With Covid-19 and the Nationwide Protests, the Time Is Ripe for Structural Change in American Business

• Publication year: 2020
• Author: Suzanne L. Weakley

With COVID-19 and the Nationwide Protests, the Time Is Ripe for Structural Change in American Business

Suzanne L. Weakley

Suzanne L. Weakley is a Content Attorney with Continuing Education of the Bar (CEB), a division of the University of California, where she focuses on business and intellectual property law subjects. Ms. Weakley has been active with the Business Law Section of the California Lawyers Association (previously, the State Bar of California) for many years. She has been serving as an Advisor to the Executive Committee of the Business Law Section since 2015.

The COVID-19 pandemic has had a profound adverse impact on the American economy, and the nationwide protests over the death of George Floyd have served to highlight the stark inequities that exist in many aspects of American life. It is clear that people of color and low-income workers have suffered to a much greater extent from the pandemic and the economic downturn, and a debate is accelerating over what the role of American business should be. When the pandemic has run its course, should American businesses simply revert to the status quo ante, or should things change? Many business leaders, as well as academicians and politicians, are finally recognizing that not all Americans have benefitted to the same degree from the economic growth that occurred in the ten years preceding the pandemic and are calling for structural changes in American business practices.

One noted business leader, Jamie Dimon, the chief executive officer of JP Morgan Chase & Co., in a May 19, 2020, memo to shareholders,¹ acknowledged that "low-income communities and people of color are being hit the hardest, exacerbating the health and economic inequities that were already unacceptably pronounced before the virus took over." Dimon hopes policy makers will use the COVID-19 crisis "as a catalyst to rebuild an economy that creates and sustains opportunity for dramatically more people, especially those who have been left behind for too long." Dimon believes that "[t]his crisis must serve as a wake-up call and a call to action for business and government to think, act and invest for the common good and confront the structural obstacles that have inhibited inclusive economic growth for years."²

Shareholder Capitalism as a Structural Obstacle

In an essay published by the New York Times on April 10, 2020, Leo E. Strine, Jr., retired chief justice of the Delaware Supreme Court and now an adjunct professor at Harvard Law School, and Dorothy Lund, an assistant professor at the University of Southern California Gould School of Law, highlighted these structural obstacles, including the fact that corporate governance systems now strongly favor shareholders at the expense of workers:

We are again paying the price for a corporate governance system that lacks focus on financial soundness, sustainable wealth creation and the fair treatment of workers . . . we need a 21st-century New Deal that . . . rebalances our corporate governance system and makes it deliver economic security for the many once again.³

The American corporate governance system that has prevailed for the last thirty to forty years is known as shareholder capitalism, the principle that the sole purpose of a corporation is to maximize shareholder value (MSV). But the MSV principle has not always been an accepted canon of corporate governance. Consider, for example, the defined benefit plans for corporate employees that were commonplace in the 1950s and 1960s but are almost nonexistent today. In fact, the MSV principle is largely derived from a September 13, 1970, New York Times article⁴ by Milton Friedman, who died in 2006. Although the MSV principle (also called the "Friedman doctrine") has been the dominant corporate ethos for the last thirty or forty years, it has been increasingly subject to...