THE LIBERTARIAN ENTERPRISE
Number 845, November 1, 2015
Do companies have more responsibility than making money for shareholders?
Attribute to L. Neil Smith's The Libertarian Enterprise
Reason magazine recently did an interview/article1 with Whole Foods CEO John Macke. In it he brings up some good points. One of which I think is the damage done to our branding by the hard core, old school libertarian insistence that, as Milton Friedman said: "the only responsibility of a business is to increase its shareholders' values".
While it's true that that a business, or individual owes nothing to society that they havened agreed—or contracted—to provide, why is it that we allow the statists to assume that if left unregulated, that shareholder monetary value is the only thing businesses will be interested in? Why do we, who insist that the market can and will take care of everything from providing bread, to paving the streets to dealing with fraud, robberies and murder allow them to claim the market itself cannot force businesses to hold up the "social contract" that statists love to trot out? The market can (and will if allowed) require businesses to act much better on social issues than regulations ever could.
Look at wages. There is a lot of talk about the minimum wage right now. Claims that the current $7.25/hr. is too low to live and raise a family on. Demands that it be raised to $15/hr., or higher, so that any person willing to work can live on minimum wage. Libertarians, and many conservatives, argue that minimum wage is a starting point, and that as a person gains skill they will get higher pay that they can live on. We argue (rightly) that raising the minimum wage locks low skilled entry level workers out of jobs, because it's not worth it for a business to hire them.
But why don't we ever address raises? There is no government regulation requiring a business to give a more skilled worker a raise. The vast majority of workers are not covered under union contracts, and many are not in a position to go get a union job that would give them more money. So why do companies continue to give workers raises? Why don't they all just give workers the minimum, or barely over it?
The market. If a company decided today to freeze its workers' wages and never pay them any higher, it would take only a month after word got out for the best employees to begin leaving for companies that would give them raises. Some workers would leave for less money, and the promise of increases down the road. The company's competitors would skim the best talent, and even the mediocre talent from them in no time. The one that froze wages would find it hard, if not impossible, to hire quality workers as soon as the word got out to industry (which in these days of social media, would be about 60 seconds after the first worker quit).
Before Obamacare (the ACA) mandated insurance, most companies offered it to their employees anyway. It might not have been the coverage that someone wanted, but if you didn't like it you could shop around for a company that offered better benefits. Why? Because the market was such that if a decent sized company didn't offer insurance, they couldn't keep good employees—because their competitors did.
Everyone wants to look down on big corporations. But where are the highest wages and best benefits for an employee available? Big corporations. It's not the unions that did that. They have elevated the lowest workers, and then picked up higher paying more skilled jobs as the lowest wages caught up to them, but they never affected the high wage jobs. It is competition from other companies in the market that force corporations to provide high wages.
Why do businesses offer free Wi-Fi to customers? Why do they provide cell phones to some employees, or company cars? Why do they provide day care? Why do they bring in flu shots for those that want them? Why do they sponsor blood drives, charity events, give employees time off for charity (some unpaid, some paid) or organize gift collections for community members that fall on hard times? They do it because the market—and their shareholders—demand it.
Most of the above is about market forces, but what about the actual shareholders?
A while ago a group of shareholders sued a major retailer to try to force them to stop selling certain items. It failed in court, but what people forget is that it failed in a government court, and partially because it was a minority of the company's shareholders. Had those shareholders bought deep enough into the company to be a majority, and then maneuvered for board seats or threatened to dump their stock if their demands were not met, the result may well have been different. In a libertarian non-government arbitration/court, the decision about shareholders rights might also have been different.
Shareholders are people. Some are in it strictly for the money. Others have scruples about what company they buy into, based on what the business is or how they do business. If you don't think this applies to most investors then think about this—how many investors do you know who would knowingly buy into, or hold onto stock, in a company they found was using slave labor? Regardless of the return on investment, the company would have a hard time getting more than pennies per share on the open market. So shareholders absolutely will force companies to be more "socially responsible" than just making money.
The market works to regulate businesses. We have examples and proof available. It's high time we stopped fighting with our hands tied and use those examples when statists claim that government regulation is the only thing saving us from big, bad, greedy corporations.
1 "Why Intellectuals Hate Capitalism"—Reason magazine
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