GM and Shareholder First Policy

There’s been a lot in the news about GM closing some plants and laying off about 14,000 workers. This is after receiving about $150 million in tax cuts (out of the $1.5 billion in total) and just finishing up a profitable 3rd quarter of about $2.5 billion. And I’m sure GM has received some tax benefits around the country for putting in a plant in a town/city, much like Amazon is going to receive wonderful tax benefits to locate HQ2 in New York and Virginia.

And the shareholders cheered upon hearing news of layoffs. That shows you what their value system is.

I’m conflicted because it makes sense that GM is facing a couple of headwinds as described by Steven Rattner, the guy who led the charge to bail out GM in 2009/2010: competition from China, competition from electric cars and sharing apps, and changing consumer tastes from small cars to large SUVs. There has also been a lot of automation opportunities that auto companies must invest in to remain competitive. So logically, it makes sense to proactively act to head off these problems.

But what about those tax windfalls? Where did that money go? Did they invest that windfall into technologies and workforce training or did they just give it to the shareholders? Why can’t they allocate that $2.5 billion in third quarter profits into capital and training investments instead of allocating that money to the shareholders in the form of retained earnings and share price? Don’t we think it’s about time we start thinking about society in general and not just the shareholders? Society first, not shareholder first?

As one Congressman stated: “Closing a productive plant when GM has accepted significant public assistance and has reported healthy 3rd quarter profits of $2.5 billion is an example of extremely poor corporate citizenship.”   Reuters, “Senators, Union Press GM CEO on Plant Closings, Job Cuts”, David Shepardson, December 3, 2018.

Now, I will say, it looks like our President is trying his darnedest to change the situation; I just don’t know if he is going about it the right way but it appears he is making a grand effort. Normally I don’t like his behavior but here, he might actually mean it in standing up for the workers. And quite a few Ohio workers think the fault lies with GM and not Trump (due to his tariffs).

Shareholder First Global Capitalism

“Trump’s “America first” economic nationalism is finally crashing into the reality of America’s shareholder first global capitalism.” Newsweek, “Trump Takes on GM – and Guess Who’ll Win?”, Robert Reich, December 4, 2018.

Robert Reich has a fabulous term for today’s capitalism that borrows from Trump’s America first: shareholder first global capitalism. And yes, today’s capitalism is all about the shareholders (or another way of putting it, all about the wealthy). Robert Reich lays out very well some of the history and the problems of today’s capitalism. His article is a good reading with some good points.

So what can we do about this form of capitalism? The only thing I can think of is changing our culture from a shareholder first global capitalism to one where companies think in terms of society first, for the benefit and health of all. That means Harvard Business School and economists need to change their philosophies, especially the part where the corporation’s only obligation is to the shareholder. Obligations need to be broader than that. Wall Street would have to change and maybe Lawrence Fink might be able to lead the way, but it’s hard to see that happening broadly. With Wall Street, it will have to be a groundswell from society that overwhelms them.

Meanwhile, it’s: “American corporations exist to advance the interests of their shareholders, who aren’t prepared to sacrifice profits for more and better jobs for Americans.” Newsweek, “Trump Takes on GM – and Guess Who’ll Win?”, Robert Reich, December 4, 2018