IS CORPORATE AMERICA’S FOCUS ON PROFITS THE PROBLEM WITH CAPITALISM? TWO ENTREPRENEURS RESPOND

November 22, 2019

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 Invented 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.

WEALTHTRACK Episode #1612; Originally Broadcast on November 22, 2019

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CORPORATE CHANGE OF PURPOSE

  • For decades the influential Business Roundtable, representing the country’s largest corporations saw the “paramount duty of management and of boards of directors as serving the interests of a company’s stockholders,” generally interpreted as meaning to make as much money as possible for them. Download the 1997 Statement here.[.pdf]
  • This year the Roundtable issued a new “Statement on the Purpose of a Corporation.” Download the 2019 statement here. [pdf]

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DAVID GARDNER

KEN LANGONE

Consuelo Mack

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, a 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. Mathews Asia

GARDNER: CONSCIOUS CAPITALISM PORTFOLIO

  • Salesforce.com Inc. (CRM) giant cloud-computing & workforce-services company
  • Ecolab, Inc (ECL) global leader in technologies & services to promote safe food, clean environments & optimize water & energy use
  • Etsy (ETSY) global online marketplace for unusual, handcrafted items including clothing, jewelry & furniture
  • NextEra Energy (NEE) leading global generator of wind and solar energy
  • Old Dominion Freight Line (ODFL) third-generation U.S. family-run “less than truckload” trucking company

LANGONE: LIFE CHANGING TECHNOLOGIES

Personally investing in companies with technologies that can improve life, especially in the healthcare field.

Salesforce.com Inc. (CRM) Ecolab, Inc (ECL) Etsy (ETSY) NextEra Energy (NEE) Old Dominion Freight Line (ODFL)
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LANGONE: PERSONAL GOALS

Home Depot Co-Founder and I Love Capitalism!: An American Story author Ken Langone has everything he and his family can possibly need personally. He has given hundreds of millions of dollars to various philanthropic institutions including hospitals, charter schools, and universities. Now in his eighth decade, he is still driven to do more.

GARDNER: PERSONAL PURPOSE

David Gardner has taken The Motley Fool’s original mission to help individuals become better investors and expanded their meaning and reach.


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