Elizabeth Warren Takes on Corporate America

Massachusetts Senator Elizabeth Warren’s ‘Accountable Capitalism Act’ is everything the Democratic Party needs to embrace and campaign on. Warren’s new bill would attempt to bring back the traditional manner in which corporations were intended to operate. The bill attempts to address one side of the economy that has been throwing middle class workers overboard for four decades.

For 40 years (1930’s-1970’s), American corporations operated under a different set of guidelines than they do today. As a result of those policies, the United States created the largest middle class in the history of the world. Corporations operated and flourished under a well-regulated capitalist system that taxed incomes above $100,000 at 70% (adjusted for inflation, $1.5m today). During this time, there was a notion that our corporations operated in the interest of the public good. Corporations considered their community, their workers, their customers and their country when making business decisions. Corporations did not just exist to make a profit or to maximize shareholder value as they do today. They had to provide a public good or they could have their charter revoked.

In the 1980’s that all began to change. Under the presidency of Ronald Reagan, the country embraced a new form of corporate governance. The Reagan administration, under the heavy influence of Milton Friedman and the University of Chicago School of Economics, embraced a new concept of corporate governance that required that shareholder value be maximized over all else and to the detriment of all other stakeholders, including employees, communities and customers. The maximization of shareholder value was now the only thing that mattered. This shift in thinking is the root cause of many of America’s economic problems. Before the implementation of ‘Reaganomics’, American’s biggest companies reinvested more than half of their profits into the company. Over the last decade, America’s top companies have closed American factories, shipped jobs overseas to countries with lax labor and environmental laws and directed 93% of their profits to shareholders. This maximization of shareholder value, which our companies have engaged in for forty years, has disregarded all other public obligations and jeopardized future competitiveness.

Senator Warren’s ‘Accountable Capitalism Act’ takes America back to the era when Corporations owed a duty to the public. Her plan requires that companies with over a billion dollars in revenue obtain a federal charter. The new federal charter obligates the company’s directors to consider the interest of all corporate stakeholders, such as employees, customers and the communities in which they operate. Warren’s act also acknowledges that, for too long, corporate board decision were made that were opaque and not in the interest of workers and their communities. The new bill would require large corporations to have employees elect 40% of the directors, an approach that has been successful in Germany and other developed economies. The bill also requires that large corporations must receive the approval of at least 75% of their shareholders and 75% of their directors before engaging in any political expenditures. This will ensure that corporations are not engaging in political expenditures that could be damaging to the well being of its employees. Lastly, in attempt to address the dangerous and misaligned short-term mentality of corporate directors, the ‘Accountable Capitalism Act’ restricts directors and officers of large corporations from selling company shares within five years of receiving them and with three years of a company stock buyback.

Senator Warren’s ‘Accountable Capitalism Act’ is not going to fix all of our problems, but it is a really great start to address the corporate governance that has been a very large factor in driving the gross income inequality we are seeing in America today.

Comments

Popular Posts