Editor’s Note: Abigail Disney is a documentary filmmaker, co-founder of Fork Films and podcast host of “All Ears.” The opinions expressed in this commentary are her own.
In a letter to top brass at The Walt Disney Company last week, Senator Elizabeth Warren sent a warning to corporate titans everywhere: Their days of privileging profits over public interest, prioritizing shareholders over other stakeholders and offering unreasonable executive compensation instead of providing for their frontline employees must end.
Warren chastised Disney’s top management for reinstating pay for top executives a few short weeks before announcing it would lay off 28,000 of its workers and blaming the coronavirus-related shutdowns. It is reasonable enough to find the contrast between these two moves jarring and inhuman, but more than this, Warren goes on to criticize greedy, shortsighted capital management in the years leading up to the pandemic that left the company with little ability to cope with the emergency it now faces.
A Walt Disney Company spokesperson said, “Senator Warren’s misinformed letter contains a number of inaccuracies. We’ve unequivocally demonstrated our ability to operate responsibly with strict health and safety protocols in place at all of our theme parks worldwide, with the exception of Disneyland Resort in California, where the State has prevented us from reopening even though we have reached agreements with unions representing the majority of our Cast Members that would get them back to work.”
Every move the senator questions in her letter stems from a belief system best articulated by the late economist Milton Friedman. He laid it out in a pivotal op-ed in The New York Times Magazine more than 50 years ago. Friedman argued that shareholders own the company and shareholders hire and fire C-suite managers, therefore those managers should work only in the interests of shareholders. In the words of Friedman: “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits…”
The school of shareholder primacy would come to be taken up as gospel by the business ecosystem. But everyone neglected to treat it as what it actually was, not a doctrine but a broader ideology.
And that would be fine if the rest of that famous Friedman sentence had also been in operation this last half century: “so long as it stays within the rules of the game….” Sadly, such niceties have been lost in the stampede toward historic profits. If you are an oil company and all that matters is your share price, it can seem completely reasonable to deliberately craft a campaign of deception to muddy the waters about global warming. If you are an online retailer, it might seem reasonable to push inhuman productivity expectations without commensurate compensation.
Whatever the market will bear.
For 50 years after Friedman’s op-ed, shareholder primacy left workers stripped of protections, benefits and reasonable compensation, struggling to cover the deficit between what they earn and what they pay for things like housing, health care, food, gas and retirement. What’s more, businesses have flooded Washington, DC with lobbyists looking to expand on the value they can deliver to their shareholders, by way of an all-out assault on regulations, antitrust laws and unions.
And even worse, shareholder primacy hasn’t developed exclusively to serve the interests of shareholders. For instance, when an obscure Clinton-era change in the tax code made performance-based compensation tax deductible, a sudden flood of share-based incentives for managers spurred interest in how to tweak short-term share prices to drive executive pay up into the stratosphere. In 2017, the Tax Cuts and Jobs Act capped the amount that was tax deductible, but of course by then, the beneficiaries of the previous policy were well on their way to retirement.
Interest in share price has incentivized behaviors once seen as unthinkable among competent managers. The stock buyback is now a popular move for companies finding themselves rich in cash but unwilling to share profits with the hourly workers who make those profits happen. It’s worth noting that some kinds of stock buybacks were once considered a form of insider trading and were essentially illegal until 1982.
Funding for research and development, employee satisfaction and performance and measures of personal and corporate integrity all take dramatic hits when share price is prioritized above all else.
The behaviors that Senator Warren is calling attention to in her letter to Disney’s management are not exclusive to one company. Disney is only doing what companies in America have been doing for a long time.
Employees, citizens, governments, the environment — all have suffered the consequences of a dedication to shareholder value. It is an allegiance that has more than proven itself morally bankrupt and bad for companies and for the well-being of the country over the long term. I applaud Senator Warren’s shot across Disney’s corporate bow.
