Where Are the Business Evangelists for Our Democracy?
From Malcolm Salter: To Save Democratic Capitalism (and Their Own Businesses), American CEOs Are Going to Have to Get in the Game.
Malcolm Salter is the James J. Hill Professor of Business Administration, Emeritus, at Harvard Business School. This is the fifth in a series of columns by Professor Salter on renovating democratic capitalism. These columns were adapted from his book, “The Fading Light of Democratic Capitalism,” which was published by Cambridge University Press in 2024.
In his 2023 book, “Ours Was the Shining Future,” David Leonhardt describes how moral suasion and the creation of a national organization promoting a new approach to labor relations in the 1930s and 1940s led to change across the U.S. business community. Leonhardt observes that after the Great Depression and Franklin Roosevelt’s New Deal initiatives, many in the business community continued to resist new economic regulations and social policy and to fight organized labor. But following repeated election victories by Roosevelt and like-minded politicians, some business leaders began to embrace the New Deal’s spirit of recovery — including, for example, the economic advantages of building a productive, high-wage economy rather than focusing solely on labor cost-cutting.
Accepting this new wisdom was very much the result of missionary work by of the newly formed Committee for Economic Development, which both triggered and embodied the shift in values — starting, first, at the edges of the business community and then expanding “to shape postwar economic policy and help staff both the Truman and Eisenhower administrations,” Leonhardt wrote. The CED’s purpose under the leadership of Paul Hoffman — a college drop-out who took a job at a car dealership that eventually led him to the chairmanship of Studebaker Motors — was no less than reforming the culture of American business.
“Hoffman became an evangelist for a corporate America that was less self-interested and more concerned with the national interest,” Leonhardt said. “He argued that good wages were crucial to prosperity for businesses and workers alike. He figured out how to work with labor unions and government regulators, at least most of the time. He tried to persuade other executives to adopt a similar approach — and many of them did. In the 1940s and 1950s, Hoffman’s vision of corporate America triumphed.”
Along the way, Hoffman recruited some of the biggest names in corporate America, “including the magazine publisher Henry Luce and top executives at Eastman Kodak, General Foods, and Lehman Brothers.” Eventually other large corporations and their CEOs joined the project. Hoffman also sought advice from intellectuals such as Reinhold Niebuhr and Peter Drucker. Under his leadership, the CED developed into a grassroots movement with 2,000 chapters run by local businessmen and supported by a national group providing expert advice.
CED’s initial message was that “cost control was not the only route to profitability,” and it soon expanded that to include the proposition that “the twin crisis of depression and war had increased the appeal of a less rapacious version of capitalism.” In private, CED officials accused remaining hard-liners of being “‘intellectual Neanderthals’ who believed in ‘self, self, self and who were undermining the capitalist system they claimed to venerate.’”
By 1944, Hoffman was celebrated on the cover of Time magazine. Whatever the public kudos, the basic fact was that Hoffman’s campaign, carried to both local communities and the nation at large, converted the values of many in corporate America and probably saved the country from ideological lurches to both the left (as a result of the appeal of socialism during the 1930s) and the right (as a result to fears of Communism in the 1950s).
All of which raises the question: Where is the Paul Hoffman of our time?
At a moment when the governance system that has brought us so much wealth, innovation and freedom has entered a twin tailspin of cronyism and restricted suffrage, where are the business leaders who will champion and defend a vibrant democratic capitalism?
The Conditions for Business Success
Plainly, there are very good reasons for business leaders to support efforts to shore up the democratic and capitalist features of democratic capitalism — starting with the many protections and benefits granted to business under this governance system.
In addition, as my colleague Rebecca Henderson has written so eloquently in the Harvard Business Review, a healthy democratic system is essential for the survival of free-market capitalism, and with it the prosperity that has changed the lives of billions of people.
Henderson describes how strong democratic institutions provide:
the rule of law protecting property rights, contracts, and fair competition;
predictable regulations and clear legal frameworks that are crucial for businesses to plan, invest, and innovate;
social stability by allowing peaceful transitions of power and the resolution of grievances through dialogue and compromise, while fostering a sense of inclusion; and
public trust in business.
In essence, Henderson’s argument is that while businesses may sometimes benefit from focusing solely on short-term gains and shareholder wealth maximization, their long-term success is inextricably linked to the health of democratic institutions.
For all these reasons, why wouldn’t our business leaders want to accept a role as important guardians of our system of democratic capitalism?
The first answer, to be fair, is that many companies and their leaders do engage constructively in democracy preservation – especially with respect to strengthening suffrage. Important examples of businesses and business leaders supporting democracy initiatives include:
Time to Vote, a coalition founded by Patagonia, PayPal and Levi Strauss and including many other companies committed to increasing voter participation by providing workers with paid time off to vote or volunteer at the polls.
Run for Something, supported by such companies as Greylock Partners, Alphabet, Apple, and the ChanZuckerberg Initiative, which promotes civic engagement by helping young people run for office.
National Civic League, a nonpartisan, nonprofit organization created more than a century ago that promotes inclusive civic engagement and democratic innovation and is supported by companies such as Southwest Airlines and Amazon.
Democracy Fund, created in 2014 by eBay founder and philanthropist Pierre Omidyar, which promotes fair elections, a just society and accountable government.
Furthermore, today’s Committee for Economic Development (which is now the policy center for the Conference Board) includes “Sustaining Democratic Institutions” as one of its central policy areas. The CED has long held that a vibrant economy results from business competition in the marketplace, not the political arena, which I read as a strong vote against cronyism and excessive money in politics. It also describes itself as “deeply concerned about challenges to the strength of the nation’s democratic institutions, including practices that elevate the interests of private actors at the expense of the public good.”
That’s a lot of encouraging investment in democracy — which is why I believe the challenge going forward is not so much about generating new action in saving democratic capitalism as figuring out how best to magnify and focus the constructive efforts that are already underway.
Meeting this challenge faces two hurdles. The first is habit. The natural instinct of many in the business community has been to resist programs supporting democratic values, such as the introduction of Social Security in the 1930s and Medicare in the 1960s. Many have also resisted mutual engagement with unions. And we have seen how just about all companies and industry associations have flooded the political landscape with money in attempting to control legislative and regulatory rule-writing to their private benefit.
The second hurdle is the obsessive pursuit of the problematic shareholder wealth maximization doctrine by many business firms.
Shareholder Wealth Above All
Over the past 40 years, the embrace of the idea that shareholder wealth maximization is the only legitimate expression of corporate purpose has led to various forms of “detached capitalism” and self-serving behavior by powerful enterprises bordering, at certain times and places, on the sociopathic.
This doctrine offers both a justification and incentives for corporate executives and directors to place their interests way ahead of the interests of other constituencies of the enterprise and civil society in general.
For example, when corporations create stock-based compensation plans for executives that tightly link bonuses to increasing the price of their companies’ shares, executives have high incentives to seek to structure the economic game in ways that best serve their private interests. That naturally leads to “investing” in electoral politics and legislative/regulatory lobbying. In addition, shareholder wealth maximization provides a justification for executives to lock themselves into a perpetually dominant bargaining position over the distribution of corporate benefits vis-à-vis other participants in the enterprise — such as employees and local communities — who have a legitimate claim, under law and custom, to the firm’s resources.
This second hurdle is by far the most challenging. Cronyism is where we see the most toxic conflict between capitalism and democracy — where the wealth and influence of powerful economic actors crowd out the diminishing voice of ordinary citizens. This is not so much a problem of habit but of smelling and exploiting advantage. Thus, going forward, the toughest sale in mounting a more concerted effort to preserve the promise of democratic capitalism is curbing cronyism and its corrosive effects. But unless we can recruit business leaders who can speak and be heard as authentic evangelists for a governance system where the cancer of cronyism is reversed along with the restoration of suffrage and citizen voice, this system will surely continue to break down.
Success in this not a pipe dream, however. Six years ago, in 2019, the Business Roundtable issued a groundbreaking statement signed by 181 CEOs reversing the group’s long-held position venerating shareholder wealth maximization. Signatories acknowledged that adopting a more balanced vision serving all stakeholder needs — by investing in employees, delivering value to customers, dealing ethically with suppliers, and supporting outside communities — “is the only way to be successful over the long run.” The statement declares that serving these needs should be at the forefront of American business goals. For this claim to prove true going forward, reciprocity and power sharing will need to become more prominent governance norms, but the economic and moral underpinnings have been laid down.
What is needed now is follow-up with an equally courageous and groundbreaking position about corporate money in politics. To this end, I have argued for repeal of the Supreme Court’s Citizen United decision. Maybe business leaders can come up with some other, equally effective and appropriate course — but whatever the agenda, no less than a social movement is required for the renovation of democratic capitalism to achieve escape velocity from the gravity of current practice.
Paul Hoffman’s Example
The impressive precedent of Paul Hoffman and the CED show how effective moral suasion can be in the hands of informed evangelists. By recruiting national opinion leaders (other CEOs) and organizing and coaching local committees of businesspeople to serve as the CED’s local advocates, Hoffman and his associates changed the course of democratic capitalism. Indeed, they called for and received support for an entirely new set of values and priorities in conducting business affairs: more collaboration, less self-interest.
As far back as 1982, Mancor Olson described how democracy suffers when special interests mobilize sufficient political power to steer benefits to a concentrated set of members – thereby making one of the earliest cases for curbing the influence of pervasive cronyism. Similarly, in his 1992 book, Francis Fukuyama offered a broadly compatible vision of how democracy and capitalism can combine into a better (ethically, politically, and economically) governance system. The bell has been ringing for a truly democratic capitalism for a long time.
With this intellectual and political infrastructure moving into place, the time is at hand to build a supportive moral culture for democratic capitalism. Action principles have never been clearer. And an implementable plan to renovate democratic capitalism is taking shape. Others can undoubtedly add to the renovation blueprint I have proposed in these columns, but the essential elements of the work before us are in place.
Very helpful. Agree.
Seems for a long time our major political parties have gone from one extreme of talking about the virtues of as little regulation as possible, to the other of regulating the economy so that its outputs reflect directly whatever the prescribed policy or regulation intends. Meanwhile, everyone can see that market regulations are both everywhere and usually necessary. The obvious reality is that regulations are the framework of markets and allow them to function; at the same time, the necessary work is in the middle of the two political extremes--to do the hard but necessary work to ensure legislative action on regulations are necessary, and just as importantly that there's a periodic review of regulatory frameworks to ensure they're progressive in an economic sense and socially equitable. In other words, we seem to be lacking in the work in the middle between the two extremes.