In the 2020 election cycle, corporate America seems under attack from all directions. Elizabeth Warren and Mark Zuckerberg are in a war of words; Bernie Sanders has proposed codetermination, partial employee ownership, and other major corporate governance reforms; Joe Biden has called for insurance company executives to be jailed; and Donald Trump regularly attacks Jeff Bezos and big media corporations. In one Democratic debate, multiple candidates endorsed stronger antitrust measures against a suite of industries, and Robert Bork—the conservative antitrust lawyer who redefined antitrust law to make the world more favorable for big business—came up twice as a whipping boy.
It’s easy to observe this dynamic as purely political. But if you look a little bit closer, the business world is almost as interested in structural changes as our political leaders. Recently, Salesforce CEO Marc Benioff added his voice to the chorus of those who want to break up Facebook (a chorus which includes Facebook cofounder Chris Hughes and early investor Roger McNamee), and even went so far as to call for a new version of capitalism in the New York Times. Meanwhile, Brad Smith of Microsoft is lauding the social power of big tech and governments working together to foil Russian hackers. The granddaddy of them all, the Business Roundtable, which brings together big business CEOs to push a unified agenda for corporate America, just attacked the idea of shareholder primacy in corporate management.
Earlier this year, Fortune magazine conducted a poll and found that 50 percent of Fortune 500 CEOs believe that Facebook “has grown so large and influential that it needs additional regulation,” while 41 percent believe this about Amazon, and 39 percent about Google. To be sure, most CEOs target just those three companies; very few want more regulation for AT&T, Microsoft, Apple, or Disney. Yet Benioff’s skepticism towards concentrated capital, and the Business Roundtable’s new statement, reflects a new and vibrant debate among corporate executives.
This new attitude is a response to a crisis in corporate America. Business leaders observed the financial collapse in 2008–10, and they recognize the resulting political instability. In addition, problems within a number of major companies are too obvious to ignore. There is a collapse of productive capacity at firms like Boeing and General Electric, as Boeing’s planes now crash and General Electric is involved in a debate over whether it is riddled with fraud. PG&E can’t keep the lights on without burning down California, and Facebook is structuring electoral discourse in ways that are angering both the Right and the Left.
As the arguments of business leaders about how to reorganize the marketplace begin to take shape, a divide is emerging between them. Some, such as Benioff, argue for breaking up companies like Facebook and then regulating the resulting markets, while others, like Microsoft’s Smith, think it’s best to fuse the power of big technology corporations with the state through regulated monopoly. This disagreement is deeply political, because in America the marketplace is a key battleground for justice.
It is also not the first time we have had this debate. In the 1970s and 1980s, during the last crisis of the corporation, we settled on a libertarian theory of corporate and banking power, which held that the corporation exists purely to maximize profits for shareholders. Now that this model has broken down, business leaders are positing their views on what comes next. Should we concentrate power in corporations and then regulate those corporations to benefit society? Or should we break up these corporations because they are simply too powerful?
American history offers three basic ideological frameworks around corporate power. The first is libertarianism, in which private financiers manage resources. The second is liberal corporatism, pioneered by Teddy Roosevelt, in which financiers are disempowered but corporate managers and the state fuse together through regulated monopoly. The third is regulated competition, in which the state disempowers financiers and keeps corporate managers relatively powerless by forcing competition in markets through antitrust while regulating business and labor practices.
To understand the stakes of the present debate, we have to go through the last crisis in corporate America, because the way that our business leaders think today emerged from a series of battles waged within boardrooms decades ago.
The Reagan Era: The Rise of the CEO
In 1981, the insurance executive Robert Kilpatrick made the case for a new role for the corporation in the nascent Reagan era. Business leaders were strong supporters of Reagan, and the Business Roundtable sought to prove that deregulation, less government, and lower taxes were in the national interest. But this new agenda imposed a responsibility on corporate America. “Limited government is going to mean,” Kilpatrick argued, that social problems “are going to have to be solved by the private sector alone or working closely with government.”
Kilpatrick was speaking for the Business Roundtable, a powerful and relatively new lobbying organization whose sole members were the CEOs of some of the largest corporations in the country. It was founded as the voice of management, and it had taken only about ten years for the group to achieve important political objectives.
Businessmen in the 1960s and 1970s felt disempowered. As DuPont CEO Irving Shapiro described the environment under Nixon and Ford, the “private and public sectors were circling each other like sumo wrestlers.” In 1972, the CEOs of large companies, terrified of economic instability, inflation, and Ralph Nader, combined three earlier business networking organizations into the Business Round-table. The goal was to help business leaders learn to work with government more effectively.
The problems they identified were real, and they were not merely driven by greed but resulted from genuine problems in the New Deal model of governance. The giant Penn Central railroad went bankrupt in 1970, at the time the largest bankruptcy in American history and one that nearly set off a financial crisis, with the company’s lenders requiring the first modern bailout from the Fed. Con Edison, Pan Am, Franklin National Bank, and New York City all suffered financial collapses. Jimmy Carter, while generally deferential to big business priorities like austerity and deregulation, seemed clueless.
The desire to fix America’s social problems through a new model of commerce wasn’t just talk. Immediately after Reagan’s election, the head of the afl-cio, Lane Kirkland, joined with the CEOs of Exxon, General Motors, Citicorp, General Electric, DuPont, and Bechtel to search for ways to improve living standards and to deal with the aggressive new world of global competition. This group pledged, among other things, to consider “the just demands for equity by minorities, women and those for whom social justice is still a dream.”
Recognizing that involvement in public policy had become a key part of what it meant to be a commercial leader, CEOs in the Business Roundtable changed the politics of business. They personally engaged with lawmakers, giving up weekend golf to work seven days a week, doing politics on top of their business duties. By the early 1980s, Shapiro wrote, “pin-striped chief executive officers, Republicans almost to a man, were welcome in the chambers of the most powerful member of the majority party in Congress, Thomas P. ‘Tip’ O’Neill, Speaker of the House, liberal Democrat.”
The goal of the Business Roundtable in this first moment of re-form reached back to Teddy Roosevelt’s “New Nationalism” theory of liberal corporatism. This approach sought to pool together big government, big labor, and big business in order to set strategy for the nation. The leaders of the Business Roundtable believed that relations between American business and government had become too antagonistic, as characterized by the New Deal’s aggressive antitrust and regulatory regime. Furthermore, small business didn’t have much of a role in their vision, because small businesses were inefficient and not set up to deal with international competition.
In the early 1980s, the American economy was still in many ways a New Deal society. In 1981, over 20 percent of America’s workforce was unionized, and everyone was used to highly structured public regulations in banking, railroads, telephones, and airlines. It was a small business nation, with relatively few chain stores and local, independently owned businesses and banks dotting the land.
At the executive level, there were exceptions like Jack Welch, the forty-six-year-old new CEO of GE, but many of the giants of the business world had been trained just after World War II, in the business school thinking of the immediate postwar era. Donald David, the dean of Harvard Business School at that time, believed that business leaders ought to make their companies part of a “good society,” which was a nod to the influential thinker Walter Lippmann. Lippmann had written this famous passage on the death of John D. Rockefeller, signifying the end of raw acquisition as the goal of American business and finance:
Before he started his enterprises, it was not possible to make so much money; before he died, it had become the settled policy of this country that no man would be permitted to make so much money. He lived long enough to see the methods by which such a fortune can be accumulated, outlawed by public opinion, forbidden by statute, and prevented by the tax laws.
Lippman’s philosophy retained force in 1981. Many Americans still remembered World War II, and they understood the threats of fascism and communism, both phenomena that could emerge if domestic problems spiraled out of control. Many in the business leadership class simply did not want to refight the bitter battles of the 1930s and recognized that unfettered, concentrated power could lead towards dangerous left- or right-wing totalitarian movements.
The initial priorities of the Business Roundtable reflected a moment of transition. At their behest, the Reagan administration deregulated finance and a host of industries, cut social spending, and reduced the capacity of democratic institutions to impinge on corporate power. Reagan fired striking air traffic controllers, breaking the long-standing social norm against hiring replacement workers and inducing corporate America to follow suit and de-unionize. The Department of Justice dropped its massive antitrust suit against IBM and rewrote merger guidelines to permit consolidations of power. The biggest companies in America went on a takeover spree, first in the oil industry and then throughout industrial America. Large banks financed it all.
For a time, in the early 1980s, the situation seemed stable. Inflation, long the nightmare of the corporate treasurer, began coming down. Corporate CEOs were now respected in Washington, and the number of strikes collapsed.
But this new corporate liberalism did not last long. The agenda these corporate leaders introduced also began weakening the bonds between CEOs and the corporations they ran. In fact, the role of the CEO would soon be disrupted by a newly emboldened Wall Street, which eventually brought about the end of stakeholder capitalism and in some ways the erosion of the CEOs’ own power.
The Rise of the Financier
In 1982, former Ford Treasury official William Simon fired the first shot in the war between financiers and old-school executives in corporate America. Simon was an ideologue, deeply aligned with the ascendant conservative forces in Reagan’s America. After his time in the Ford administration, when he played a role in imposing austerity on New York City in 1975, he wrote a book called A Time for Truth, in which he charged liberals with attempting an “economic dictatorship.” He also served as the head of the Olin Foundation, which financed the law and economics movement, a set of legal theories designed to undermine New Deal controls on capital.
But his most important innovation was to prove the concept of the modern leveraged buyout. In 1982, Simon bought a company called Gibson Greeting cards. Simon and his partner put down $330,000 apiece, borrowed $79 million using his political connections, and bought Gibson for $80 million. Eighteen months later, in a bull market, they sold the company for $270 million; Simon cleared $70 million on a tiny investment, and Wall Street’s eyes bulged. Simon had shown that the corporation could be much more than a ticket to a socially important position and a surfeit of three-martini lunches for its leaders. With the use of borrowed money, it could become a cash machine for financiers.
Simon’s success with Gibson matched up well with the thinking of new advocates of financial power, like Harvard Business School professor Michael Jensen. Jensen argued that American businesses needed to be oriented towards generating cash, not focusing on ambiguous goals beyond profit, as the latter led to featherbedding and inefficiency. Jensen was building on Milton Friedman’s arguments for shareholder primacy, and law and economics scholar Henry Manne’s framework of a “market for corporate control.” All of these men argued that hostile takeovers forced sloppy, lazy managers to focus on efficiency. And while these thinkers had provided the theoretical justification for private equity takeovers, Simon showed how to make them happen in practice.
Financiers walked through the door to take control of the corporate world. Often advised by Michael Milken, they employed a host of new techniques, from the golden parachute for executives to various hostile takeover maneuvers, to restructure corporate America. They primarily used junk bonds, made possible by loosened rules in finance, to buy corporations. Corporate raider T. Boone Pickens, who got his start in the oil patch, soon found it more profitable to drill for oil on Wall Street by buying oil companies with borrowed money than to do it in Texas using oil drills.
In many ways, such libertarian thinking, emerging from the law and economics school at the University of Chicago, was a return to the neoclassical economics that was dominant during the robber baron era after the 1870s. Speculators like Jay Gould vied with monopolists like Cornelius Vanderbilt. They used financial tools to engineer a concentrated economy, despite rhetoric emphasizing liberty and competition, angering business leaders all over the country.
The Reagan-era financiers did the same thing, and they faced resistance from the members of the Business Roundtable, who, while participating in mergers and acquisitions themselves, opposed raiders going after their large, settled businesses. “There really is a smoke-filled room in America,” wrote Pickens in the New York Times, “an association called the Business Roundtable.” He blasted corporate America, its “regimentation, stifling of the entrepreneurial spirit, disregard for stockholders, and obsession with perquisites and power.” Dripping with contempt, Pickens noted how one spokesman for the organization said that “stockholders do not own companies, ‘society’ does.”
The financialization of American corporations had left-wing roots as well as conservative ones. Bruce Wasserstein, one of the leading mergers and acquisitions investment bankers in the 1980s and 1990s, got his start as a Nader’s Raider in the late 1960s investigating the Federal Trade Commission. Pickens and his ilk were joined by a key icon of the Left, John Kenneth Galbraith, who saw in the stakeholder model of business leadership an obstacle to his true preference, which was socialism. In 1988, Galbraith had a debate with Pickens over corporate power. And surprisingly, as Galbraith put it, “we came out on the same side.” Galbraith agreed with Pickens’s argument that the Business Roundtable was protecting corporate featherbedding.
In the Reagan era, the government was weakened, but deliberate political involvement in the economy was still possible. Paul Volcker helped slow the merger boom, and IBM and the government came together to protect the U.S. microchip industry from Japanese predation. George H. W. Bush sent over a thousand savings and loan executives to jail.
But Bill Clinton’s administration embraced financiers even more aggressively than Reagan’s had. Clinton’s economic strategy was led by former Goldman Sachs CEO Robert Rubin, who had grown rich doing a specialized form of stock trading around mergers and acquisitions in the 1980s. In 1997, the Business Roundtable fully capitulated to the arguments of theorists like Jensen, and embraced what Pickens wanted, the shareholder model of capitalism. The Clinton administration deregulated a host of new sectors, and big business rushed to offshore production to America’s new best friend, China.
In this “new economy,” addressing social problems was not a job to be done by government or corporations. It was not a job to be done at all. Like many who saw the Soviet Union fall, American business leaders in the 1990s had come to believe in the views Francis Fukuyama popularized in his book The End of History. The natural end state was here: a utopian global world of libertarian democracies run by American financiers. The market would provide, and during the dot-com boom, it seemed to do just that.
In 2000, there was so much demand for labor that employers were recruiting people straight out of prison. As a Detroit Office of Employment and Training administrator said at the time, “Employers will call and say, ‘We need somebody right away—if you have any ex-cons, clean them up and send them over.’” In 2005, Jason Furman, later the head of Obama’s Council of Economic Advisers, wrote a paper titled “Wal-Mart: A Progressive Success Story.” Financial power, markets, and social justice seemed to go hand in hand.
The Rolling Crisis
But in 2008, the financial crisis destroyed the credibility of financiers as apolitical technocrats allocating resources efficiently. Jack Welch, who was seen as the father of the shareholder model of capitalism, soon called it “the dumbest idea in the world.” Over the next decade, political and economic shocks destroyed the legitimacy of the libertarian finance-led order.
Meanwhile, the increasing economic power of China ended the post–Cold War order centered on America as the sole superpower. And as the Chinese Communist Party showed with its censorship of the National Basketball Association, the general corporate strategy of offshoring and selling to China has not led, as promised, to a more democratic China.
Moreover, there are problems within corporate America itself. After decades focused on short-term financial performance, the corporate world has also changed. Highly aggressive companies like Google and Amazon are chewing through the fiefdoms of the most powerful institutions in America. One need only to look at the bitter fight between Oracle, IBM, and Microsoft against Amazon over a large Pentagon cloud computing contract to see the breakdown of a corporate consensus on how to relate to political leaders.
The collapse of Boeing’s capacity to make civilian aircraft also reflects the crisis in corporate America, one similar in scope to that which took place with the Penn Central collapse in 1970. But this problem is not isolated to Boeing. I routinely hear from executives and engineers in big companies who tell me how inefficient their workplaces are because of a focus on short-term results and the insulation provided by dominant market power. “Very few white-collar workers at Proctor and Gamble really do anything,” one young engineer told me. “All I saw was a lot of bureaucratic box-ticking and people patting themselves on the back for work that they hired consultants to do for them.” His manager, he said, once told him, “at the end of the day, nothing you or I do is really going to impact P&G’s bottom line, so I wouldn’t stress too much about your projects.”
In other words, the movie Office Space feels more and more like a documentary. And low productivity statistics bear out the problematic organizational model of the modern American corporation. The results are not just high-profile Boeing airplane crashes, but dissatisfied workers, increased security vulnerabilities created by mismanaged software giants, and an inability to solve hard engineering problems.
There is also the rise of populists on the right and left, whether Elizabeth Warren, Bernie Sanders, or Josh Hawley, challenging the old Reagan and Clinton political model of deference to monopoly and financial power. The people are demanding that their government exercise power again, and they are not necessarily concerned whether that government is a crude populist one run by Donald Trump or a social democratic one run by a Democrat. They want to be governed.
Forty years ago, the New Deal model limiting the influence of big business and finance in politics fell apart. The Business Roundtable helped launch a new experiment in America, an experiment in whether a democracy could sustain itself without the public having meaningful control over economic policy. It was an experiment that spiraled out of control as even more radical financiers, pushing the theory of shareholder value, tore apart the corporate world itself.
The New Debate
Thus the new attitude that corporations have broader social purposes reflects not a new consensus, but the breakdown of an existing one. The era of financialization, where no one has to take responsibility for social problems, is over.
In a 2019 statement, the Business Roundtable disclaimed its earlier position on the purpose of a corporation. “Each version [of the Statement on the Purpose of a Corporation] . . . issued since 1997 has stated that corporations exist principally to serve their shareholders,” said the statement, which was signed by everyone from Amazon’s Jeff Bezos to Boeing’s Dennis A. Muilenburg. The new vision includes customers, suppliers, communities, employees, and shareholders in a stakeholder model.
Such arguments are an attempt to get back to the model of the early 1980s, to roll back financiers without breaking up large corporations. Brad Smith of Microsoft is the most aggressive proponent of this new corporate liberalism. In his book Tools and Weapons, Smith basically argues for Teddy Roosevelt’s New Nationalism, a fusion of big business and big government to act on behalf of the common good. Smith has appointed a team of “Microsoft ‘diplomats’ who work with policy makers and industry partners around the world to advance trust and security on the internet,” and lauds how companies are now involved in a “new generation of humanitarian and arms limitation issues.”
Smith, in other words, wants to push financiers out of decision-making, but without allowing small businesses and political institutions too far in. This ideological tradition is carried forward not only by leaders like Smith, but thinkers and writers like Michael Lind, Google-funded policy entrepreneur Rob Atkinson, and economist William Lazonick. They see concentrated markets and monopolies as helpful to economic and political development, and once again seek a fusion of big government, big business, and big labor (in whatever form that might take).
This New Nationalism framework is likely to fail for the same reason it failed quickly in the early 1980s, however. Corporate leaders are simply not well positioned to govern in the public interest. They may try to work with government to regulate, seeking to make good on the promise to use corporate power to address social problems. But these leaders have no experience in taking responsibility for larger social questions and often remain unwilling to reconstruct the democratic institutions that once shouldered those obligations. They want the government to stand up to China, for example, but not in a way that would force them to move supply chains. They want antitrust action against their opponents, but not themselves. They would like regulation to benefit the common welfare, as long as it is voluntary where they are concerned. But as we can see in the case of the NBA, it is impossible to square the power and interests of certain business leaders with American political values like free speech.
On the other side of the debate, business leaders like Benioff make the case for breaking up big tech. Leaders of small business, like Jason Fried of Basecamp, recognize that their liberty is under threat from concentrated power, be that power political or commercial. Fried noted that Google extracts “random” style payments from its search engine, forcing companies to pay to advertise to put their product in front of users searching for their own brand. Looming even larger, fear of Amazon is the number one concern of small business today. For these reasons, NYU marketing professor and former entrepreneur Scott Galloway mocks the idea of big tech protecting the United States and calls for a new era of antitrust.
These debates among CEOs echo the turmoil within business schools and among their alumni, who see the destructive power of finance and monopoly. The political debate within the commercial world is now between deference to business in the form of regulated monopoly, or assertive antitrust and regulated competition. The libertarian era of financier power is over.
Don’t be surprised, in other words, if in a few years you hear a politician say something along the lines of what Franklin Delano Roosevelt noted in his first inaugural, when he started the process of pushing big business out of politics. “The money changers have fled from their high seats in the temple of our civilization,” he said in 1933, calling forth new democratic institutions to tame finance and big business, “We may now restore that temple to the ancient truths.” And don’t be surprised if some business leaders agree.