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THE MORE VISIBLE HAND

How America’s business leaders can better protect US democracy

Capitol Police patrol the U.S. Capitol in Washington
REUTERS/Tom Brenner
Worth defending.
Published

When 700 business executives and supporting firms and institutions signed a petition last March to protest legislation to restrict voting in Georgia, it felt we crossed a threshold on CEO activism.

The leaders’ names appeared in a two-page ad in the New York Times under a bold banner: “We Stand for Democracy.” That this would even be in question is still remarkable. But two months prior, in the wake of the insurrection at the US Capitol, employees and the press began to link spending by their companies’ political action committees to the 147 Republican members of Congress who voted against the certification of the 2020 US presidential election. If executives weren’t openly against democracy, they at least seemed to be enabling anti-democratic forces.

Several big companies put political spending on hold to reassess policies and practices, and some even decided to disband their PACs altogether. But with the anniversary of the Jan. 6 chaos upon us, we need to ask if business leaders have moved the needle on the health of our democracy. Has anything really changed?

Jan. 6 reminds us how fragile democracy is

As the US remains torn over politics, social and economic policy, and the tension between community interests and individual freedom, one thing is becoming clear: On all sides of these divisions, a big portion of our citizenry feels the brunt of an economy that has undermined or destroyed their financial security. For American democracy to survive, we need a much greater percentage of the country to have a stake in the system.

Prodded by their own employees, we can expect that business leaders will continue to voice concern over the state of play. What else can they do to assure we are on the right path?

At the risk of oversimplifying the hard work that is required, we suggest three moves.

1. Boards need to abandon the idea under which they have governed for decades

It’s long been argued by corporate leaders that by putting shareholders first, companies create a “win-win” for workers and other parts of the ecosystem of business, the so-called stakeholders. And indeed there was a time 40 years ago, as professor Jerry Davis at the University of Michigan reminds us, when revenues, employment, assets, and market capitalization were all highly correlated. The largest firms by market cap also employed the most people—and the largest employers like GM provided good paying union jobs. Under those conditions, the idea of “win-win” is at least plausible.

But that is no longer the case. Now, most of the largest companies by market cap employ relatively few people. The basic connection between rising productivity and rising wages has been undermined by decades of putting shareholders first. The stock market is not a bellwether of the economy—far from it. And just a tiny fraction of shareholders holds almost all of the wealth.

The idea that a rising economic tide lifts all boats ignores an important reality: Not everyone has a boat. Or, at the risk of taking this metaphor too far, too many are left swimming hard for a distant shore while others board their yachts.

The reset required means unwinding the narrative of shareholder supremacy and replacing it with one that supports those who contribute the most to business success. We don’t succeed by paying lip service to this idea without making meaningful change.

2. Boards and executives need to share power and rebalance the rewards, from the CEO suite to the proverbial factory floor

Inequality is terrible for democracy. Companies can make a real difference by assuring a livable wage and the financial security of their own employees—as well as those under working under contract to the enterprise. The distribution of rewards has to make sense from top to bottom. The work begins with how we pay executives.

But democracy’s strength also is rooted in shared participation and accountability. Companies can start here by strengthening democracy within their own walls.

There are plenty of examples to emulate. The famed Toyota Way and widely deployed lean manufacturing models empower employees in the day-to-day decisions and operations of their companies. During the early, scariest months of the covid-19 pandemic, executives found their employees had useful ideas on health and safety that enabled their companies to continue to operate and avoid shutting down.

Whether or not more of the labor force reasserts its power through unionization, this is a moment for boards and executives to assure better communications between workers and management. According to Gallup, only 3 in 10 US workers “strongly agree that at work, their opinions seem to count.”

It’s time to align company decisions with pronouncements by their executives about the importance of employees.

3. Boards need to reconsider corporate actions that weaken democracy

Tax-avoidance strategies may be perfectly legal and may make a company more profitable, but at some level it undermines democracy by weakening the government’s ability to serve citizens. Political spending by companies, meanwhile, can serve to undermine democracy’s core premise that citizens have equal say in the choice of their leaders and governing priorities.

In a pure capitalist mindset, there is no tension in these issues. You do what you can to advance your self-interest. But if business leaders are serious about protecting democracy, then democratic values must counterbalance capitalist impulses. Democracy requires restraint for the common good.

The events of Jan. 6, 2021 demonstrated the fragility of democracy—and just how precious our system is. Yale School of Management’s Jeff Sonnenfeld, who helped corral the group that petitioned the restrictive voting legislation in Georgia last March, noted that for business leaders, “silence is no longer an option.”

Indeed, the hundreds of business leaders who signed the petition assert democracy is worth defending. But are they really up to the challenge, and all that it will require of them and their companies? We hope so. After all, the invisible hand of the market is not designed to nurture and protect democracy. That’s the job of people—and especially those with the power to make meaningful change.

Judy Samuelson is executive director and founder of the Aspen Institute’s Business and Society Program, and author of “The Six New Rules of Business: Creating Real Value in a Changing World.”

Miguel Padró is assistant director of the Aspen Institute’s Business and Society Program.

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