Tag Archives: institutions

A Quibble Over Robert Reich’s “CEO” Statesman

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JDZellerbach

J.D. Zellerbach

One of the posts on this blog with consistently high traffic is The First CEO, which was my first attempt to track down the earliest instances of the acronym “CEO.” With a little help from the people at Webster’s Dictionary and the Harvard Business Review, I found that those came in the 1970s. In subsequent posts on this theme, I tried to make some historical sense of the literary evidence I’d uncovered.

So I have a quibble with Robert Reich’s polemic in The American Prospect (and elsewhere; he’s syndicated), comparing the CEOs of today and their “shameful,” self-serving silence in the face of Trumpian authoritarianism to the “CEOs” of the 1950s:

I’m old enough to recall a time when CEOs were thought of as “corporate statesman” [sic] with duties to the nation. As one prominent executive told Time Magazine in the 1950s, Americans “regard business management as a stewardship,” acting “for the benefit of all the people.”

That prominent executive, held up here as a model corporate statesman, was pulp and paper executive J. D. Zellerbach. Zellberbach was not a CEO — he could not have been in the 1950s — but the President of Crown Zellerbach. Reich is using the term “CEO” loosely, then, but in this piece that seems to prevent him from thinking historically about the CEO as an institution.

Perhaps he should have instead asked whether the institution of the CEO in the 1970s represented a rejection of “socially-conscious” business leadership for which he’s calling.

Remarkably enough, in Saving Capitalism, Reich himself quotes Zellerbach’s statement to Time Magazine just before he discusses the shift from the benevolent managerialism advocated by industrialists like Zellerbach to “a radically different vision of corporate ownership” that set in during the 1970s (and brought with it, among other things, the institution of the CEO). It’s worth reading this passage to the bitter end:

In the early 1950s, Fortune magazine urged CEOs to become “industrial statesmen,” which in many respects they did—helping to pilot an economy generating broad-based prosperity. In November 1956, Time magazine noted that business leaders were willing to “judge their actions, not only from the standpoint of profit and loss” in their financial results “but of profit and loss to the community.” General Electric, noted the magazine, famously sought to serve the “balanced best interests” of all its stakeholders. Pulp and paper executive J. D. Zellerbach told Time that “the majority of Americans support private enterprise, not as a God-given right but as the best practical means of conducting business in a free society….They regard business management as a stewardship, and they expect it to operate the economy as a public trust for the benefit of all the people.”

But a radically different vision of corporate ownership erupted in the late 1970s and early 1980s. It came with corporate raiders who mounted hostile takeovers, wielding high-yield junk bonds to tempt shareholders to sell their shares. They used leveraged buyouts and undertook proxy fights against the industrial statesmen who, in their view, were depriving shareholders of the wealth that properly belonged to them. The raiders assumed that shareholders were the only legitimate owners of the corporation and that the only valid purpose of the corporation was to maximize shareholder returns.

This transformation did not happen by accident. It was a product of changes in the legal and institutional organization of corporations and of financial markets—changes that were promoted by corporate interests and Wall Street. In 1974, at the urging of pension funds, insurance companies, and the Street, Congress enacted the Employee Retirement Income Security Act. Before then, pension funds and insurance companies could only invest in high-grade corporate and government bonds—a fiduciary obligation under their contracts with beneficiaries of pensions and insurance policies. The 1974 act changed that, allowing pension funds and insurance companies to invest their portfolios in the stock market and thereby making a huge pool of capital available to Wall Street. In 1982, another large pool of capital became available when Congress gave savings and loan banks, the bedrocks of local home mortgage markets, permission to invest their deposits in a wide range of financial products, including junk bonds and other risky ventures promising high returns. The convenient fact that the government insured savings and loan deposits against losses made these investments all the more tempting (and ultimately cost taxpayers some $124 billion when many of the banks went bust). Meanwhile, the Reagan administration loosened other banking and financial regulations and simultaneously cut the enforcement staff at the Securities and Exchange Commission.

All this made it possible for corporate raiders to get the capital and the regulatory approvals necessary to mount unfriendly takeovers. During the whole of the 1970s there had been only 13 hostile takeovers of companies valued at $1 billion or more. During the 1980s, there were 150. Between 1979 and 1989, financial entrepreneurs mounted more than 2,000 leveraged buyouts, each over $250 million. (The party was temporarily halted only when raider Ivan Boesky agreed to be a government informer as part of his plea bargain on charges of insider trading and market manipulation. Boesky implicated Michael Milken and Milken’s junk bond powerhouse, Drexel Burnham Lambert, in a scheme to manipulate stock prices and defraud clients. Drexel pleaded guilty. Milken was indicted on ninety-eight counts, including insider trading and racketeering, and went to jail.)

Even where raids did not occur, CEOs nonetheless felt pressured to maximize shareholder returns for fear their firms might otherwise be targeted. Hence, they began to see their primary role as driving up share prices.

Time Out of Mind

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I leave tomorrow for Lake Superior. On Thursday the 24th, Ken and I are going to show our film at Michigan Tech, where there’s a conference called Writing Across the Peninsula, and then, on Saturday the 26th, at the DeVos Art Museum in Marquette. I’m going up a little early to do some exploring, traveling north along the western shore of the lake to Palisade Head and then inland (west), through Finland and into the area around Ely, Babbitt and Hoyt Lakes, Minnesota. That’s where Polymet Mining has proposed a huge open pit sulfide mine. It will be my first visit and maybe one of the few chances I get to see the area before the mining begins. After that, it’s never going to be the same. Or at least not in my lifetime — or in the lifetime of anyone alive today.

Polymet recently disclosed in a Preliminary Supplemental Draft Environmental Impact Statement that water runoff from its mine will have to be treated for the next five hundred years — “a minimum of 500 years,” just to meet water quality regulations. The proposal in its current form clearly violates Minnesota Rule 6132.3200, which requires that “the mining area” be “maintenance free” upon closure; but Polymet and its legions of apologists have already found some wiggle room here, arguing that state law allows for “perpetual treatment” as long as enough money is set aside and as long as the company can prove that it’s meeting federal and state water standards. For Polymet, it seems, this is just the start of a negotiation.

The Mining Examiner quotes Frank Ongaro, Executive Director of Mining Minnesota: “There’s no doubt it can be done, that it’s allowed. The concept is sound; the details have to be worked out by the experts.” I honestly don’t know how anyone can say things like this with a straight face. Five-hundred years: the experts just need to work things out. No doubt about it.

When I first heard about the five-hundred year disclosure, I tried to think of a place where mining was done five-hundred years ago: the best I came up with was Cerro Rico in Potosi, Bolivia, where conquistadores set up silver-mining operations in the sixteenth-century. Potosi is now considered one of the most polluted places on earth. Of course, the Spanish crown did not set out the sorts of guarantees that Polymet is willing to set out; but apparently the mining company shares the crown’s illusion that its empire will last forever. Or at least they would like us to think so: they would like us to set aside our doubts and entertain the fantastic idea that they will provide water-treatment facilities for the maintenance of their copper mine for the next five-hundred years.

Mind you, the country’s only been in existence for 237 years, and Minnesota was only admitted to the union in 1858 — 155 years ago. The EPA only started operations in 1970; its workers only just got back on the job yesterday, after being furloughed during the shutdown. Why are we being asked to believe in the perpetuity or even the resilience of the EPA, the Minnesota DNR, or any government institution or form of government? Who can say what’s going to happen fifty years from now, let alone five hundred? Will there be a Minnesota DNR or an EPA in 2063? Will there be a Polymet? Minnesota? How about 2100? 2413? Insofar as history is about holding people to account, this is nothing more than historical fantasy: there’s no guarantee or even promise of accountability when you are talking about five centuries. As Steve Timmer would have it, nobody is going to be around to keep Polymet’s grave clean.

Time out of mind is the phrase this whole proposal conjures for me. The expression comes from English law. “Time out of mind” or “time immemorial” is a time before anyone can remember: a property or holding, a way of passage or a benefit has been enjoyed so long that those who claim it no longer have to prove ownership or their right to it; nobody can remember a time when it wasn’t so. In this case we are being asked to project that far into the future — way past the horizon of what we ordinarily consider the future, way beyond the time anyone can foresee.

Projecting that far into the future, time out of mind, is also a distorting lens. It’s easy when looking that far ahead to overlook what we know will really happen to the area in the near term, just in the course of constructing and operating an open-pit sulfide mine. Mine pollution that lasts for five-hundred years is a huge and terrifying prospect, no doubt, but that dread prospect might also have the weird effect of eclipsing (or normalizing) the more immediate environmental and social consequences of mining and the industrialization mining brings. Water Legacy estimates that the Polymet project will take 6,600 acres of forests out of public ownership, destroy or impair at least 1,500 acres of wetlands and result in 168,000,000 tons of permanent waste rock heaps and 228,000,000 tons of tailings waste. Add to this the haul roads, the mill operations, air and noise pollution, the effects of clear-cutting and deforestation, shifts in population, economic distortion, and so on.

It’s important to pull back, change the lens, and see clearly what’s going to happen, what’s already happening, to the waters and the wilderness areas, the Lake and all life around it, within our lifetime, and what effect our actions now will have for generations to come.

Everybody’s A Beginner

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This passage from Hannah Arendt’s The Human Condition has come up again and again as I think about asking, action and non-coercive power — or what I’m calling the power of asking — so I thought I’d share it. It’s a little dense, but it repays careful reading.

With word and deed we insert ourselves into the human world, and this insertion is like a second birth, in which we confirm and take upon ourselves the naked fact of our original physical appearance. This insertion is not forced upon us by necessity, like labor, and it is not prompted by utility, like work. It may be stimulated by the presence of others whose company we may wish to join, but it is never conditioned by them; its impulse springs from the beginning which came into the world when we were born and to which we respond by beginning something new on our own initiative. To act, in its most general sense, means to take an initiative, to begin (as the Greek word archein, “to begin,” “to lead,” and eventually “to rule,” indicates), to set something into motion (which is the original meaning of the Latin agere). Because they are initium, newcomers and beginners by virtue of birth, men take initiative, are prompted into action. [Initium] ergo ut esset, creatus est homo, ante quem nullus fuit (“that there be a beginning, man was created before whom there was nobody”), said Augustine in his political philosophy. This beginning is not the same as the beginning of the world; it is not the beginning of something but of somebody, who is a beginner himself. With the creation of man, the principle of beginning came into the world itself, which, of course, is only another way of saying that the principle of freedom was created when man was created but not before. (pp. 176-177)

Pay close attention to Arendt’s distinction of action from labor and work in the first few sentences. That’s crucial. For Arendt, action is “never conditioned” by “others.” Unlike labor or work, action isn’t something we undertake because it is “forced” upon us by necessity or “prompted” by utility. It is not prescribed, commanded or ordered, nor are its terms to be set down for us by others in the form of rules or requirements. Its “impulse,” for Arendt, springs from within, or rather from that within us which responds to the fact that we are, each of us, a beginning.

You might get the impression from this passage — which places emphasis on initiative and invokes “the principle of freedom” — that acting is something one does, something one can only do, entirely on one’s own. That would be a misreading. There is a difference between autonomy and isolation, and a difference between being free from constraint or necessity and acting freely with others. We are all self-starters but we are also capable of starting things together.

It takes coordinating, and that’s where asking comes in.

One of the things that interests me about asking is that it can prompt action while recognizing and respecting freedom and autonomy. It can be a way of coordinating our actions with those of others, or of entering into league or “company” (the word is Arendt’s) with others — acting together. The power of asking is that it doesn’t set down rules or requirements, or set up a chain of command. It is a different kind of prompt: more like a cue for improvisation than a script to follow.

Asking doesn’t mean we have to do away entirely with all those rules, protocols and titles that structure human society and human institutions, but we also don’t have to take them so seriously and assume they are the primary condition of our lives. They are, at best, secondary agreements.

Leaders — the first to ask, or the first to act — may be primus inter pares, but in this view a leader is always inter pares, among equals. When we ask and when we act we are all on equal footing, and all of us, by the very fact of our birth, by nature, have the capacity to act, to begin, to set things into motion. We are all beginners.