These days, there is a lot of effort behind what is called the corporate social responsibility movement to inject what some of us might see as Leftist political ideas into the ways companies operate. (There is debate about this among free market folk, it ought to be conceded. See an article at Reason magazine.) Some of this is mandated by state regulation; some of it can also come from pressure certain types of shareholder (if there is consent involved, libertarians can’t object to that in principle). The old idea, put forward by the late Prof. Milton Friedman, that the primary obligation of company management is to maximise shareholder value, is shocking to the modern mindset. During my time in writing about and following the modern investment and financial industry, I am relentlessly bombarded by calls for firms to be more mindful of their social, environmental and related obligations. Making profits is all too often treated as a tad vulgar, even immoral. (This perspective might change a bit as and when the next recession bites.)
With that in mind, it’s refreshing to read a statement of corporate philosophy like this, from the Asgaard (as in the Vikings) business that runs the Starting Strength weight training operation, associated most famously with barbell lifting trainer and wonderfully plain-spoken Mark Rippetoe. The whole statement is great, even if you have never been to a gym or aren’t interested in lifting weights (full disclosure: I am doing the barbell lifting programme (in the UK) and it has already changed my health for the better).
Here are a couple of paragraphs:
We don’t like big government, government regulation of the workplace and personal space, and government safety nets for those who decide not to finish life’s heavy sets of 5. We don’t appreciate people who are constantly offended for other people at no cost to themselves, and who feel the need to force us to agree with their opinions, which we cannot be made to do. We like people who take personal responsibility, who do not ask for charity, and who give freely when they feel compelled to do so. We appreciate an honest effort toward a worthwhile goal, and we will help if we can.
We like nice guns, good food, strong drink, talented musicianship, thoughtful art, and the effort it takes to create them. We appreciate beautiful women and handsome men, masculinity and femininity, and we know the difference. We also understand that some people have different opinions about these things, and we respect their opinions at precisely the same level of enthusiasm with which they respect ours.
As an aside, I came across Rippetoe (or “Rip” as everyone calls him) via Glenn Reynolds. So I owe the law professor and blogger supremo for putting me on the path to getting stronger.
Just so you don’t hurt yourself:
https://exrx.net/WeightTraining
I’m 72 and do a three day split, you can find that at that link. The fourth day I walk up the mountain I have out back, here in Beautiful British Columbia.
I am a strong old man. đ
A very good philosophy overall but I particularly like this part:
“We also understand that some people have different opinions about these things, and we respect their opinions at precisely the same level of enthusiasm with which they respect ours.”
There are those who think that freedom of speech should only apply to themselves and those who agree with them, this is a sound response.
“and we respect their opinions at precisely the same level of enthusiasm with which they respect ours.â”
That bit especially. I shall commit that to memory for appropriate use.
Oh my. Nice rewrite of “The Golden Rule”
“The old idea, put forward by the late Prof. Milton Friedman, that the primary obligation of company management is to maximise shareholder value, is shocking to the modern mindset.”
The primary obligation of company management is to comply with the expressed aims and intentions of the owners. If shares in it were sold to investors purely as a profit-making venture, then that’s what they’re obligated to do. If owners/investors want to do something else, or if there are methods of making money they specifically don’t want to use, then the management are supposed to respect that. So long as everyone knows what’s going to done with it before they put any money in, and is willing to pay the price if profit-maximisation isn’t the aim, well, it’s their money.
Investors are usually aiming to maximise profits, so that’s what most companies do. But there’s room in the market for enterprises with other goals.
What’s not on is when management take over an enterprise aimed at profit-making and twist its goals to their own progressive politics. That’s using somebody else’s money for your own political purposes. If the owners ask for it, sure. But if you go to the investors and say “You actually wanted us to do this instead, didn’t you? You wouldn’t like anyone to think you wasn’t politically correct, would you?” then no.
But mostly I suspect companies try to appease the progressive crocodile because they don’t want any trouble getting in the way of them making profit. So long as authoritarians are willing to boycott and protest and sue and disinvest over politics, and libertarians are not, they’ll cave in to the authoritarians. They just want a quiet and peaceful life.
After all, they’re usually not being paid to push libertarian politics, or to make a stand for freedom, are they? They’re being paid to protect the company’s ability to do business and make a profit in the world as it is, and avoid political trouble.
If this Asgaard company get more investors and support because of their stance for freedom, more companies will do it. If they don’t, they won’t. It’s up to us.
Know what I hate? Modern commercials on TV. No longer about advertising their products, but brazen pushing of the whole “diversity” milieu. Marketing and ad agencies are infested with left wingers, and most companies seem to go along with their ad proposals. And if you dare challenge their productions, you’re labeled as racist, fascist, etc., etc., ad nauseam.
âThe old idea, put forward by the late Prof. Milton Friedman, that the primary obligation of company management is to maximise shareholder value…â
There is a hierarchy here, as Adam Smith explained, and at the head is the consumer who is the sole reason for producing anything. The interests of shareholders, workers are only considered as far as they serve the interests of consumers.
Maximising shareholder value can only be done, as the late Prof would certainly agree, by serving the interests of consumers and NOT exteraneous, nebulous, abstractions – social, environmental – or the sensitivities of the wilting weeds and delicate flowers of âthe modern mindsetâ.
But of course if shareholders had no incentive, no production, no work.
I’m actually a bit ignorant of the laws regarding incorporation (and by “a bit”, I mean “entirely”).
Certainly, I agree that private individuals should have the right and option to create organizations for arbitrary aims and intentions. However, for all I know, it’s actually a breach of some sort of regulation for a corporation to have aims and intentions with higher priority than maximizing shareholder value. I know there’s a bunch of funny codes in the U.S. that prohibit/allow various groups from doing certain things (i.e. campaign finance). I reiterate that, just because the law might be this, doesn’t mean it should be.
Come to think of it, I guess publicly-traded corporations might also have to follow rules based on the markets in which they trade (NYSE, etc.). I guess those markets could also insist that any corporations traded within focus solely on maximizing shareholder value. Of course, as long as the shareholders have the option of choosing which markets to join (including the option of starting their own market) then this hypothetical restriction isn’t relevant either.
Dyson is siting an electric car factory in Singapore: wait for it is all about Brexit – no it isn’t – that is where the markets are – Dyson will sweep the German manufacturers clean.
Dyson does not have shareholders – but they are maximising profit.
If a majority of shareholders of a public company vote to retain directors who have caused the company to pursue social aims over profit, then the company is in compliance with Professor Friedman’s maxim. “Value” isn’t always measured in money. Dissenters would then be wise to sell their shares and look for investments more attuned to their own values.
“However, for all I know, itâs actually a breach of some sort of regulation for a corporation to have aims and intentions with higher priority than maximizing shareholder value.”
I confess I can’t guarantee that nobody has been mad enough to make such a rule! But I was thinking of the example of charitable foundations and nonprofit organisations. Even without applying for the tax benefits, I believe it is legal to set them up.
“âValueâ isnât always measured in money.”
Agreed! Good way of looking at it!
Related to “Corporate Responsibility” as in the Reason article:
There are a lot of different reasons why people stay in business and try to run their businesses as profit-making enterprises, regardless of whether they’re personally sincerely committed to the idea of “corporate social responsibility.” This is, after all, an idea very popular with the public. Thus a show of efforts in that direction are good PR and helpful to business, regardless of the various possible motivations behind it (which I think often are sincere enough, and not necessarily cynically self-serving: For instance, John Allison seems perfectly sincere in his efforts to run BB&T as an ethical profitmaking enterprise, because his personal ethics requires it — both the ethicality and the profit-making).
I’ve thought quite often that past some point for these folks, it’s not really about the money for its own sake, not even about what all you can spend it on — toys, luxury, hobbies, living circumstances. It’s about markers.
I’ve never read the President’s book The Art of the Deal, but a commenter at thenewneo.com writes [my boldface]:
https://www.thenewneo.com/2018/10/23/trump-the-unlikely-populist-redux/#comment-2409192
. . .
Leaving this comment, slightly edited, also at the next Samizdata posting, from Perry Metzger on “Defending the Billionaires.”
The left keep saying that Milton Friedman (who they think of as some kind of “conservative” demon) invented the idea that the duty of a corporation is to maximise long term shareholder profits – actually this is basic COMMERICAL LAW and has been since there have been such things as Trading Companies. If the shareholders then decide to denote their profits to the Flat Earth Society or whatever, that-is-up-to-do-with-them, but such antics are no business (literally not the business) of the company (of the corporation), its ONLY role is to maximise the long term profits of its owners – the shareholders.
People such as Senators Elizabeth Warren who argue that Corporations must trade for the “good of the community” of the “stakeholders not just the shareholders” are FASCISTS and should be called FASCISTS, for this was the position of Mussolini and was indeed the core of his Fascist movement.
By the way – I agree with J.P. about the statement of beliefs of the fitness company, it sounds excellent.
Wrote the fat man filled with aches and pains…
NiV
Well, since you raise the point, there is in the UK Section 172 (1) (b) (c) and (d) of the Companies Act 2006, setting out a company director’s duties in respect of promoting the success of the Company, including a duty to consider impacts on ‘the community’ and ‘the environment’.
They used all of those words, and then didn’t bother to define “success of the company” or “benefit of its members”.
If I as a shareholder want my company to set aside money for the education of giraffes, and it does, I realize a benefit, and my company is, to me, a success.
Precisely so, bobby.