Grow or die?
(No. 11) Is the publicly traded corporation the problem? By Ty Montague and Stephen P. Williams
I was in couple’s counseling in 2002 (first wife; first couple’s therapist). My wife said she wanted me to make more money. I said, “I think we have plenty, I would actually like to make less. The world doesn’t need more.” The therapist gave me a look that suggested I was insane. Divorce followed.
I’ve always been interested in building a society that consumed less, made less, wanted for less. I became a teenager in the early 70s, exposed to books and catalogs like Less is More, Be Here Now, and Steal This Book. When I was about 14, my great aunt Alice, who ran a small advertising business, explained to me that if the cost of something, such as a pencil, went up 8 percent, you’d have to bill it on your books at 16 percent. She said systems have to grow, or they fail. We argued about it. She gave no quarter and, basically, told me I was a whippernsapper — I didn’t know what I was talking about.
In my late 50s I went back to school and earned an MBA (with a focus on sustainability). So I understand her logic around growth. I’m just not convinced. Recently, when I started hearing the term “degrowth,” it rang a bell. If I’m not yet a member of the degrowth movement, I’m definitely degrowth curious. Here’s a twitter thread with dozens of great resources. Have a look. Let us know what you think. By the way, my second wife wasn’t into degrowth either.
My newsletter partner, Ty, has an interesting take on this subject, below.
by Stephen P. Williams
Every quarter. Every year. Forever.
I think the problem may be the publicly traded corporation.
As early adopters of this newsletter will know, I have been thinking a lot about capitalism both professionally and personally these days. I have been trying to nudge it in a more positive direction. Professionally I have been doing this by championing the idea of “conscious capitalism” and working with a great team to build a company that helps other companies embrace being purpose-led. But personally I have wondered if this change, though much needed, will be sufficient to avoid what feels like an impending environmental and societal collapse. Why? For conscious capitalism to succeed, it still requires the global economy to grow every year. And on a finite planet, that’s going to be hard. That’s hard spelled I-M-P-O-S-S-I-B-L-E. Despite these doubts I have been trying to stay positive and continue to educate myself about what alternatives exist.
One thought that has occurred to me over and over during this time is that many of the problems we face can be traced to one innovation that happened about 100 years ago: the publicly traded corporation. I’m not going to go into the history here, but publicly traded companies haven’t always existed. And it turns out capitalism as a system doesn’t depend on them.
A privately held company – Patagonia is a good example – is owned by its founders and in many cases some or all of its employees through an Employee Stock Ownership Plan. You also have co-op’s which are the most democratic and equitable structure for a privately held company: the company is owned by all of the employees as well as dues-paying co-op members. Leadership is voted in and out by the employee owners. (REI in the U.S. and the Mondragon Group in Spain are two large and successful examples).
In either case, when all of the shares are owned exclusively by operators of the business, they get to choose whether they want to grow or not. The employees get a salary, plus a share of the profits, and so they can decide that’s enough. In Patagonia’s case the founder, Yvon Chouinard, recently decided that rather than sell the company on the public market he was placing ownership in trust to the planet itself (truly a baller move!). He could only do that because the company was not publicly traded. This power – the power to decide NOT to grow endlessly – will become increasingly important and advantageous, especially as it begins to dawn on more of us that an economy that grows endlessly on our finite planet is pure fantasy.
Publicly traded companies, on the other hand, HAVE to grow. They have accepted money from outsiders and, as a result, have a responsibility to provide those outsiders with a return on their investment. To do that, growth is the only answer. Every quarter. Every year. Forever. And so the treadmill to dystopia begins. By forcing CEO’s to focus on growth over everything else, (mandated by a concept called fiduciary duty) the publicly traded company creates a host of problems, starting with short term thinking. CEO’s are legally bound to maximize quarterly profits and often do this by chiseling employees – scrimping on career development, healthcare and pensions. They bust unions. They under-invest in R&D. They externalize cost by dumping waste into the public commons. Which also enables them to avoid charging consumers for the “true cost” of the products we buy, and build those products to be disposable. To be fair, there are also benefits to this system: Bic lighters and Big Macs are incredibly cheap.
So I went into this issue thinking that maybe encouraging more companies to stay private and especially to become co-ops would be the best answer to these problems. While I was writing this I googled “are publicly traded companies the problem” and lo and behold this article entitled “It is time to replace the publicly traded corporation” popped up – in the Harvard Business Review of all places. It turns out there is an interesting alternative: the LTE or Long Term Enterprise. In the article, Roger Martin lays out the argument that the publicly traded corporation is failing us in multiple ways and points out that not all investors are obsessed with short term gain. Retirement investors (pension funds and other long term investors like Warren Buffet) tend to be much more patient. And so why not create a structure in which only long term investors can legally invest? Why not, indeed?
It is unclear to me whether an LTE would require long term growth of the enterprise to provide value for outside investors or whether that value could come in the form of a dividend, essentially. I need to understand this better, But I’m always heartened to discover interesting alternatives to the traditional model in mainstream business publications. Add this to a few other ideas bubbling out there like the Public Benefit corporation, B-Corps, the Long Term Stock Exchange (and if you really want to nerd out, peek down this rabbit hole) and it feels like we are entering a very necessary period of experimentation with some of the undergirding concepts of capitalism itself. I hope so. It is also becoming clear to me that if we want to avoid capitalism’s greatest woes, (the aforementioned social and environmental collapse), we might begin by outlawing the current form of the publicly traded company. This won’t solve every problem, but it would be a huge step toward a world with a survivable future.
by Ty Montague
Thanks for reading The Questions! Subscribe for free to receive new posts and support our work.