Just over a decade ago, in The Divine Right of Capital, Marjorie Kelly took a close look at the contemporary corporation and found serious problems at its core. She provocatively criticized the corporation’s intense focus on producing profits for shareholders as unacceptably exclusive. And her cogent, far-reaching proposals challenged readers to reconsider not just our tolerance for corporate misdeeds but the proper role of stockholders in public companies. Long before The Nation presented “13 Bold Ideas for a New Economy” in its June 2011 “Reimagining Capitalism” issue, Kelly had charted the course. Today, as corporations make an unprecedented bid for political influence in the run-up to the presidential elections, her analysis remains more timely than ever.
In a metaphor Kelly maintains throughout the book, she argues convincingly that capital’s seat on the throne of the corporate world is no more legitimate than the divine right of kings. Kelly paints this picture: The law gives corporations limited liability as well as perpetual life, and it is through these specially protected entities that the private sector operates, often imposing on the broader society the costs of, say, environmental damage or poor worker health and safety in the interest of maximizing shareholder returns. In America’s early years corporations were intended “to be subject to the sovereign will of the people and to serve the common good.” But as time went on, they committed themselves to shareholders at the expense of workers and communities, and wrapped themselves in the flag of “shareholder democracy” even as they trampled on other stakeholders.
Kelly correctly points out that shareholders today are rarely the ones who financed the enterprise in the first place. On the contrary, most shares are bought and sold publicly in the secondary market, where those who had nothing to do with providing capital to the company trade securities based on different perceptions of the risks and rewards of ownership. These shareholders, many of whom own their positions for very short time periods, get to vote for the board of directors once a year, and if they do not like the slate, their recourse is a proxy fight to wrest control from the board.
Such a contest is expensive, time-consuming and not easy to win. Many companies have set up so-called “staggered” boards so that if the diverse base of shareholders actually succeed in coalescing against the leadership, they obtain only a minority of the seats. Most of the time, if a shareholder doesn’t like the direction of a company, his practical recourse is just to sell his stock. As a result, it is rare for shareholders to succeed in changing corporate governance, strategy or management. And to many it has come to seem that the main result of this peculiar “democracy” has been ever increasing recompense for management.
Kelly did allow that positive change was taking place in the growth of socially responsible investing, cause-related marketing and growing corporate concern for environmental stewardship. In fact, on publication date, she was able to credit thirty-two states with somewhat broadening the corporation’s fiduciary duty beyond the shareholder constituency. But she was not one to bet on the social conscience of CEOs, since under the current system they are under great pressure to pursue near-term profits.