of the cooperative movement. One cannot truly exist without the other - democracies where economic ownership is concentrated turn into oligarchies, and cooperatives cannot truly practice their principles of autonomy and democracy in a dictatorship. Currently, 150 years after the first cooperatives were established, around 1 billion people are members of cooperatives - three times more than the number of people who own shares.
I am convinced that going from 1 to 2 billion won’t take another 150 years - my prediction is that it will take around 20 years. The traditional cooperative sector is already expanding rapidly - the number of people served by credit unions worldwide has grown from 172 million to 235 million in the last 10 years, an expansion of more than 50%. If the sector continues to grow by 50% every decade, it alone will add nearly 300 million more people in the next two decades. In the developing countries the expansion can often be dramatic - for example in Rwanda the number of members in cooperatives grew from around 200 000 to around 5,3 million since 1994, a more than 25 fold increase in last 25 years.
However, alongside the growth of conventional cooperatives there will be a more transformative process occurring - that of global, open for all, platform cooperatives. This is because of the emergence of a new type of cooperative - global, open-for-all platform cooperatives. A great example of this is Resonate, a Spotify alternative, that is cooperatively owned by listeners and musicians, from anywhere in the world, at any time of the day. This means that unlike traditional cooperatives that have a clear geographic location and opening hours, everyone in the world with an internet connection is always just a few clicks away from joining. Coop Exchange will be the same and we want to be as inclusive as possible by enabling investments as small as 1 cent. Every cooperative listed there will have everyone in the world with access to online banking just a few clicks away from becoming a member of Coop Exchange by investing in cooperatives around the world.
This will create a global ecosystem of cooperatives, a counter-economy based on mutual self-help. People can earn their money in a worker cooperative bakery, save that money in a credit union and invest some of it in new bakery cooperatives through Coop Exchange, buy their food from a local cooperative grocery store and listen to music through Resonate while residing in their cooperative housing. As more coops emerge in more sectors, it will become easier to withdraw to a greater degree from the current capitalist system into the new cooperative ecosystem. If there are more credit unions, it is easier to find one near you. If there are more musicians on Resonate, it is easier to find music to listen to. As more and more people choose to withdraw from the conventional capitalist system into the cooperative ecosystem, it will gradually reach a critical mass to absorb the former, similar to how capitalism itself replaced earlier economic models.
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