The Divine Right of Capitalism, Dethroning the Corporate Aristocracy

By Marjorie Kelly,  Berrett Koehler,  2001


The author starts by developing the notion that it is an error to consider that shareholders own corporations: Except for purchasers of initial public offerings all the rest are speculators.  Thirty-two of the United States have laws protecting other stakeholders in corporations especially employees of corporations and communities into which corporations are integrated.  These state laws are anathema to most corporate legal theorists.  Ms. Kelly is especially effective when she invokes the favorite theorists of capitalism such as John Locke and Adam Smith in her cause.  After quoting Locke extensively, she writes:


….In reclaiming Locke we capture the guns of the opposition and turn their own weaponry against them.  In the process we seize the legitimacy once claimed by wealth privilege….


We might execute a similar coup by reclaiming Adam Smith—placing alongside his ubiquitous notion of the invisible hand his other, more revolutionary principle: that high corporate profits represent an “absurd tax.” Here again we find a thinker used as an apologist for “unlimited capital appropriation” whose own writing contradicts that usage.


What’s often overlooked in Smith is that he believed profits should naturally be low.  They are “always highest in countries which are going fastest to ruin,” he wrote.  Such a state of affairs enriches only the few he continued.  For “by  raising their profits above what they naturally would be,” wealth holders in effect “levy for their own benefit, an absurd tax upon the rest of their fellow citizens.”


This is intellectual ammunition of the most potent sort.  We might pull out both the cannons of our canon at once, and invoke Smith and Locke together as we depict corporations levying an absurd tax on employees and the community in order to benefit an idle, speculative, stock-owning aristocracy.


What we gain from these thinkers are principles for challenging the legitimacy of the system design.  We gain from them the grounding to assert that current wealth allocation relies not on natural principles but on artificial principles: the courts’ insistence that corporations maximize returns to shareholders.  We gain the audacity to say this mandate no longer makes sense.


The time is coming when we must replace today’s archaic mandate with a more humane law: individuals have a right to the acquisition of their own industry. (page 113)


The book discusses a great deal of economic history:


At The time of America’s founding, corporations were created by state charters only to serve the public good….


By the mid-nineteenth century, this original and public purpose of corporations began to be eroded by the courts….


Again in the late nineteenth century the Nebraska Supreme Court in the case of Richardson v. Buhl warned of the danger of allowing private entities to escape control by the public, writing: “Indeed it is doubtful if free government can long exist in a country where such enormous amounts of money are … accumulated in the vaults of corporations, to be used at discretion in controlling the property and business of the country against the interest of the public… for the personal gain and aggrandizement of a few  individuals. (page 129)


….The problem is that we have never fundamentally altered the corporate structures that the Robber Barons bequeathed to us, which harken back to the aristocratic age. We’ve yet to reach these core structures effectively with legislation, so in enacting laws we’ve been like homeowners chopping down nuisance trees that continually spring back because we have failed to eradicate the roots.  Our laws have focused on specific symptoms while leaving the underlying illness untouched.  That illness is the corruption of the free market known as shareholder primacy, which is made incurable by the notion that corporations are private and may not be altered. (page 134)


Ideas for solutions are implicit throughout the book.  For example, a “St. Luke’s Rebellion” is mentioned several times.  This refers to an episode in 1995 in London in which employees of what was to become St. Luke’s ad agency successfully resisted being sold by a parent company by pointing out that their relationships with clients was being sold against their wishes.  The last chapter codifies what might be done by various categories of citizens who share Ms. Kelly’s concern about the primacy of shareholders: Ideas for employees, business students, investors, citizens (with and without pension plans), CEOs, activists, unions.  I hesitate to pick a favorite from the list.  They are imaginative and many, if implemented, could individually catalyze the needed reforms.  A quote from Ideas for CEOs illustrates this:


Even CEOs have a role to play in the revolution, and doing so may well turn them from villains into heroes.  Perhaps one day we will see the emergence of a kind of Nelson Mandela of Coca-Cola or a
Thomas Jefferson of Hewlett-Packard—willing to make his or her corporation a true model of economic democracy.  Such leaders might start by awarding generous stock options, setting up substantial ESOPs [employee stock ownership plans], and establishing a place in governance for employees.  They may find their companies enlivened in the process, because putting wealth in the hands of those who create it taps the fundamental genius of capitalism. (italics added), (page 182)


Here is a succinct summary of the book from page 3:


The problem is not the free market, but the design of the corporation.  It’s important to separate these two concepts that we’ve been schooled to equate.  In truth the market is a relatively innocent notion.  It’s about buyers and sellers bargaining on an equal footing to set prices.  It might be said that a free market means an unregulated one, but in today’s scheme it really means a market with one primary form of regulation: that of property rights.


Marjorie Kelly gained her expertise at least partly as editor of Business Ethics.   She was a co-founder of the Minneapolis-based publication in 1987.


John A. Frantz

October 30, 2003


“…you do not reason a man out of something he wasn’t reasoned into.”

                                                                                                Jonathan Swift  1667 to 1745