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Stakeout

Nancy Bush is a veteran bank analyst. The following does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.

Whatever happened to August? Once upon a time, back in the Wall Street of long ago and far, far away, that was the month when everyone went on vacation (officially so in Europe and habitually so in America) and much of the rest of the world followed suit. The news cycle was a dull one (even the Fed meeting at Jackson Hole usually elicited barely little more than a market yawn and a few lines of copy in the Journal) and volumes on Wall Street dwindled down to next-to-nothing. Everybody knew that the world heated up again in the first few days after Labor Day; trading desks were barely manned and ties and jackets were optional until then.

When did August become Crazy Time? While I will concede that the biggest bull market of all time actually began in August 1982 — a few weeks after I became an analyst (entirely coincidental, I’m sure) — that occurrence was seen as aberrational and markets soon resumed their normal seasonal patterns. I'm pretty sure that year-round market tumult was a consequence of advancements in electronic trading and of the events that ushered in the Financial Crisis in 2008. And since Donald Trump became president, it's been "Katie bar the door" with 24-hour volatility, early morning tweets and the accompanying investor angst.

This August was the wackiest one that I can remember in my 37 years of association with the stock market, and I'm pretty sure that statement is not simply a consequence of my advancing age. What will it be today? In the trade war with China, will it be 30% tariffs or 25%? Are we talking to China or not? What about our important ally Japan, do we have a deal there? War with Iran or talks? Will Boris Johnson get his no-deal Brexit? And most importantly, the burning question hanging over markets globally: Jerome Powell, friend or foe?

Markets are hyperactive, investors are hyperventilating, and Trump (in his own view, anyway) is just negotiating in his normal style. So to me it's no wonder that corporate America — and banking America, particularly — is trying to figure out a way forward that will allow major companies to be ready for whatever political changes may come in 2020. These changes would likely be jolting at a minimum should the Democrats win the White House and potentially game-changing should they win control of Congress as well. Katie bar the door, indeed.

The latest — and perhaps the most controversial — manifestation of American corporate nervousness came Aug. 19, when the august Business Roundtable (led by uber-banker Jamie Dimon) came out with a big change to its statement of "the purpose of a corporation," shifting from a sole emphasis on generating profits for shareholders to an emphasis on the interests of "all stakeholders," a term that was widely interpreted to mean customers, employees, and the other elements in American society that depend upon corporate profitability to thrive. The change of purpose was viewed as a big deal, given the prominence of the Roundtable in Washington and the degree to which its pronouncements are seen to reflect the opinions (and intentions) of a wide swath of prominent American corporate CEOs.

OMG, you'd have thought that the Roundtable had advocated the wholesale elimination of dividends or had said a kind word for annexing Greenland, given the strength of the conservative blowback. The Wall Street Journal went on red alert, responding with a big editorial ("The 'Stakeholder' CEOs") with the tag line: "Executives who abandon shareholders won't appease the socialists." That piece was accompanied by a James Freeman article ("Big Business and its 'Stakeholders'") that was summarized thusly: "Most of the Business Roundtable commits to 'deliver value' to people who don’t own any shares." And just to make sure that their readers got the point, Holman Jenkins followed up with this Aug. 20 riposte: "CEOs for President Warren," saying "The Business Roundtable throws shareholders under the bus, even if just for show."

I think I get their drift. However, my reaction to this change of purpose is a bit more equivocal, and my reply to WSJ and its fellow hysterics would be "just chill, OK?" For one thing, it seems logical to me that the attainment of acceptable (and even robust) profitability for a company would be perfectly compatible and likely even enhanced by the prospect of happy employees, customers who are willing to be brand ambassadors because they are happy with the products and/or services delivered, suppliers who feel that they are being treated fairly and paid promptly, and a public that sees a company as a solid corporate citizen and a standard-bearer of American values. I mean, am I missing something here?

As a shareholder, I would like to remind the editorial staff of the WSJ of two words, and those two words would be: Wells Fargo. That company sacrificed customers, employees, reputation, and massive shareholder value in the pursuit of profitability that was both illusory and impermanent, and the former management did so with the avowed intent of delivering maximum shareholder value. Indeed, the fact that Dimon is the leader of the Business Roundtable is likely not coincidental with this evolution of purpose, as he and his fellow bankers have long had to cope with the reality of corporate values that must transcend simple profitability and extend into the realm of fair treatment of a number of groups that may or may not hold shares. Life within the framework of a regulated oligopoly is different, and these differences partly inform this change.

WSJ seemed particularly incensed that the Business Roundtable was turning its back on its philosophical underpinnings, which had been provided by Milton Friedman’s 1970 article "The Social Responsibility of Business is to Increase its Profits" and set the standard that the first responsibility of any business is to maximize profitability. I would note that Mr. Friedman, while a towering figure in the history of economics and still a strong conservative influence, operated primarily within an academic and theoretical framework, as do Paul Krugman, Alan Blinder, and a whole bunch of economists today who have scant experience in the private sector. I would also note that Mr. Friedman died in 2006, prior to the Financial Crisis, and that his view today might be massively different as he surveyed the present dangers to the continued viability of American capitalism.

No American company today can afford to be fossilized in amber, and any CEO worth their salt must realize that they need to adapt their company's emphasis to today's realities. The problem is not simply that Elizabeth Warren or Bernie Sanders have become viable presidential candidates. The problem is that a large portion of the American public does not see themselves as beneficiaries of our capitalist system, but see many of America's largest companies as predatory and exploitative. No matter who wins in 2020, there must be an extraordinary effort on the part of American business to close the fissures that have been opened over the past decade, and this move on the part of the Business Roundtable simply recognizes that fact.

I do have one final gripe, per usual. Could we please put a stake through the heart of the word "stakeholder?" It is one of those business-generated words, like "empowered" and "paradigm," that are maddeningly vacuous and so uber-trendy. How about we use a grown-up word, like "constituent" or "constituencies," and start a concurrent trend of literacy and common sense?