Diatribes of Jay: The Business Roundtable and the Garner Case: Good News, Bad News

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1. The Business Roundtable’s resolution
2. The killing of Eric Garner

Amidst the lies and trivia that emerge from our White House daily, two positive real developments made the news today. The Business Roundtable, a conclave of CEOs of big companies, adopted a resolution that things besides shareholders matter. And the Commissioner of the NYPD fired the cop responsible for the death of Eric Garner, after five years, thereby suggesting that black lives may matter at last.

So a good day, yes, especially in these dismal times? Not so fast.

As always, details matter. Analyzed in detail, the Business Roundtable’s resolution utterly missed the point. It’s Wall Street—not corporate law or some views in business-school syllabi—that still makes our big corporations focus obsessively on shareholders and on “monetizing” everything in sight. Top CEOs may subscribe to all the words they wish, but those words won’t matter if they continue dancing to Wall Street’s tune.

As for the Garner case, the apologetic rationale for the belated firing, and the nationwide five-year political brouhaha the case prompted, show how far we have to go to achieve civilized policing. Let’s analyze.

1. The Business Roundtable’s resolution. The Business Roundtable is a kind of chamber of commerce for our nation’s biggest and most important corporations. You might call it the “Oligarchs’ Society.” On Monday it released a one-page statement, signed on behalf of 181 of its 192 corporate members, acknowledging the importance of corporate stakeholders beyond shareholders. It specifically mentioned customers, employees, suppliers and communities, ending with strong support for “long-term value for shareholders.”

As one CEO cynically noted, the resolution just states the obvious. If you don’t have customers, you don’t have a business. Ditto employees and suppliers. Algorithms can’t do everything yet, so you need people to get things done, even if they’re in China. If you can’t get parts for your products or products for your services, you can’t produce anything. So of course suppliers matter. You can squeeze them for every every drop of blood, as Wal Mart reportedly does its suppliers, but if they go belly up, you’ll have a headache.

So from a practical perspective, the resolution didn’t say much. What’s new, if anything, is in the details and the notion of serving “communities.” For employees, the resolution proposes “compensating them fairly and providing important benefits . . . [,] supporting them through training and education that help develop new skills[,]” and “foster[ing] diversity and inclusion, dignity and respect.” For communities, the resolution promises “respect” and “protect[ing] the environment by embracing sustainable practices across our businesses.”

Perhaps the key phrase in the entire resolution is “long-term.” The very last stakeholder point promises “[g]enerating long-term value for shareholders[.]” (emphasis added). Things like supporting employees’ training and education, fostering diversity and inclusion, and embracing sustainable practices may cost money in the short run and decrease profit. But in the long run, they will increase the business’ chance of surviving continuous change and may indeed increase the bottom line. That’s what Henry Ford apparently thought in 1914, when he unilaterally increased his workers’ pay to the then-unheard-of level of $5 per day, thereby creating our consumer society by letting workers afford to buy the cars they made.

So were the top CEOs just giving us all a Cliff-Notes summary of good business practices? Probably not. They might have been trying to fend off a presidency of Elizabeth Warren or Bernie Sanders, which might make them do some of these good things whether they like to or not. Perhaps the oligarchs were just engaging in a bit of corporate PR at a time when their firms are under siege for unethical behavior, “fake” news, privacy violations, and supporting Trump just because he lowers their taxes and doesn’t mess with them (except with tariffs).

The curious thing is that the CEOs’ resolution didn’t even touch on the question underlying most corporate behavior today: who’s stopping them? What’s keeping them from running their business as they chose, treating their customers, employees and suppliers fairly, benefiting their communities, and serving shareholders only in the long term?

At one time, corporate law seemed to create a barrier. A notorious decision by the Michigan Supreme Court early in the twentieth century forced Ford Motor Company to pay dividends, rather than accumulate Ford’s enormous profits for later investment. Its rationale was that corporations exist to make money for shareholders, and that is their primary, if not their only, purpose.

But corporate law has changed radically since that decision early in the last century. Today most big corporations observe the corporate law of Delaware, where they are incorporated. That law has a “business judgment rule,” which upholds any corporate decision not involving self-dealing or “bad faith.” Even stupid or negligent decisions have no legal recourse, at least not by shareholders.

In an earlier essay, I threw some blame on America’s unique business schools, which have more students, power and prestige, by far, than any other country’s. (The only institution abroad that comes even close is INSEAD, which serves all of Europe, Asia and the Middle East, not just one country.) Although their attitude is changing now, in the recent past these schools, like the misguided Michigan case, emphasized making profits for shareholders and, in the digital world, “monetizing” everything in sight as the best means to that end.

But the top CEOs in the Business Roundtable are hardly business-school students. If they went to business school at all, they’ve long since graduated. Most have multi-year, if not multi-decade, business experience, during which they’ve developed their own ideas, through hard experience, about what works and what doesn’t. So the notion that business-school professors’ views constrain CEOs to do the wrong thing despite their own experience is overblown.

Is there anything that does constrain CEOs to build their lives around profit? Yes, there is. It’s Wall Street.

Not only does Wall Street treat profit as the be-all and end-all of financial reporting. It takes a relentlessly short-term approach. Sure, your approach to customers, employees and sustainability may have enormous long-term potential. But if it causes your profit to dip in meantime, so will your stock price, your CEO’s pay and retirement package, and your reputation in the business community. Your chances of getting investment or financing will go down, and your interest rates for loans will go up. All this happens nearly instantaneously, in our high-frequency-trading society, as soon as a negative earnings report comes out.

As befits our Twitter-driven, twenty-four hour news cycle, most equity options run less than a year. Only in 1990 did Wall Street create LEAP options with nominal two-year terms, which can sometimes run up to three years. In contrast, China governs its economy with five-year plans. That may explain its catching up with the West in a little over two generations since Mao died and China began state capitalism.

So the Business Roundtable’s much-vaunted resolution of principle won’t change much, if anything, in practice. It has no influence on the law, and anyway the law has changed. It might influence business-school professors, but their views were changing anyway, and they have little effect on day-to-day business practice.

As for Wall Street, the resolution will have next to zero effect on its formalized and relentless focus on profits for shareholders, or on monetizing whatever can be monetized. Only serious changes in regulatory law or investment practice might have that effect, for example (as I have suggested) by raising the holding period for tax breaks on capital gains from one year to five.

2. The killing of Eric Garner. Five years after Eric Garner lay helpless on the ground, crying repeatedly “I can’t breathe” and ultimately dying in a “forbidden” chokehold, the policeman who killed him was fired. Garner’s “crime” had been suspicion of selling individual cigarettes.

I learned the same chokehold in a self-defense course when I was a kid. Your ability to knock out, or to kill, the victim depends on the precise position of your thumb knuckle with respect to the victim’s airway and jugular vein. The nature of the chokehold makes it impossible for any observer to see exactly what you’re doing. Only the victim knows for sure; and if the victim is out cold or dead, he can’t say.

So in the killer’s case there was a lot for lawyers to argue about after the fact. But there’s no argument that Garner warned the officer, repeatedly, that he couldn’t breathe. It’s on the video.

The video also shows something else. The police waited until five of them had gathered around before they brought Garner down. He seemed upset when accused, but he didn’t seem to offer much resistance when toppled. Garner was a big, heavy guy, but he was also middle aged (43) and pretty obviously out of shape, maybe due to his diabetes. By the time the two-plus minute video ended, there seemed to be at least seven uniformed or undercover policemen around him.

I’m from the West. I’ve seen coyotes team-kill a rabbit. Even they don’t gang up that much; the most I’ve seen in a kill is four. It was hard to watch officers of the law treat a man worse than coyotes treat their next meal. And if you believe the voices on the video, Garner’s only real offense was having broken up a fight before the video began.

So the killer was fired from the police force. All’s well that ends well, right?

Not hardly. Two federal administrations (Obama’s and Trump’s) considered prosecuting this case as a federal civil-rights violation and didn’t. Instead of dealing with the appalling facts of this individual case, our legal authorities and our media turned it into political Armageddon between the Thin Blue Line and the Black Lives Matter movement. Everyone took sides like kids picking teams on a soccer field, before knowing much about the case.

Even the Police Commissioner, explaining his decision to fire the killer, made the following near-apology:

”Cops have to make choices, sometimes very quickly. . . . Those decisions are scrutinized and second-guessed, both fairly and unfairly. . . . I can tell you that had I been in [the officer’s] situation, I may have made similar mistakes.”

But here’s the thing. Garner was unarmed. No one ever even claimed he had a weapon. When weapons aren’t involved, you don’t have to act “very quickly,” let alone with a 43-year old, out of shape diabetic with asthma surrounded by five officers.

In this particular case, the “Thin Blue Line” defense was and is a travesty. It’s not a crime to be big and black.

Whenever I analyze a situation involving race, I use a special method to suppress my own bias: I paint the victim white. Not literally, of course—without changing any fact or detail of the case, I just imagine that the victim were white. When I do that in Garner’s case, I can’t imagine any other result than hell to pay not just for the killer, but for the whole team that perpetrated this travesty of law enforcement. I see a whole report analyzing and condemning policing people as coyotes prey on rabbits, and reorganizing the force to stop that practice.

As for me, I would rather have a thousand Eric Garners selling cigarettes in my town (and I hate cigarettes: they killed both my parents), than see the kind of policing I saw on that video. It makes me think of Nazi Germany or somewhere behind the Iron Curtain at the height of the Cold War.

* * *

So, yes, it’s hard to spin the Business Roundtable’s resolution or the firing of Garner’s killer as anything other than a bit of good news. But don’t make too much of them. Our oligarchs, who increasingly govern our daily lives more completely than our pols, still have a long way to go to give us the rights our Bill of Rights gives us against government. And our police departments still have a long way to go to police us in peaceful, civilized ways that are routine in England and much of Europe. So rejoice when a changed wind brings good news, but don’t ever get complacent.

Diatribes of Jay

19 August 2019

The Business Roundtable and the Garner Case: Good News, Bad News

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