Corporate Governance and Political Activism: The Case of Ben & Jerry's

When a company’s management decides to take a partisan position publicly on a political issue, especially one that is contentious, decreased revenue, whether from potential or actual consumers individually who disagree with the company’s position, or from an organized boycott from groups that stand against the position. Anger may be a stronger motivator than ideological agreement, in which case any increase in purchases would be less than the lost revenue. This asymmetry itself is interesting from the standpoint of human nature, and strongly suggests that CEO’s steer their respective companies, which managements operate on behalf of the stockholders anyway, away from taking controversial positions on social or political issues that do not directly and significantly pertain to the bottom-line (i.e., profitability) in the short- or medium-term. In short, wading into societal issues is, generally speaking, not good for business. What then about a company like the ice-cream manufacturer, Ben & Jerry’s, which from its inception had social/political activism as a salient part of the company’s mission?

Both the initial two owners and all subsequent owners, which includes Unilever, which bought the company in 2000, could not have become owners with the understanding that they were buying (into) an apolitical company, so the fiduciary duty of management was not breached. That Unilever fired Ben & Jerry’s CEO, Dave Stever, in 2025 because he had continued the subsidiary’s very public political activism presumably because it included criticism of U.S. President Trump is, let us say, complicated. I contend that the firing constitutes a breach of contract even though that contract contradicts the principle of corporate governance in part but not enough to justify allowing the firing to stand legally.  

On March 18, 2025, the management of Ben & Jerry’s accused the subsidiary’s parent-company of violating the ice-cream-maker’s “independence on social policy issues.”[1] It is precisely because a parent-company has the legal right to control the management of a subsidiary.

Unilever had informed the management of Ben & Jerry’s on March 3^rd that the latter’s CEO was being removed “without consulting directors because of his commitment to the ice-cream maker’s social mission and brand integrity, not because of concerns about his job performance.”[2] Unilever’s managers had “repeatedly warned personnel” at Ben & Jerry’s “not to defy” that management’s “efforts to ‘silence the social mission’” of the subsidiary.[3] Unilever’s management blocked the management of Ben & Jerry’s from honoring of Black History Month and opposing the detention of Mahmoud Khalil, “a U.S. permanent resident” who had been “active in pro-Palestinian demonstrations at Columbia University.”[4] It was not as if the subsidiary were supporting a “KKK (i.e., racist) month” and gang activity coming across the border from Mexico and hitting streets in the U.S.; nevertheless, the positions that Ben & Jerry’s management wanted to take were controversial in nature, though it is not clear that either position would have lost the subsidiary much revenue. 

The issue, I submit, comes down to corporate governance. Ordinarily, when a company buys another, the former gets to control the latter. It is not like a federal system wherein two governing bodies have at least some governmental sovereignty over the same territory; rather, corporate governance is top-down. The question is whether, in buying Ben & Jerry’s, Unilever’s agreeing to recognize and go through an independent board tasked with safeguarding the political and social activism that were so much a part of the ice-cream brand was valid. In refusing to go through that board and in accusing the management of Ben & Jerry’s as defying the Unilever management, the latter was taking the position that as the owner of the subsidiary, Unilever could unilaterally cancel the agreement.

Prime facie, to sign off on a clause in a legal contract and while presuming the legal right to unilaterally invalidate said clause without notifying the counterparty of the escape clause before the signing is odious and unethical (the technical term being sneaky). The practice could be considered a form of lying because the standard understanding of a legal contract is that all parties signing it accept that they are bound to it and thus cannot legally violate it. Kant reasoned that promise-breaking is unethical because if such a policy were universalized, making a promise (or an agreement) would not make sense because no one with any sense would sign a written contract. The logical contraction itself offends reason and is thus unethical because it is by the use of reason that we assign value to things.

Another ethical issue is whether it is fair that Unilever fired Ben & Jerry’s CEO even though plans were in place to spin off the subsidiary later that year. In February, 2025, the subsidiary’s management had “accused Unilever of unilaterally banning [the subsidiary’s management] from publicly criticizing [U.S. President] Trump, ostensibly because of the ‘new dynamic.”[5] Given the spin-off plans, this could very well have been the motive in firing the CEO because even a few months more of political speech could be dire for Unilever financially, given the president’s penchant for payback. Using corporate governance to stifle political dissent is, however, questionable ethically as well as from the standpoint of democracy. The ethical issue would be exacerbated were Unilever’s board-members or its CEO supporters of President Trump. In terms of democracy, an elected president’s de facto control of companies with respect to wiping out political dissent is obviously problematic because of the importance and right of free-speech in maintaining a republic. Of course, Hitler’s political use of companies to locate political dissent and even to find Jews didn’t face any such obstacles.

As important as ethics and political freedom are, the core issue in this legal case pertains to corporate governance itself. Specifically, do property rights, such as a parent company has in being able to control any of its subsidiary companies, trump even a written contract by which a parent company has agreed that subsidiary’s management can be protected from certain exercises of control by the parent company’s management or board? This is the pertinent question in this legal case.

Noting that a person putting one’s labor (or money, which represents labor in part) into something renders it legitimately one’s own property, John Locke saw property rights as existing in the state of nature, whereas Thomas Hobbes did not; in the contentious seventeenth-century Europe, he advocated that a political sovereign be given a monopoly on political (and religious) power in part to protect the property of people so they would not kill each other over it (though the sovereign could of course take over the property without providing a justification). In the antebellum southern States in the USA wherein slaves were considered property, those slaves had no rights against their respective owners. It is ironic that a case of humans-as-property illustrates the epitome of property rights, and yet such rights in themselves, at least in a society, have a legitimate basis. My point is that while we may not like where the doctrine of property rights can take us, modern corporate governance is on a sound footing philosophically.

Unilever’s breach of contract may, however, run aground because a system of property rights is for practical purposes based in a legal framework, wherein a breach of contract is not legal even though particular circumstances may admittedly justify it ethically and even legally. The question of whether Ben & Jerry’s CEO could legally “defy” the board or management of Unilever because officials representing the latter signed a legal contract mandating the use of the independent board centers on whether that clause can be considered to be legally valid and thus binding even though it “defies” the doctrine of property rights upon which corporate government itself rests.

I contend that the clause is legally enforceable. It is not as if that clause were in “boiler-plate” small-print that the lawyers at Unilever missed. It is not as if the clause contains an escape sub-clause for Unilever, for Ben & Jerry’s management (and lawyers) would have flagged it as undercutting the very point in having the clause in a legal contract. Moreover, the willful unilateral decision by a party to a contract that it no longer binding is offensive to law itself, which is an important foundation for a free society, l’etat est moi is a different story. In fact, it is as if the board or management of Unilever were saying, we are above the law, or we are the law. Either premise guts the basis of a legal system, and thus of corporate governance too. Such a governance system in the private sector is based on a legal system even more fundamentally than on property rights because even such rights are premised on a legal system (even though Locke disagreed). Regardless of what holds in the state of nature, the rights of property in a society are granted by law, which requires the existence of a legal system unless law is the will of a political sovereign. This is why it is so important that the President of the United States recognize the constitutional validity of judicial decisions bearing on a president’s will, for otherwise that will could easily become law and no legal system would be needed; the republic would collapse into dictatorship.

That a republic, including federal republics wherein smaller republics also exist—the E.U. and U.S. being notable examples—can (and have) become autocracies demonstrates just how tenuous democracy can be. Property rights, too, may be tenuous, especially in autocracies even though eminent domain exists in republics. To be sure, the lack of legal restraint on a regime of dictatorship, for the state’s will is the law, means that property owners are not typically monetarily compensated for the loss of their respective properties taken by the state. The legally contracted legitimacy of the independent board protecting Ben & Jerry’s social-activist-brand intangible asset is in relative terms not much of an affront to property rights as instantiated in corporate governance.

I have argued that Unilever’s representatives signed the contract of the merger-agreement means that the independent board is not even not much of an affront. In effect, Unilever’s property rights regarding  Ben & Jerry’s explicitly excluded the right to ignore the independent board. As a principle to be derived from this case, it can be maintained that corporate governance does not necessitate or require an absolutist doctrine of property rights. The very existence of the state, whether democratic or autocratic, means that absolute property-rights do not and cannot exist. Therefore, a purchaser of an asset agreeing by legal contract to restrict one’s rights with respect to the use of the asset is legally valid and thus should not be vitiated by later appeals to the doctrine of property rights. In renting house, the house’s owner typically agrees in the lease to restrictions on entering the house. The state may mandate this restriction to protect renters even thought their use of a rented property is not ownership. That is, use-rights can trump property-rights in certain respects short of the right to assume ownership of the property, and the existence of such restrictions on property rights does not destroy property rights as a prominent part of a legal system.

---

1. Jonathan Stempel, “Ben & Jerry’s Says Parent Unilever Decided to Oust Ice Cream Maker’s CEO,” Reuters, March 18, 2025.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.

Morgan Stanley: Systemic Mistrust or Bad Financials after the Financial Crisis?

"Morgan Stanley by any measure is a safe and solid investment bank. Except for one: The amount of trust people have in the whole financial and political system. It's just about zero,” according to Jesse Eisinger of The New York Times in October 2011. Even as there is undoubtedly an element of hyperbole in his conclusion—for zero trust in the financial system and governments would occasion far greater problems than the world faced at the time of Eisinger’s report—his broader point that bankers would be held accountable one way or the other for not having learned their lesson on derivatives (and risk more generally) is valid. The subtext is that even though banks like Morgan Stanley were in actuality in solid financial shape, they deserved the negative repercussions from the systemic skepticism that the banks themselves brought about by virtually ignoring risk analysis in preference to a run of profits and (not coincidentally) bonuses.

Eisinger points out that, at least as of October 2011, Morgan Stanley “has almost $60 billion in common equity, compared with $36 billion before September 2008, and its ratios are stronger. Its trading book - which is volatile and where any bank can take sudden, large losses - is smaller than it was. Morgan Stanley has more long-term debt and higher deposits, both of which stabilize its finances. The bank has more cash available in case there's a crunch and a smaller amount of Level III assets, which don't have an independently verifiable value and so must be estimated by the bank. Hedge funds have parked a smaller amount of assets at Morgan Stanley. That's good because in the financial crisis, they pulled them from the bank.” But because all of this could be easily wiped out by a run on the bank occasioned or fueled by a wider mistrust of the financial sector, Eisinger brings up the topic of derivatives as a way of showing that the bankers did not in fact learn their lesson (i.e., all the improved stats may be for naught). Accordingly, the bankers deserved the systemic mistrust even at the expense of any effort having resulted in added financial strength.  

According to the reporter, Morgan Stanley had a face value of $56 trillion in derivatives in October 2011. He notes that JP Morgan Chase had more: a face value of $79 trillion. This is the GNP of some countries. Even though the bankers insisted at the time that they had adequately hedged their long positions, the hedges themselves could fail, especially if the derivatives are positively correlated, as in September 2008 when AIG was completely overwhelmed due to the housing-based derivatives caving in virtually all at once.

In other words, those of us capable of learning lessons know that we should not trust hedges in so far as systemic risk is concerned; the system itself can be overwhelmed by the sheer momentum of a really big wave. So we are back to the issue of trust in the entire financial system, which is and ought to be a drag on even stellar financials until the broader lesson is learned. Unfortunately, that lesson may not be in the immediate financial interest of particular banks due to externalities occasioned by moral hazard (e.g., the possibility of being rescued while another bank, such as Lehman, fails).

Even though governments can step in to protect the broader system (unless captured by the regulated), legislators and regulators cannot force bankers to learn their lesson. A mentality to safeguard even one’s own bank as a going concern cannot be imposed; it must be felt and valued from the inside. All too often, bankers are engaged in “managing” regulations as impediments to be minimized rather than stepping back to ask why the regulations exist in the first place. They might exist for the banks’ own good. If so, the banking lobby trying to water down the Volcker Rule might have been working at odds with those institutions that the lobby ostensibly represents. Be careful what you wish for, Wall Street bankers. You might just get it, especially if you have the gold and therefore can make the rules. It would be ironic if the protesters rather than yourselves had your back, even as you ridicule the masses marching below your towering be-windowed edifices of greed.

Source:

Jesse Eisinger, “Between the Lines, Wall St. Banks Face a Deficit of Trust,” The New York Times, October 12, 2011. 

On the Economic Justification of American Society and Federalism: The Oxymoron of Congress Mapping the Human Brain

In his 2013 State of the Union Address, President Obama cited brain research as an example of how the government could and in fact should literally “invest in the best ideas.”[1] He cited the $140 return to the economy from every dollar that had been invested to map the human genome, and added that funding the Brain Activity Map would be a job-creating investment in science and innovation. In terms of comparative economic advantage, he said, enlarging the “knowledge economy” would be a good strategy for maintaining a formidable standard of living. As laudatory as more knowledge of the human brain is, Obama's perspective suffers from economic reductionism and a lack of political basis.
Economic reductionism means that everything reduces finally to its economic impact. Mapping the genome may have good economic returns, but the impact in terms of human fulfillment is arguably much more beneficial and thus important. Finding the gene that causes baldness, for instance, would surely have an economic benefit for some, but the non-economic benefits to bald men would be much more important. More importantly, to the extent that mapping the genome has led to new treatments for illness, especially those that are fatal, the primary benefits have surely not been economic in nature. An old person who can live ten more years rather than one does not leap for joy because of the the additional retirement income. Because this is obvious, Obama's economic basis can now be seen as artificial or skewed at best even it it was politically and economically prudent for him to point to economic returns as they would have been particularly of interest to the companies that made campaign and other, less direct, economic contributions to the Wall Street president. Unfortunately, people reading or hearing his speech could have gotten the idea that the reduction to the economic effect is fitting rather than distorting. A government, after all, should look after the public good, which is not only economic. Of course, it has been by lip service to the general welfare that U.S. presidents have tried to justify federal spending in virtually any area, hence robbing the state governments of more and more sovereignty. 
That the federal government had any constitutional basis to be funding a map of the brain's activity is a question the federal president seems not to have considered. To be sure, balancing spending for the general welfare with the enumerated (i.e., limited) powers of the federal government is a difficult task unless the general-welfare spending is assumed to pertain only to the enumerated (i.e., listed) powers of that government. It makes no sense to say that government's powers are limited and yet spending can pertain to any domain, even preempting state spending. So by logic alone, it stands to reason that the spending clause must have been intended to furnish Congress with the authority to fund its enumerated powers.
Put another way for the faint of heart, if a positive economic return to the economy is the litmus test, then the federal government could intercede in so many areas that the state governments could eventually become little more than local governments. The crucial political benefit of federalism, wherein the state governments have the power to act as a check against encroaching or tyrannical federal power so the only check is not on the state governments by the federal government, is lost if federal lawmakers and the executive can amass virtually unlimited power for the U.S. Government (and themselves in the process!) especially if done at the expense of the states. 

A Congressional rendering of how the human brain might be mapped.      Source; nytimes.

Admittedly, a person could look at the U.S. Constitution and point out the spending clause, whereby the Congress has the authority to spend funds “for the general welfare.” in itself, the clause contains no limitation, and the general welfare is indeed wide in scope. Scientific advancement, it could be argued, is surely in line with advancing the general welfare of the people. Virtually any purpose, even those purposes in which the effect on the general welfare is merely a byproduct, could fit within the clause. To restrict the clause could foreseeably hold back the general welfare from what it would otherwise be. 
Turning to the enumerated powers of Congress, the commercial implications from mapping the brain's activity might seem to fit within the interstate commerce clause of the U.S. Constitution. After all, the U.S. Supreme Court had ruled in Wickard v. Filmore (1942) that even a farmer in Iowa who grows wheat for his family's own consumption can be subject to regulation. Even if his activity "be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce and this irrespective of whether such effect is what might at some earlier time have been defined as 'direct' or 'indirect."[2] The majority opinion reasons that the harvests of wheat for private consumption, if aggregated, would have a significant effect on the interstate wheat commerce. Even an indirect effect on the interstate wheat market can justify even the growing of wheat for private consumption being subject to the interstate commerce clause, and thus federal power. So it is no accident that the federal executive publicly justified the federal funding to map the brain's activity by characterizing such a map as "a job-creating investment in science and innovation." Obama may have engaged in warped economic reductionism in order to gain more power for his government. He and the federal court before him both distorted logic for the sake of additional power going to the federal government.
The institutional and personal conflicts of interest should be obvious. Since that ruling, the reach of the commerce clause has expanded. Even something that is not itself commerce can be federally regulated as commerce. This flawed logic should be enough of a red-flag to tell us that something went deeply wrong in the federal court's reasoning where federal power was at stake or could be expanded. 
In regard to funding the mapping of the brain's activity, commerce of the completed map could indeed extend beyond state lines (i.e., be interstate commerce), but to argue that the regulating of interstate commerce extends to investing in manufacturing of the product itself conflates spending with regulating, which is to set rules. 
President Obama could be challenged for his presumption that the federal government is the definitive level of government for virtually any matter of public policy to be enacted into law. He could have quoted from Alexander Hamilton, a delegate to the Constitutional Convention and the first U.S. Treasury Secretary,  who had wanted the states to be mere districts implementing federal policy. Of course, he also wanted the U.S. president to be in office for life.
Before Obama was the federal executive, I asked Sandra Day O’Conner, a former justice of the U.S. Supreme Court, why the Court had allowed the Congress to encroach so onto state matters. "It takes a majority," she said (meaning of justices). Then she observed that Congress was “acting like a state legislature.” This remarkable insight would prompt me years later to wonder whether Obama himself was conflating the federal and state levels. He may not have fully realized the distinctiveness of federal government on the empire scale from governance on the state, or kingdom, level. Whereas an empire-scale government of a federation must take into account differences in culture, political and moral ideology, economy, and even religion that exist from state to state, a state government need not as a state can be homogeneous rather than diverse within. The British, who had once had an empire to manage, suppose their state in the E.U. is diverse. I submit that the E.U. itself is much more diverse from state to state, and so taking into account such differences is an appreciable aspect of E.U. governance but not of that of a state, even the United Kingdom (or California in the U.S.). Yes, Virginia, such a comparison is valid.
I submit that President Obama did not sufficiently heed the vital differences between the federal and the state governments. Nor have majorities of justices sitting on the U.S. Supreme Court. Viewing things from the perspective of the federal government, and even having its interests at heart, it is possible to interpret general welfare and the commerce clause so broadly as to warp logic and yet not even notice this or the eventual cost (to use an economic term!) to the Union itself (i.e., impairing its federal system). Economic reductionism can be placed in service, resulting in bloated federal power and a warping of priorities (i.e., financial as the definitive litmus test for everything, including the public good). Of course, big business feels right at home in such a society--societal norms and values reflective of those of business. Meanwhile, the warped system feeds on itself, without being noticed and becoming even more warped in the process. For all of the reliance on the general welfare, who exactly is looking out for it as regards the impact on it from the federal system of government and the economic reductionism? 

See related: Institutional Conflicts of Interest, Essays on Two Federal Empires, and British Colonies Forge an American Empire, available at Amazon.

1. John Markoff, “Obama Seeking to Boost Study of Human Brain,” The New York Times, February 17, 2013.
2. Wickard, 317 U.S. at 125.

Faster, Higher, Bigger: A Rationale for Regulation

The death of a Georgian luge athlete on the opening day of the 2010 Winter Olympics occurred amid concerns about the speed of the record-setting track at the Whistler Sliding Center. “There were some questions asked by other athletes even before this tragic accident,” said Nikolas Rurua, Georgia’s deputy minister for culture and sports. He added that there had been several crashes in the same area of the track. This is like looking back in a financial crisis to point out that several had preceded that one. It does seem like financial crises may be part of a larger pattern that is based in human nature. I contend that just such an innate propensity to recklessness at the expense of the public good (and one's own!) serves as a rationale for regulation in any country.

The luge is often called the “fastest sport on ice.” Sliders use their legs and shoulders to steer small fiberglass sleds down an icy track, at times approaching or surpassing speeds of 90 m.p.h., according to the Vancouver 2010 Winter Olympics Website. One headline read, “This Winter Games could be the first time the sport sees a competitor hit 100 mph.” Sports Illustrated’s David Epstein, who covered the Olympics, claimed the Whistler course was at the time the fastest in the world, “and not by a little.” He explained that while most luge courses “flatten out” around the 11th turn, the Whistler track “just keeps on dropping, so there’s really kind of no break from gathering speed toward the end.” Epstein reported that some athletes had been complaining about the speed of the course and speculating that the 2010 Winter Games could be the first time a competitor hit 100 mph. “That’s 15 to 20 mph faster than any course in the rest of the world.” Is being faster the overriding point?
Whether we are talking about luge tracks, sky-scrapers, corporations, or passenger jets, the human psyche seems to have an innate proclivity to extend a threshold further—regardless even of how far the extension is from our natural limits. This can be reckless, for we are perhaps by nature inclined to ignore the recklessness involved in going faster or getting bigger.

Not only do we like faster, higher, and bigger; we, like Dick Fuld, the last CEO of Lehman Brothers, are not content until we have hit biggest, for he put the investment bank through so much risk in part so his bank would surpass Goldman Sachs. He wanted to be higher, in the rarified Wall Street club that has included JPMorgan Chase, Citigroup, Solomon Brothers, Bank of America, and Goldman Sachs. If the human susceptibility is as I describe here, a strong rationale for regulation of business exists in any country. We should not limit recklessness to that which occurred from the late 1990's through at least the Financial Crisis of 2008 as large American investment banks bundled sub-prime (i.e., risky) mortgages into bonds, a third of which Moodys rated AAA, and sold even the lower-rated bonds as if even they were safe (while confidentially admitted to themselves that they were "crap"). The human brain simply doesn't function well when in the grip of greed. Interestingly, a group of the large bankers meeting with U.S. Secretary of the Treasury, Henry Paulson, amid the fear in the financial crisis admitted that they had been wracked with greed--so why hadn't the federal government protected them from themselves with financial regulation? The answer is of course the bankers' own lobbying and political campaign contributions. You cannot both corrupt government into functioning as a plutocracy and yet expect that same government to be politically strong enough to act as a constraint on even severe cases of greed.

Airlander 10, the largest aircraft in the world, crashed on its second test-flight on August 24, 2016. 

In 1912, the Titanic ocean-liner was the largest thing built by human beings. In spite of the risk in being the largest, the ship was presumed to be unsinkable. Speaking about the ships a century later, Helen Kearns, a spokesperson for Siim Kallas, who was the E.U. Transportation Commissioner at the time, said, “There are legitimate questions as these vessels have substantially evolved in recent years.” I wonder if “evolved” is the right word. “The boats have gotten a lot bigger, as it’s economically advantageous to have more passengers,” Kearns added, but “the way these vessels have grown in size does mean finding the right balance to make sure regulations are stringent enough to ensure there are procedures like safe evacuations.” She was presuming here that cost-efficiency is a given, and, furthermore, that regulations can make up for any increased risk that comes with size.

Kearns was responding to reports that a cruise ship had hit a rock off Tuscany and partially sank several yards from an island off the coast. In the case of the partial-sinking of the Costa Concordia about twenty feet from an island just off the Tuscany coastline on Friday the 13th in January 2012, there was still confusion regarding how many of the 4,200 souls on board were still missing. That total figure of people who had been on board is about double that of the ill-fated Titanic, which went down in the North Atlantic on April 15, 1912—almost exactly a century earlier. In that case, the White Star Lines pressured the captain to light the fourth boiler to reach New York City early and "make the papers!" It did not occur to anyone that the ship's rudder was made for smaller ships, and thus it could not turn quickly enough to avoid the giant pop-cycle ahead in the cold water.
To put the two accidents in perspective, being twenty feet from an island would undoubtedly have been treated like a godsend to those people on the Titanic who perished in the icy waters of the north Atlantic. Had cruise ships become so large (and complex) that being twenty feet away was deemed to be too far? Or had cruise lines become too bureaucratic, mirroring the tendency in modern corporations generally, as per Max Weber's studies.
We forget that in James Cameron's film, Titanic, the Titanic’s designer says to the White Star Line executive who has just claimed that the Titanic—the biggest ship in the world—cannot sink,  “I assure you, good sir, it is made of iron. The Titanic will sink. It is a mathematical certainty.” A century later, it was taken for granted that Costa could not fall over in the water, yet it did—making it difficult if not impossible to deploy the emergency boats.
Regulation can be thought of as the structural walls separating sections of a ship. In oil tankers, those walls keep the oil from all going to the front or back and capsizing the ship. In the case of ships like the Titanic, the walls were designed to keep water leaking into one section from filling more sections--five were filled in the case of the Titanic because of the way the iceberg tapped along the side of the ship. Regulation does not stop at how ships are designed internally, but includes how big they are. Ideally, regulation realizes that speed, height, and size are themselves subject to regulation because the faster you go, the higher you build, and the bigger your boat or corporation, the faster you'll fall. An instinctual human urge, I submit, discounts or dismisses such risk (a.k.a. recklessness) out of a single-mindedness that narrows cognitive perspective into a fixation. Doubtless a product of eons of natural selection, this instinct is not bound to change anytime soon, so we can take regulation as a given rather than pretend that it is optional. Before the financial crisis, U.S. Federal Reserve Chair, Alan Greenspan, said he was ideologically opposed to regulating the financial sector; he thought a laissez-faire market could control its own volatility and risk. During the crisis, he briefly admitted that he had been wrong. He soon "repented" for his "heresy" and went back to the free-market line even though even competition requires game-rules, especially if the players keep getting bigger. 


Sources:
"Olympic Luger Dies on Track Where Speed Caused Concern," CNN.com, Febuary 13, 2011.
Steven Erlanger, “Oversight of Cruise Lines at Issue After Disaster,” The New York Times, January 17, 2012.

Occupying Wall Street

At the “Occupy Wall Street” protest in Washington, D.C. in 2011, a man was preaching the Gospel as protesters pleaded with him to stop. While I suspect that the hackneyed secular/progressive vs. right-wing Christian dichotomy is reflected in this dynamic, the protesters may also have been “policing” the contours of their movement as anti-corporate and anti-Wall Street. Yet one of the pleading protesters was holding a sign, “Create Peace,” which does not really get at the anti-business theme. Another of the protesters pleading with the evangelical had a bongo drum handing down from around his neck, which could suggest that he would be out for any left-wing protest. Still another protester, perhaps from the peace movement, held a sign “2 Wars equals = Deficits!” Even morphing into a protest against the horrendous debt of the U.S. Government would miss the mark on the anti-corporate, anti-Wall Street target. 

In the New York protest, an elderly black man held two-part sign: “Obama: One Brilliant American Moving America” and “Upward a Standard of America.” Standing next to him, a young woman was holding a hand-written note, “This Guy Is Clueless” with an arrow underneath pointing to the man. Her expression said, “What is this guy doing at our anti-Wall Street protest?” His expression said, “I’m confident in what I believe and I’m not backing down.” Neither one looked angry.

My question is this: In a free society in which people enjoy the right to protest on public property, how can a given protest movement enforce the limits of its message? If a group secures a permit to protest in a certain area, can that group establish gate-keepers along the parameters to keep out signs that do not reflect the group’s message? I am sympathetic to permitting protests this self-regulatory function. In attending protests in the past, I saw people interlarding their own causes where they were obviously on topics other than that stated of the protests. How selfish of them! I remember thinking. It is as though such people assume that the rules don’t apply to them. They are like those people who show up to a private party uninvited then are offended when they are asked to leave. Essentially, they are arrogant and presumptuous; such an air belies any cause.

The anti-corporation, anti-Wall Street protests are not religious revivals; neither are they pro-Obama rallies. The rallies aren’t even geared to protesting the fiscal mess of the U.S. Government, even though the deficits and debt can be partially explained by the largess pressured by industry lobbies (including banking) and bail-outs occasioned by the greed and fraud extant in the mortgage and investment bank sectors. In short, the protests need not be an opportunity for virtually any progressive cause that wants to promote itself as though it had been invited to interlard its own agenda.

The Wall Street Journal reports that at a “protest off Pennsylvania Avenue in Washington, D.C., it was unclear what the protesters stood for, much less if they’d accept political support from the Democratic Party. A man on stage beat on a drum while reciting free-verse poetry lines such as ‘Revolution is the solution,’ and ‘then we can all sit down and have a lollipop.’ The group at one point participated in Yoga stretches.” In contrast, the populist protests in the Arab Spring were focused and had tangible goals (i.e., the removal of a regime). The American protests can be just as radical with respect to breaking down the system of corporate capitalism, whose oily tentacles have made it around the throats of nearly every government official in Washington, playing those wind pipes like Scots.

By availing themselves to virtually any sort of professional hippie, the American protest movements in the fall of 2011 were relatively wan or pallid—not likely to result in anything other than venting on a variety of left-wing causes. Failure to delimit a movement makes it possible for the point to be the protesters themselves, the various causes all blending into each other like a rainbow of colors. Given the lack of accountability on the Wall Street banks that received TARP by elected officials and the fact that banks helped write the Dodd-Frank financial reform law, even as the banks and Congress refused to obviate the mass-foreclosures, the ambiguity permitted by the protest movement’s organizers was unfortunate; it actually served the interests of the corporations and banks by diffusing and thus dissipating the opposition.

The Occupy Wall Street movement could have potentially turned into a Tea Party of sorts on the left capable of pulling the Democratic Party along similar to the impact that the Tea Party has had on the Republican Party. Sen. Charles Schumer (D. NY) exemplifies the sort of careful Democrat that the Occupy Party could replace. The Wall Street Journal reports that he “enjoys strong backing from financial services firms and wouldn’t comment on the protests on Wall Street.” Bought and paid for, one could reasonably conclude. That senator would not be one to push through structural reforms sufficient to thwart the plutocracy that has taken root in America. For such reforms to be effective, the large corporate form itself (i.e., massive concentration of private capital), which is inherently a threat to a republic, would have to be exculpated and extirpated from the legal and economic landscapes. An economy of small and medium-sized businesses would appeal to Democrats who castigate the towering corporate salaries and bonuses, and to Republicans who value the extent of competition that Adam Smith wrote of, wherein producers are price takers rather than oligarchic makers and therefore not quite so supercilious (and powerful).

Instead of debating the “legal persons” doctrine and whether corporations should be allowed to make campaign contributions, the very existence of the large corporate entity itself can be placed front and center. “Too big to fail” and “systemic risk” could have served as context. The Occupy Wall Street Party could have potentially crystalized around the very existence of the modern corporation and megabank. Playing drums, campaigning for Obama, demonizing the Republican Party, saving souls, protesting war and deficits, and doing yoga won’t cut it. Let’s just say it is in the financial interests of Wall Street and Corporate America, and thus their sycophantic agents in Washington, to keep the Occupying Wall Street movement diffused and chaotic, such that the various protests could have eventually blended in adiaphorously with the cacophony of campaign issues in 2012. Perhaps the plutocracy’s power extended to being able to furtively relegate its opposition by moving it onto peripheral issues, as if a magician making a white dove suddenly disappear—the animal supposing itself still on stage. Perhaps the question is whether corporate capitalism can be eradicated by democratic means. That the protests sport signs advocating revolution may provide us with a baleful glance at the answer. It may be that economic (and political) inequality will continue to expand until the pressure builds to such a point that the sluggish, somnolent masses finally have had enough from the super rich, proffering to the world an American Spring. Although perhaps a harbinger, Occupying Wall Street is in all likelihood yet another garden-variety protest rather than a game changer sporting real change.

Sources:

Jonathan Weisman and Laura Meckler, “Democrats’ Populist Puzzle,” Wall Street Journal, October 7, 2011. 

Mark Landler, “Protests Offer Obama Opportunity to Gain, and Room for Pitfalls,” New York Times, October 7, 2011. 


See related essays: "Protest Movements 101" and "A Self-Regulated Protest?"

CEO Pay: American and European Values

To what extent do inequalities in wealth accrue based on structural elements, such as tax deductions that only wealthy people can use, as distinct from factors pertaining to individuals, such as talent, sacrifice, and effort? The two clusters can build on each other, as people who have become rich primarily by exercising a talent and working hard use some of their accrued power to “reform” the system to their advantage at the expense of the poor and middle class. Such structural reforms in turn can make it easier for wealthy people to become even richer. In the context of a society in progress, structural and idiosyncratic factors doubtlessly interact—the trend being of an increasing chasm between the rich and poor. 

 

 

For example, as the graph above indicates, CEO compensation in the U.S. increased at a higher percentage rate than did corporate profits and factory worker pay every year from 1990 to 2005. In 2010, CEO compensation increased 27% while workers saw their compensation increase just 2.1 percent. Meanwhile, the poverty rate increased from 12% to 14%. CEOs in the E.U. were making comparably less. Foreign Policy in Focus reports that in 2006, for example, “the 20 highest-paid European managers made an average of $12.5 million, only one third as much as the 20 highest-earning U.S. executives. The Europeans earned less, despite leading larger firms.” I suspect that societal values have a lot to do with the difference, though changes in the make-up of American executive compensation should not be ignored.

Specifically, the ratio of pay between an American CEO and factory worker has been increasing in part to the growing proportion of executive compensation in the form of stock options. However, it is also true that Americans are relatively accepting of very high incomes (and inequality). A European is more likely to say, Enough is enough once a CEO has made far more than he or she could ever use. Politically, this is reflected in the fact that the Green Party and the Party of the Left are more powerful (and represented) in Europe than in America. Although the American two-party system acts to cut off the “extremes,” I suspect that the proportion of Americans who would agree with a European far-left party is less than in the E.U.

According to Foreign Policy in Focus, “In the United States, only 32 percent of the public [in 2007 supported] an outright pay cap on executive earnings. But average Americans [appeared] to be every bit as outraged over CEO pay excess as average Europeans. Indeed, 77 percent of Americans [said that] corporate executives "earn too much.” This disconnect, which I submit does not exist in Europe, reflects the American value on economic freedom and the association of freedom with putting up with someone else’s objectionable views or conduct.

In Europe, during and after the recession of 2008, “the idea of raising taxes on high-income earners” gained currency. New E.U. and state taxes were proposed, including a tax on financial transactions (E.U.) and a one-time levy on high-income individuals. In the state of Britain, the tax rate on the highest segment was increased from 40% to 50%, and in the state of Italy the government was considering in 2011 an additional 5% tax on annual incomes above 90,000 euros and a 10% on incomes over 150,000 euros. Considering the increasing fiscal demands being put on the E.U. Government and the pressing debt situations in many states, the recessionary risk of increasing tax on the rich may well be worthwhile. Indeed, Liliane Bettencourt and fifteen other billionaires made an open plea for a special tax on the European rich. Recognizing that they had benefitted financially from the European “structure,” they wanted to help preserve it.

As valuable as closing budget-gaps by revenue and spending reforms at the state and E.U. levels is, the matter of addressing a cycle of increasing economic inequality remains unanswered. If a given societal structure acts as a multiplier effect on a given inequality—exacerbating it, in effect—then something more than a new tax may be needed. In other words, any bias in the system that increases the inequality can be neutralized by the addition of a countervailing structure. For example, placing a strict limit, such as $1 million, on what an individual can inherit—with the rest going back to society via the state—would act to counter the “snowball effect” of “old wealth.” At least as of 2011, a person can live comfortably on $1 million; the surplus, being essentially surfeit with respect to what  person is apt to consume, would be better used as a corrective of the tendency of wealth to further accumulate among the rich. In other words, just as banks with assets over $1 trillion are too big to fail, a billionaire getting richer may not be worth the “cost” to society in terms of the increased inequality—to say nothing of the probable compromise to a republic form of government (which can often be too easily bought).

In short, income and even accumulated wealth can reasonably be considered as applying generally to one’s life (and those of one’s kids and grandchildren) and more particularly to being used (i.e., spent). If one’s wealth vastly exceeds what can be spent on things one can consume, this might be an indication that the concentration has gotten out of hand, at the expense of society itself. In other words, if you have a bank account with a balance of $15 billion, do you really need $5 billion more?  Will you ever use it? There is an opportunity cost—part of which being contributing back to society and reducing the economic inequality. Even so, this way of thinking reflects a value on solidarity that is much more European than American, at least in terms of being valued. In other words, the typical American would be more likely to object to any limitation on economic freedom, even if the playing field is tilted in the direction of the wealthy being able to take disproportionate advantage of that freedom, irrespective of whether the additional wealth is usable.  

Sources:

David Gauthier-Villars, “Wealthy French Push for Extra Tax,” Wall Street Journal, August 24, 2011. 

Matt Krantz and Barbara Hansen, “CEO Pay Sours While Workers’ Pay Stalls,” USA Today, April 4, 2011. 

Sarah Anderson, “Executive Pay Debate Raging in Europe and the United States,” Foreign Policy in Focus, August 28, 2007. 

On the Value of Business-Societal Linkages: Facebook’s Zuckerberg Opposing President Trump?

In a public letter in February, 2017, Mark Zuckerberg, founder and CEO of Facebook, linked his company’s product, the online social network, to the societal and indeed global level in claiming that “progress now requires humanity coming together not just as cities or nations, but also as a global community.”[1] The New York Times took this to mean that the CEO “stepped into the raging debate about globalization.”[2] Taking sides in a political or cultural debate can both advance and harm a business, hence the matter of the stepping into is worthy of analysis in its own right.

Generally speaking, it is not prudent business for a CEO to plant the company in which he or she works on one side or the other of a controversial matter, as existing and potential customers on the other side can be expected to move to a competitor—even if that competitor has not taken a side in the debate. That the New York Times construes Zuckerberg as taking a position at odds with U.S. President Trump’s nationalism may be an indication that Trump supporters may also interpret Zuckerberg’s move thusly and so gain a negative view of Zuckerberg’s company. This attribution of association may be tenuous, however, as it is possible to be in favor of humanity coming together in terms of human rights, for instance, and minimizing state aggression, and yet still be for penalizing American companies that have taken plants abroad to take advantage of lower wages and less regulation. Even so, perception can become reality, so Trump supporters could view Facebook negatively anyway and the damage would be done.

Zuckerberg might advisably have listed some examples of social goods that could be furthered by humanity coming together—omitting mention of Trump policies. Efforts to assure readers that Trump’s policies are not in the crosshairs would have been a good investment. To be sure, “Zuckerberg said his reasons for writing the . . . letter began to take shape before [the 2016] presidential election, spurred by broader trends. He said he [had] recognized that more people were feeling left behind by globalization, and by societal and technological changes.”[3] His vision was for “a global community that works for everyone.”[4] This includes a viable “social infrastructure” that would include stronger online communities. Given Facebook’s interest in helping people from being left behind technologically, the social infrastructure should be a salient part of the global community that works for everyone.” In other words, helping people to join the technological age (and thus be able to participate on Facebook!) does not necessarily translate into opposition to a tax on American companies with factories abroad or enforcing immigration law. Zuckerberg could have made this point more explicit; his “Facebook-friendly” interpretation of “global community” would actually have been strengthened in the process.

We can conclude from this case that wading into a controversial issue involves pitfalls for a business, yet they can be obviated by steering clear of politics such that efforts to link business strategy to a societal and even global vision can pay off for a company without a lot of risk.  

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[1] Mike Isaac, “Facebook’s Zuckerberg, Bucking Tide, Takes Public Stand Against Isolationism,” The New York Times, February 16, 2017.

[2] Ibid.

[3] Ibid.

[4] Ibid.