Corporate Power and Ownership in Contemporary Capitalism

The Politics of Resistance and Domination

Susanne Soederberg

• Publisher: Routledge
• Year: 2009
• eBook ISBN: 9781135249427
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

Despite the influence corporations wield over all aspects of everyday life, there has been a remarkable absence of critical inquiry into the social constitution of this power. In analysing the complex relationship between corporate power and the widespread phenomenon of share ownership, this book seeks to map and define the nature of resistance and domination in contemporary capitalism.

Drawing on a Marxist-informed framework, this book reconnects the social constitution of corporate power and changing forms of shareholder activism. In contrast to other texts that deal with corporate governance, this study examines a diverse and comprehensive set of themes, from socially responsible investing to labour-led shareholder activism and its limitations. Through this ambitious and critical study, author Susanne Soederberg demonstrates how the corporate governance doctrine represents an inherent feature of neoliberal rule, effectively disembedding and depoliticising relations of domination and resistance from the wider power and paradoxes of capitalism.

Examining corporate governance and shareholder activism in a number of different contexts that include the United States and the global South, this important book will be of interest to students and scholars of international political economy, international relations and development studies. It will also be of relevance to a wider range of disciplines including finance, economics, and business and management studies.

Winner of the Davidson/Studies in Political Economy Award.

Part I
Introduction

1
Repoliticizing corporate power and ownership in contemporary capitalism

Two spectacular, yet under-theorized, phenomena define the global economy over the past several decades: the first is the tremendous power that corporations wield over all aspects of everyday life; the second is the dramatic, albeit highly uneven, rise of mass ownership of these corporate behemoths. No longer the exclusive domain of family dynasties, tycoons and the super-rich, stock ownership in publicly traded corporations¹ has become increasingly widespread and dispersed (Blumberg, 1975). A key vehicle driving mass ownership has been the growing role of institutional investors, especially pension funds, in global financial markets. Take, for example, the pension market of countries in the Organization for Economic Co-operation and Development (OECD), which registered a staggering $24.6 trillion in 2006. Over half of this amount (66.1 per cent) was invested in two asset classes: company stocks; and government and corporate bonds (OECD, 2007). The increasing role of pension funds in corporations (both financial and non-financial) has meant that ‘Main Street’ savers have become increasingly dependent on, and therefore vigilant regarding, Wall Street (Clowes, 2000; Minns, 2001; Blackburn, 2002, 2006). Since the 1980s, pension funds have been actively attempting to influence company behaviour. Until now, the politics of resistance and domination vis-à-vis corporations have not been conceptualized as part and parcel of the power, paradoxes and struggles linked to the uneven and exploitative nature of capitalist society. This book attempts to reconnect these elements by mapping and analysing, on the one hand, the social constitution of corporate power in contemporary capitalism; and, on the other, the changing forms of, and limits to, shareholder activism.

Mainstream approaches, which have dominated the corporate governance literature, have opted to examine and explain shareholder activism in terms of a level playing field. Such perspectives are premised on the notion that key actors, such as management, creditors, the board of executives and so forth, are not only able to effectively express their concerns and discontent, but also to challenge certain practices and policies (e.g. excessive executive pay packages, discrimination policies, environmental disclosure, and a vast array of labour standards and human rights issues) pursued by corporate management. Seen from this perspective, resistance to corporate power is expressed in terms of shareholder activism, which takes the form of proxy voting, dialogue with management and, more rarely, divestment (Brancato, 1997; Monks and Minow, 2001; Tkac, 2006; see also Chapter 7). Resistance is framed by, and thereby limited to, a structured and sanitized exchange between those who own (shareholders or ‘principals’) and those who control (management and the board of directors or ‘agents’). Moreover, the extent and content of the interaction between shareholders and management is legally prescribed by the rules of government bodies such as the Securities and Exchange Commission (SEC) in the United States (US). The main venue in which these allegedly democratic exchanges take place is corporate governance. While there is no consensus on the meaning of corporate governance, the dominant definition, used by practitioners and scholars alike, is rooted in economic discipline and based on agency theory (Fama, 1980). The primary concern of the latter is to align the interests of agents to ensure the company is run in an efficient and transparent manner so that it may deliver the highest possible returns for shareholders, i.e. the ‘maximization of shareholder value’ (Shleifer and Vishny, 1997; Jensen, 2000; Monks and Minow, 2001).

Since its emergence in the 1980s, corporate governance has assumed an almost cult-like status among scholars and practitioners. It stands both as the unity of institutions, processes and practices that shape the way shareholders, directors and management interrelate within the corporation, and as a framework for conceptualizing and legitimating these relationships. The most ‘marketized’ version of good corporate governance is the Anglo-American model, which accords primacy to shareholder activism and financial markets, among other things, and which has been heralded as one of the key pillars of a well-functioning and vibrant economy (Soederberg, 2004). Corporate governance has been the official treatment to perceived economic weaknesses ranging from the East Asian crisis and the subsequent construction of the New International Financial Architecture (NIFA) in 1999 (Chapter 6), to the Enron-style debacles of the early 2000s (Chapter 3). Because of its role and impact on the academic and policymaking circles and, more importantly, the everyday lives of people—with or without financial property—across the globe, I believe it is vital to challenge the idea of corporate governance as a given. We need to interrogate its political, social and ideological significance and meaning in the same way we have subjected other concepts that have entered and dominated our lexicon to rigorous appraisal and critique, such as globalization and global governance. The main objective of this study is to question and deconstruct the hegemonic position of corporate governance theory and practice so that its capitalist nature, paradoxes and relations of power may be exposed, scrutinized and, thereby, repoliticized.

Despite the attempt to couple mainstream corporate governance theories with plurality, democracy and the empowerment of shareholders, the fact remains that even the most active of shareholders—American institutional investors—have had a modest impact on management and management decisions over the past three decades. As I discuss later in the book, recent legal rulings have sought to either maintain or scale-back the formal powers of shareholders vis-à-vis management and the board of directors (see Chapters 3 and 4). This is not to suggest that there have not been important successes of shareholder activism over the past several decades. To the contrary, I believe activist owners have played, and continue to play, an important role in holding corporate power in check; indeed, several chapters of this book are devoted to exploring, albeit critically, the nature of shareholder activism. My point of contention, however, is that this form of resistance is limited and weakened within the corporate governance framework and its overriding goal of profit maximization (Glasbeek, 2002).

Mainstream approaches to corporate governance tend to explain away the impotence of shareholders to effectively and meaningfully influence the way in which corporations operate by suggesting it is a result of either the short-termism of the financial markets or weak corporate governance strategies (see Chapter 5). According to critical legal scholar Paddy Ireland, one of the main obstacles in identifying and explaining the relations of power and the politics of domination and resistance within the corporate governance framework is that it rests on neoclassical ideology about the nature of the markets. This view tends to flatten hierarchy and smooth over the paradoxical and exploitative elements within corporations, suggesting that corporations lack any built-in structure of authority and power (Ireland, 2001). In addition, corporate governance tends to ignore or gloss over issues of social justice by reducing and limiting shareholder activism to the tensions between agents and principals, as described in agency theory. Put another way, the framework of corporate governance transfigures political contestation by recasting the form of the struggle in terms of agents and principals and by refocusing the content of contestation around agent-principal realignment, thereby re-emphasizing the ultimate and singular motive of profit maximization.

Seen from the above angle, the hegemonic position of corporate governance in both the academy and policymaking circles—what I refer to as the ‘corporate governance doctrine’—is constructed and reproduced by the US state and dominant interests in capitalist society. The danger of the corporate governance doctrine is that it depoliticizes power relations central to the workings of the corporation and obscures its impact on the wider social environment. Depoliticization of resistance occurs in at least two ways when framed within the bounds of corporate governance. On the one hand, resistance to current practices is recast in exclusionary terms of shareholder activism, i.e. those who do not directly own enough shares in a corporation cannot contest its policies, power or behaviour. On the other hand, resistance is subjected to a process of marketization, by which it is reduced to financial code and economic law. This tends to shift, and thus depoliticize, contestation of corporate power to the realm of the market, constructing what I term the ‘marketization of resistance’. This is evident in the realm of socially responsible investment (SRI), where struggles for social justice in the areas of the environment, labour standards and human rights have been subsumed under dominant discourse to a risk or hazard that can be resolved only through, for example, cost-efficiency calculus and risk management strategies (see Chapters 6 and 7).

The remainder of this chapter has been organized into four sections. The first locates the present study within the wider literature. The second provides a stylized and mainstream account of the primary issues surrounding the corporate governance doctrine, as well as its origins. The third summarizes several premises that run through each chapter in the book and act as the analytical backbone of my main thesis. The fourth and final section lays out the structure of the book.

Situating the study

There have been significant contributions to the critical study of corporate governance, mass investment and corporate power across several disciplines, including: economic geography, critical legal scholarship, economic sociology and international political economy. However, these four areas of research have been subject to minimal cross-fertilization, which has resulted in a need for work that: (1) explores historically and comparatively the rise and impact of pension funds; (2) examines corporate power in the era of globalization; and (3) offers a critical approach to corporate governance. The literature has also remained silent on the capitalist nature of resistance and domination vis-à-vis corporate power in the mass investment culture. By ‘capitalist nature’ I am referring to the viewpoint that sees all social, political, economic and ideological phenomena shaped by, and in turn influence, the contradictions, dynamics and relations of power of capital accumulation. I elaborate on this in more detail below. For now, we look at each of the three relevant areas of study in turn.

First, there have been several influential and meticulous studies from a variety of ideological and disciplinary backgrounds that have examined and analysed comparatively the historical role and impact of pension ftmds with regard to global financial markets (Clowes, 2000; Minns, 2001; Blackburn, 2002; Clark, 2003). The studies have provided major contributions to the way in which we understand power relations and policy decisions affecting pension plans, corporations and the wider financial system, largely within the context of advanced industrialized countries in Western Europe and Anglo-American countries. This scholarship has been complemented by an impressive body of literature concerned with a rigorous and critical examination of the cultural dimensions of pension savings and investments in everyday life (e.g. narratives and performativity), and the important linkages between ‘Main Street’ and Wall Street, or what these scholars refer to as ‘financialization’ (Martin, 2002; Clark et al., 2004; de Goede, 2004; Krippner, 2005; Aitken, 2007; Langley, 2008; Erturk et al., 2008; Montgomerie, 2008).

Despite the insights offered by this rigorous research on pension plans and financialization, however, the debates have either under-represented or neglected three important areas of contemporary capitalism. First, the literature has neither explored within the wider context of capitalism the uneven power relations between pension ftmds and the corporations in which their assets are invested, nor has it engaged with the technical and economic assumptions of the corporate governance doctrine. Second, the scholarship on pension ftmds and financialization has largely neglected the impact of these institutional investors with regard to the global South. As noted earlier, US institutional investors have played a central role in global financial markets, including global development finance. It is critical, therefore, as part of our broader inquiry into the dynamics of corporate power, to explore how the geo-political power of ownership in the US affects the global South, both in terms of questions of development (Chapter 6) and social justice campaigns under the rubric of SRI (Chapter 7). Third, it is also essential to stress the role of the neoliberal state, not simply in policy formulation, but as a chief feature of, and perpetrator in, the creation and legitimation of market-rule over all aspects of life, including the privatization of pension savings and sanctioning of voluntary self-regulation norms, which presently guide the accumulation activities of financial markets and corporations in the US and elsewhere.

The second research area is comprised of critical, yet popular, investigations into corporate power. Naomi Klein (2000, 2007), David C.Korten (2001) and Joel Bakan (2004) have provided razor-sharp and prescient analyses of the global nature of corporate power that have reached and affected a wide and diverse audience. Curiously, aside from a few notable exceptions, the academic literature has not followed suit. Scholars have failed to deliver critical theorizations on the nature of, and limits to, contestation of pension funds and other institutional investors vis-à-vis corporations (Scott, 1997). There has also been virtual silence on the nature and dynamics of corporate power in neoliberal-led capitalism (Sklair, 2001; Parkinson et al., 2001; Carroll, 2006). This neglect in the academic literature is extremely puzzling, as the past several decades have seen the rise and extension of corporate power over all areas of social and environmental life. Scholars, however, have chosen to focus largely on corporate activities in the era of globalization, ranging from production strategies (Gereffi and Korzeniewicz, 1993) and investment relations (Stopford et al., 1991), to cultural features of advertising (Mazzarella, 2003), consumption patterns (Fine, 2002) or how voluntary, global standards should guide corporate behaviour in the areas of labour standards, the environment and human rights (Ruggie, 2004). The related area of global economic governance has explored the tensions and complementarities between public authority and private forms of governance represented by the involvement of corporations in international trade agreements (e.g. Cutler, 2003, 2006). While these approaches to the role of the corporation in globalization have provided important insights into the way in which corporate behemoths engage with and shape policy and processes, the discussions fail to tackle the underlying capitalist nature of the modern corporation and its connection to institutional investors, who, through various forms of shareholder activism, have not only sought to contest but also represent important features of corporate power.

The third research area that relates to the subject matter of the book is critical approaches to corporate governance. Over the past two decades, there have been a handful of critiques that insightfully examine various political and ideological features of corporate governance, including: the primacy of shareholder value and discipline of market forces (O’Sullivan, 2000), the role of neoliberalism and the rise of finance-led forms of capital accumulation (Aglietta and Reberioux, 2005; van Apeldoorn and Horn, 2007; Overbeek et al. 2007), the role of classes (Scott, 1997), shareholder activism (Ireland, 1996; Clowes, 2000), shareholder ideology (Engelen, 2002) and discursive elements pertaining to governance and social responsibility in the era of neoliberalism (Erturk et al., 2004). While these contributions throw critical light on the dominance of corporate governance, they do not grant sufficient attention to understanding the limits and nature of resistance in the form of shareholder activism (Chapters 4 and 5) as integral features of neoliberal-led capitalist restructuring and the relations of power and paradoxes therein (Chapters 2 and 3).

Another weakness of these critical approaches to corporate governance is the general tendency to focus on comparative analyses of corporate governance regimes, involving primarily the United Kingdom and Western Europe (cf. Scott, 1997). These contributions therefore fail to situate corporate governance vis-à-vis the geo-political significance of the US in global capitalism. There are three reasons why I have chosen to concentrate on the US context to study the nature of the relationship between ownership and corporate power. First, financial ownership in the US is the most decentralized and dispersed in the world (Cerny, 2008). The US share of pension fund assets in the OECD area, while down from a 2001 high of 68 per cent, still registered an impressive 60 per cent in 2006 (OECD, 2007). In 2005, American institutional investors, among which pension funds comprise the largest sector, owned a total of 67.9 per cent of shares in the top 1,000 corporations in the US (The Conference Board, 2007a:5). Related to this, US institutional investors are widely regarded as the most active shareholders in the world (Blair, 1995). Second, as noted earlier in the chapter, Anglo-American forms of corporate governance are presented as the most efficient, market-based solutions and are, therefore, a paragon that other countries, especially those in the developing world, are strongly encouraged to emulate (Reed and Mukherjee, 2004; see Chapter 6). Third and finally, US corporations and institutional investors, especially pension funds, are among the largest in the world.² American pension funds also have a strong presence in emerging mark...

Table of contents

• Corporate Power and Ownership in Contemporary Capitalism
• RIPE series in global political economy
• Contents
• Illustrations
• Acknowledgements
• Abbreviations
• Part I Introduction
• Part II Power and paradoxes of corporate power and mass investment
• Part III The changing forms of, and limits to, shareholder activism
• Notes
• References
• Index