{"id":44496,"date":"2012-01-25T12:30:34","date_gmt":"2012-01-25T17:30:34","guid":{"rendered":"http:\/\/thesocietypages.org\/socimages\/?p=44496"},"modified":"2012-01-25T02:44:18","modified_gmt":"2012-01-25T07:44:18","slug":"shareholders-vs-stakeholders","status":"publish","type":"post","link":"https:\/\/thesocietypages.org\/socimages\/2012\/01\/25\/shareholders-vs-stakeholders\/","title":{"rendered":"Shareholders vs. Stakeholders"},"content":{"rendered":"

\"\"<\/a>Cross-posted at Montclair SocioBlog<\/a>.<\/em><\/p>\n

Mitt Romney\u2019s capitalism has come under attack \u2013 from fellow Republicans, of all people.\u00a0 They\u2019re pummeling him for his work at Bain Capital, his private equity firm.\u00a0 \u201cPrivate equity\u201d became the term of choice when \u201cleveraged buyout\u201d acquired a connotation of nastiness, probably because many LBOs were in fact nasty affairs (\u201chostile\u201d takeovers).<\/p>\n

Romney is tall and good-looking with a full head of hair.\u00a0 He speaks with no noticeable regional accent.\u00a0 Danny DeVito is a photo negative of all that.\u00a0 But as Lawrence Garfield,* a.k.a. Larry the Liquidator in \u201cOther People\u2019s Money\u201d DeVito does a much better job in making the case for what Mitt did at Bain Capital.**\u00a0 (The original title for this post was \u201cDefending Private Equity \u2013 the Short Version.\u201d)<\/p>\n

<\/object><\/p>\n

Bain sometimes made money by bankrupting the companies it took over.\u00a0 That\u2019s creative destruction for you \u2013 first the destruction, then creation.\u00a0\u00a0\u00a0 As Larry the Liquidator puts it***:<\/p>\n

\u00a0You invested in a business and this business is dead. Let’s have the intelligence, let’s have the decency to sign the death certificate, collect the insurance, and invest in something with a future. . .
\nTake the money. Invest it somewhere else. Maybe, maybe you’ll get lucky and it’ll be used productively. And if it is, you’ll create new jobs and provide a service for the economy and, God forbid, even make a few bucks for yourselves.<\/p><\/blockquote>\n

Romney\u2019s critics talk about the people put out of work, the towns and communities eviscerated.\u00a0 That\u2019s where Garfield\/Romney are on shakier ground.<\/p>\n

\u201cAh, but we can’t,\u201d goes the prayer. \u201cWe can’t because we have responsibility, a responsibility to our employees, to our community. What will happen to them?\u201d I got two words for that – \u201cWho cares?\u201d<\/p><\/blockquote>\n

Larry the Liquidator is raising the issue of shareholders vs. stakeholders.\u00a0 Stakeholders are all those people who are affected by a corporation.\u00a0 To attract corporations, local governments sometimes offer goodies like tax breaks, regulation breaks, and even bagfuls of cash.\u00a0 The localities defend these deals by saying that they will be good for the whole town, particularly for those who become employees or who sell goods and services to the corporation.\u00a0 These people and the town generally will be stakeholders.\u00a0 They all have a stake in the success of the corporation.<\/p>\n

Corporations too often talk the stakeholder talk.\u00a0 But when times get tough, they talk the shareholder talk \u2013 the talk that Larry does so well. And they walk the shareholder walk.\u00a0 They walk out of town with the money from the sale of the company\u2019s assets.<\/p>\n

All this has implications for issues of trust, implications much too broad and deep for a simple blog post.\u00a0 See this\u00a01988 article<\/a>\u00a0by Andrei Schleifer and Larry Summers, \u201cBreach of Trust in Hostile Takeovers.\u201d<\/p>\n

\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014<\/p>\n

* Romney is a Mormon.\u00a0 Larry Garfield is of no specified religion, though we can assume he is not a Mormon.\u00a0 In the original play, he was Larry Garfinkle. For Hollywood purposes he became Garfield, just as did actor\u00a0John Garfinkle<\/a>.<\/p>\n

** Conservapedia, as I\u2019m sure\u00a0Drek<\/a>\u00a0knows, rated \u201cOther People\u2019s Money\u201d as one of the twenty greatest conservative movies.<\/p>\n

*** For a transcript of Larry\u2019s speech go\u00a0here<\/a>.\u00a0 The original stage play is by Jerry Sterner, the screenplay by Alvin (Three Spidermans) Sargent.\u00a0 I don\u2019t know how much credit each gets for this speech.<\/p>\n

\u00a0Big hat tip to\u00a0Ezra Klein<\/a>\u00a0for the material here.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Cross-posted at Montclair SocioBlog. Mitt Romney\u2019s capitalism has come under attack \u2013 from fellow Republicans, of all people.\u00a0 They\u2019re pummeling him for his work at Bain Capital, his private equity firm.\u00a0 \u201cPrivate equity\u201d became the term of choice when \u201cleveraged buyout\u201d acquired a connotation of nastiness, probably because many LBOs were in fact nasty affairs […]<\/p>\n","protected":false},"author":258,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[36,329,85,8121,76],"class_list":["post-44496","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-economics","tag-emotion","tag-politics","tag-election-2012","tag-work"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/44496","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/users\/258"}],"replies":[{"embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/comments?post=44496"}],"version-history":[{"count":5,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/44496\/revisions"}],"predecessor-version":[{"id":44503,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/44496\/revisions\/44503"}],"wp:attachment":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/media?parent=44496"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/categories?post=44496"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/tags?post=44496"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}