The New CEO

Once upon a time successful chief executives generated returns for shareholders by producing better products at lower costs. Along the way they created wealth, jobs, satisfied consumers, and even government tax revenues. This is how capitalism works—it’s a winning proposition for everyone involved. But times are changing.


Today, some successful CEOs are more like opportunists than fierce competitors, cozying up to government lest they be squashed by socialists intent on applying the type of central planning that has failed everywhere it has been tried. This is what we voted for when we elected change, and now we’re getting it. Its roots go back several decades, however.


The field of strategic management—how to run a company—was born about 50 years ago. It followed an economics tradition, emphasizing competition and the profit motive. But things began to change in the 1970s when the notion of stakeholder management became popular. Stakeholders include any group that holds a stake in an organization, such as suppliers, customers, employees, banks, and yes, government. Business schools began to emphasize the idea that organizations have responsibilities to a whole host of stakeholders, not just shareholders. According to this approach, the role of the CEO is to balance the sometimes competing interests of these groups. Focusing on maximizing profit alone is seen as shortsighted.


The stakeholder approach is not all bad. Maximizing short term profits at the expense of customers and employees can create problems in the long term. Taking care of your workers, providing customers with high quality and safe products, and even sponsoring a Little League baseball team can be good business. The proverbial used car dealer that hides mechanical problems in his vehicles from customers won’t stay in business for long.


The problem with the stakeholder approach is the notion that firms should satisfy all of these groups to some extent, at the expense of shareholders. The widespread acceptance of social responsibility—the idea that firms have a responsibility to BOTH generate profits and serve society—goes hand-in-hand with the stakeholder approach. Majorities of academics, business students, and even the public at large now accept this expanded role of business. Few have asked the obvious question: If firms have a social responsibility, then who gets to decide what it is? Obama is giving us an answer—the federal government.


Unfortunately many Americans just don’t understand capitalism. In a free market society, profitable firms—by definition—create satisfied customers, good jobs, healthy communities, and tax revenues. In other words, successful firms already serve society anyway. What we call social responsibility is not really about “balancing” the interests of profits and society, but about controlling corporate America and squeezing more out of business. Welcome to a world where the federal government defines each firm’s social responsibility.


GE CEO Jeff Immelt commented last week that the business-government relationship has fundamentally changed; firms must adapt to this reality to succeed. In other words, the successful CEO is no longer a fierce competitor, but someone who knows how to cut deals with Washington and balance profits with the supposed greater good. Immelt is an opportunist, not a capitalist. I wish I could say that his view is the minority opinion among CEOs, but I’m not sure it is.


We need to see some executives stand against this tyranny. Doing so invites the wrath of Washington, however, so we’re not likely to see many, especially from public companies. This means that the outrage over this type of government manipulation must come from the public at large. At present, most Americans seem OK with big brother forcing big business to “do the right thing.”  The idea that Washington is going to hold corporate America “accountable” for all of our economic and social problems sounds appealing to the masses. The real question, of course, is when will Washington be held accountable?

4 thoughts on “The New CEO

  1. First I want to ask if we manage to turn over the congress with those that will actually defend the constitution will it be in time? It seems to me by the end of the year at the rate things are progressing it will be too late. Once again you have done a great job putting the hammer to nail here Dr. Parnell Thank you.

    1. Time will tell, Rob. Socialism once implemented is difficult to undo. We need to pressure the “moderates” in Congress to limit as much of Obama’s damage as possible, and we need to take back the Congress in 2010. It doesn’t look good at the moment, but we must keep fighting.

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