On September 23, Senator Marco Rubio (R-Florida) announced his initiative to amend the Securities Exchange Act of 1934, through the Mind Your Own Business Act, with the goal of “empower shareholders to take action when a company follows the latest woke, Marxist fads: boycotting a state, denying services to politically disfavored groups, or remaking their workforces to advance concepts like critical race theory.”
In short, Rubio’s proposed legislation would allow corporate shareholders to sue their companies when their executives act in furtherance of a political agenda instead of fulfilling their legal obligation to act in the best interests of the shareholders whose investment keeps that company operating.
It seems like a minor proposal, but beyond its actual chances of passing in Congress, it is a very important political step in shining a public spotlight on the slew of executives who have turned the organizations where they work into mere vehicles for their whims, risking and losing billions of other people’s dollars while protecting their “bonuses” and their “prestige” as good bureaucrats
Will Marco Rubio save capitalism?
Okay, maybe “Marco Rubio will save capitalism” is a bit of an exaggeration, but the hyperbole serves to highlight that the Mind Your Own Business Act highlights a fact, as relevant as it is silenced: “Businesses” do not act. On the contrary, as I explained in a previous article, what we perceive as the actions of companies are, in reality, the actions of specific individuals with decision-making capacity within those organizations.
Therefore, free-market advocates should not fall into the error of sacralizing “companies” as objective entities that act purely and rationally, in a similar way to how statists and collectivists idolize the will of the “legislator” or the “state” because at the end of the day all of them (companies, legislator and State) are mere abstractions under which the will of specific individuals acts, which does not necessarily coincide with the best interest of those organizations themselves.
The devil is in bureaucracy
The underlying problem shared by large corporations and large governments is that, as a result of their management needs, both accumulate thick layers of bureaucracy that eventually develop identities, incentives, and interests very different from those of their theoretical constituents (shareholders in the case of corporations, citizens in the case of governments).
As a result, management structures become infested with officials who can afford to push their own ideas, greed, whims, and vendettas through the company’s resources, even if this causes damage to the company.
Let’s look at it this way: in a small, owner-operated business, your actions have effects (positive or negative) that are immediately obvious and attributable: if you didn’t open the store for a week, there’s no one to dilute the blame with. By contrast, in corporate America, with legions of CEOs, C-Suite managers, vice presidents, and regional directors, responsibility for damage to the company’s interests is much easier to hide.
This means that large companies do not act based on the will of their owners or investors, but of the top bureaucracy that directs activities and does not necessarily share the long-term incentives or interests of shareholders. The corporate head, CEO or area director can unleash all the self-righteous delusions he absorbed in his Ivy-League education, without having to risk his own money or prestige in the process.
After all, if things go wrong, there will be a way to blame some other area of the company or market instability; even in the worst-case scenario, if the company collapses, there is always a way to negotiate a good severance package or even some “good performance” bonus like those that sparked outrage 10 years ago during the Great Recession.
That is why corporate America has become a nest of activists, who use companies as a political tool, as happened in the examples mentioned by Marco Rubio himself: Nike withdrew a sneaker design from the market because it had an American flag; Coca-Cola (and other companies) threw a tantrum over the reform to prevent electoral fraud in Georgia; Gillette insulted its customers with a commercial against “toxic masculinity.”
Time to hold management accountable
The private sector has made important strides in transparency and accountability, especially in terms of the financial condition of publicly traded companies, but accountability must go further.
Shareholders should have the right to know exactly what agendas are being pursued by the managers of the company in which they have invested, and they should have the right to demand that the company’s senior management make decisions in accordance with their responsibility to seek to generate shareholder value. And if they fail to do so, they should be sued, as provided for in the Mind Your Own Business Act.
In publicly presenting his initiative, Marco Rubio noted that “American companies used to be proud of their country, but now many spend more time apologizing or mocking it than running their own businesses…the corporate elite bows to the progressive and Marxist mobs that dominate the internet and Hollywood.” He is right, and correcting that bureaucratic perversion is necessary to save capitalism and indispensable to protect America’s future. And the first step is to put the issue on the table.