Warren Kumley's Comments - What Are Corporations For?

A recent article in the Economist discussed the current buzz in the business/academic world about big corporations changing their stated goal to encompass the interest of all stakeholders (shareholders, workers and the public).  Since the Reagan years the prevailing view ideological view was the only thing a CEO had to be concerned with was maximizing value to shareholders.  

I was discussing the article with Warren Kumley (who has many years experience in corporate management).  He made some very cogent observations about the article, so I reproduce his comments below with some edits to fit this format and explain some things that he wrote responding to my comments.

...I thought starting a discussion on this topic was solid, but the analysis is very weak.  Two significant factors I did not see raised:

1.  Capitalism does not equal competition.  Capitalism..(can progresses from) .. competition to oligarchies, and monopolies.  (Thus)..discussions comparing socialism to capitalism are theoretical not realistic. The time it takes to move to evolve ...(from competition to oligarchies or monopolies) has shrunk significantly during the last two hundred years.  

2.  The other key discussion involves short term vs long term objectives, asset allocations, and costs. The list of companies that are booming for 10-20 years and then are gone is very long. They fail for many reasons, but most have to do with compromising the long term to maximize short term profits for share holder, especially favoring the largest shareholders.  Many (most) equity firms run on this principle. 

... (the) third significant factor is governments role in the marketplace. Who provides the oversight and market regulations if not the government?  

(The Economist Article chided Theodore Roosevelt for interfering with the free market by stepping into labor negotiations - Warren's response: Theodore Roosevelt was absolutely correct to step in and negotiate between management and labor.  The only other option from history is revolution that leads to a period of anarchy then to a monarchy, mostly, or more recently to democracy.  These transitions have enormous costs.

Only recently has a fourth factor arisen - consumers. This arena is still evolving. It might become the glue or beacon that can better focus the actions of the other three.

Capitalism is very messy. There is a built in advantage for short term cheating, fraud, and all forms of chicanery. Government responses (recognizing there is a problem and resulting investigations followed by court cases) to new business areas is usually much slower than the markets and profits. This allows companies to obfuscate their illegal activities in many ways.  Of course, buying off government action may remain the most popular strategy...