FYI:
Regards,
Ted
November 21, 2019
Dear WEALTHTRACK Subscriber,
Capitalism is under attack. The economic system based on private ownership, free markets and competition is losing favor among the young and being portrayed as greed based, unfair and rigged in favor of the wealthy few.
Socialism once discredited because of the abject failure and destruction of government controlled economies, such as in the Soviet Union, China, until private market reforms and currently in Venezuela has come back into vogue. According to a recent Gallup poll 51% of Americans aged 18-29 have a favorable view of socialism versus 45% who view capitalism favorably. In 2010 68% of young adults viewed capitalism positively.
There is a reason capitalism is under attack. Rising economic inequality in the U.S. has called into question the American dream of rising upward mobility and equal opportunity.
American corporations have come to symbolize the economic divide due to the yawning gap between executive and worker pay. According to the Economic Policy Institute average annual pay of CEOs at the largest U.S. corporations has exploded from 31.6 times the average annual compensation of the typical worker in 1980 to 278 times today, largely due to the use of stock awards and stock options which make up 75% of CEOs’ annual compensation.
For decades the interest of stockholders, who are the owners of businesses was the top priority of corporate executives, who are the employees of the owners. As Nobel Prize winning economist, Milton Friedman wrote, management’s “direct responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in the law and those embodied in ethical custom.”
In 1997 the influential Business Roundtable, which represents about 200 major corporations, statement on corporate governance agreed: “The paramount duty of management and of boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders.”
That long held understanding has now changed. In its new 2019 statement called: “A Statement on the Purpose of a Corporation”, the Roundtable writes that they “…share a fundamental commitment to all of our stakeholders. We commit to:
Delivering value to our customers.
Invest in our employees.
Dealing fairly and ethically with our suppliers.
Supporting the communities in which we work.
Generating long-term value for our shareholders…”
Shareholders’ interests was their last point, and there was no mention of the primacy of profits!
Do corporations need a new purpose? Does the free enterprise capitalist system need a major overhaul or a tune up?
We have two guests with strong views on the topic. Ken Langone is Founder, Chairman and CEO of Invemed Associates. He is Co-Founder of the Home Depot where he was Lead Director and a member of the executive committee of its board from its founding in 1978 until 2008. He is a noted philanthropist and the author of I Love Capitalism!: An American Story.
He is joined By David Gardner the Co-Founder and Co-Chairman of The Motley Fool, a global online investing service launched with his brother Tom in 1993. Motley Fool’s purpose is to make the world smarter, happier and richer by helping individuals become better investors. Gardner’s stock picks, tracked in their Stock Advisor newsletter since 2002 have outperformed the market by a huge margin – up 499.4% vs the S&P 500’s 81.2%. The firm is also on a mission to help the world work better. It has been twice named: “#1 Best Medium Sized Company to Work For” by Glassdoor. Gardner is also a board member of Conscious Capitalism, a non-profit organization established to promote conscious capitalism which he will describe.
As always, if you miss the show on public television, you can watch it on our website. If you would prefer to take WEALTHTRACK with you on your commute or travels, you can find the WEALTHTRACK podcast on TuneIn, Stitcher and SoundCloud, as well as iTunes and Spotify.
In this week’s EXTRA feature on our website both Langone and Gardner describe what they want to accomplish in their lives now. You will be inspired by each of them.
Thank you so much for being with us. In case you miss next week’s newsletter have a Happy Thanksgiving, and make the week ahead a profitable and a productive one!
Best regards,
Consuelo
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