I've been thinking a lot about the frustration many of us feel towards the way our government and our corporations are behaving towards obvious long-term critical issues such as climate change - corporations actually hiring people to sew doubt into the message so that the status quo will be maintained.
The thing it, corporations can't do anything different. A corporation is measured by its stock price and earnings, quarter by quarter. If the leaders of a corporation do not make decisions that optimize earnings they are fired.
This means that a corporation can not take any actions motivated by other concerns, particularly longer-term concerns such as the impact on the environment say 20 or 50 years from now or the impact on society or long-term health of populations. Corporations are not structured that way. We can't really blame the people in charge of these corporations. If they did not behave this way, they would be moved aside and leaders who do focus solely on the bottom line would replace them.
I suspect that many corporate leaders would like to behave differently, would like to transform a company that truly takes long-term impacts of their decisions into account, but they just can't - if they did this, they would be fired.
What drives this short-term approach? Wall Street. Mutual funds are measured by their performance on a quarterly basis. And why are mutual funds this way? Because people leave mutual funds who aren't giving them positive performance every quarter.
So who is really to blame? You and me - the investors. If you are investing in mutual funds or in stocks and buying and selling based on quarterly performance, you are the core of the problem.
If we truly want to create change, we need to address this core problem. Personally, I am getting out of mutual funds. I am canceling my 401K and moving to a self-directed IRA, and I work to make long-term investments in companies I feel good about. I am tired of feeding the beast.
3 comments:
This is an anti-captialist rant.
Often, profit motives are aligned with the public good: which supermarket can satisfy the most customers, who can make the best smartphone or the best bicycle. When they aren't aligned, in the case of pollution that affects the public rather than just affecting buyers and sellers/workers, most free market types would advocate government imposed externality taxes as the most fair and efficient solution.
I agree, imposing a cost to this externality would solve this problem. The issue however, is that corporations are bound by their own charter to fight tooth and nail any attempt to create an externality tax like this, and since corporate power is so high in government right now, that is unlikely to ever happen. So perhaps the real root problem is money in politics. Money helps drive a free market; it should not drive government, which is supposed to implement these externality fees/taxes that the corporate world is bound to fight to their last breath.
As you say, David, corporations are bound by their own charter to fight against any recognition of "externalities", and that's partially due to a very narrow definition of who the corporations' stakeholders are.
I'd like to plug a friends book here - he writes (very accessibly) that corporate governance doesn't have to be the way that it is, and that changing it in certain ways would help to solve a lot of these problems:
"The Failure of Corporate Law: Fundamental Flaws and Progressive Possibilities" by Kent Greenfield
http://www.amazon.com/The-Failure-Corporate-Law-Possibilities/dp/0226306933
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