Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well. Bloomberg
Speaker 1: story earlier this year found that corporate values do have
Speaker 1: a market price, specifically noting some studies suggesting that investors
Speaker 1: punish the valuations of companies that either breach their corporate
Speaker 1: responsibilities or over promised on their greenness. So with a
Speaker 1: historical view on companies and how they pursue profits and purpose,
Speaker 1: let's get to it with William Magnuson. He is associate
Speaker 1: professor at Texas A and M Law School. His new
Speaker 1: book for Profit, A History of Corporations. He's also taught
Speaker 1: at Harvard. He is also the author of Blockchain Democracy,
Speaker 1: and he joins his via zoom from Austin, Texas. Professor Magnuson,
Speaker 1: nice to have you here with Paul Sweeney and myself.
Speaker 1: So tell us about this book. What was your thesis
Speaker 1: going into it? Well, thank you so much for having
Speaker 1: me on. When I first started writing this book, I
Speaker 1: really didn't have a thesis. My idea was I wanted
Speaker 1: to explain where this institution, this economic institution that affects
Speaker 1: all of our lives in so many ways, where it
Speaker 1: came from and why we created it in the first place.
Speaker 1: And so I started with ancient Rome. I began looking
Speaker 1: at where corporations first arose. And the first economic institution
Speaker 1: that really starts looking like a modern corporation was ancient
Speaker 1: Rome Or. They had something called Associetatis publican norm, and
Speaker 1: I then explored it through the chapters, how they evolved
Speaker 1: over time, from ancient Rome through the Medici Bank through
Speaker 1: the East India Company, and I spotlighted these important points,
Speaker 1: these turning points in history when the corporation truly changed
Speaker 1: and until until it eventually evolved into the institution that
Speaker 1: we know of it as today. Professor in business school,
Speaker 1: I learned that it was the role of the corporation
Speaker 1: to maximize profits for shareholders full stop. Now that seems
Speaker 1: to be evolving to maybe something broader, maybe maximize the
Speaker 1: good of the common stakeholders, maybe the common good. That's
Speaker 1: how do you see that playing out? Is that really
Speaker 1: being embraced across corporate America? That's right? And I think
Speaker 1: that is corporate law one oh one right. Corporate law
Speaker 1: one on one tells you the purpose of a corporation indeed,
Speaker 1: the duty of a corporation is to maximize profits. That said,
Speaker 1: that is a relatively recent development. Right before the twentieth century,
Speaker 1: no one would have ever told you that the sole purpose,
Speaker 1: the only thing a corporation was supposed to be thinking about,
Speaker 1: was profits for shareholders, right and Eliza elizabethan England. When
Speaker 1: the East India Company was first formed, it didn't promote
Speaker 1: itself by saying, We're going to enrich this small group
Speaker 1: of merchants in London. No I told Queen Elizabeth that
Speaker 1: it was going to expand the trade, the international trade
Speaker 1: of England. When the Medicie Bank was formed in Florence,
Speaker 1: it didn't say, well, I'm going to enrich this small
Speaker 1: medici family. It said we're going to contribute to the
Speaker 1: flourishing of Florence. It did lead, indeed to the enrichment
Speaker 1: of that city. And so I think that that the
Speaker 1: idea that corporations are solely supposed to pursue profit is
Speaker 1: a relatively recent development. Part of it has been driven
Speaker 1: by developments in the law. Right, So, developments in the law.
Speaker 1: In the last uh century and a half or so,
Speaker 1: corporations have gone from institutions that had to be formed
Speaker 1: by the monarch or the government and you had to
Speaker 1: petition it for a charter. So now it is very simple.
Speaker 1: Anybody could form a corporation. I could form a corporation
Speaker 1: the next fifteen minutes if I wanted to. And so
Speaker 1: that means that corporations no longer have to justify themselves
Speaker 1: to a government. How many people, how much of maybe
Speaker 1: when companies go wrong and things go wrong has to
Speaker 1: do with companies are in the public markets, publicly traded,
Speaker 1: and ultimately it is about as Paul was talking about earlier,
Speaker 1: making money. Yeah, yeah, exactly. I do think that a
Speaker 1: really important theme in the history of corporations is the
Speaker 1: role of stock market. Right until the sixteen hundreds, there
Speaker 1: was no real stock market. The East India Company was
Speaker 1: one of the founding members of the London Stock Exchange.
Speaker 1: And so nowadays they of course have become these all
Speaker 1: powerful forces. We have shareholder activism, we have proxy contests. Uh,
Speaker 1: they now exert a new kind of control. We see
Speaker 1: corporations in many ways responding to the demands of shareholders.
Speaker 1: And there's a big debate now in corporate law and
Speaker 1: then the public and public discussion about just how the
Speaker 1: effect just how stair shareholders affect corporations. Do they make
Speaker 1: corporations Uh, turned to more short term oriented goals at
Speaker 1: the cost of long term goals. And so that's one
Speaker 1: of the big themes of the book is trying to
Speaker 1: explore how do we make sure that corporations aren't just
Speaker 1: focusing on short term profits but thinking about the long
Speaker 1: term as well. Well, I guess you need propercentives. There
Speaker 1: is that in order to impact behavior. I would think, yeah,
Speaker 1: I think that it's a couple of things. One is,
Speaker 1: you need incentives, right, you need laws, You need incentives,
Speaker 1: You need economic structures that give corporations reasons, real tangible
Speaker 1: reasons for thinking not just about the short term or
Speaker 1: not just about shareholders, but also about other long term constituencies.
Speaker 1: But you also need a cultural change, right. I think
Speaker 1: that historically we have thought about corporations in terms of
Speaker 1: civic common virtue. Right. We want corporations to contributing to
Speaker 1: the common good. And I think that in order for
Speaker 1: corporations and particularly corporate executives to have that in mind,
Speaker 1: we need a change in the expectations, the cultural expectations
Speaker 1: of them. So, Professor, I'm wondering, you know, giving your
Speaker 1: research here flash if you know, fast forward to today,
Speaker 1: are there any companies that are doing it right or
Speaker 1: industries that are doing it right in terms of maybe
Speaker 1: expanding how they view themselves within their markets, within society
Speaker 1: more broadly. Yes, Well, it's hard not to think when
Speaker 1: you think about a corporation that is considering all the
Speaker 1: factors right, not just shareholder profit, but also other features,
Speaker 1: the environment, workers, uh, the country. It's hard not to
Speaker 1: think about Patagonia, right. Patagonia is a is obviously the
Speaker 1: outdoor equipment maker and clothes maker, but there their founder
Speaker 1: has always been deeply committed to promoting not just the
Speaker 1: interests of shareholders, but also thinking about broader constituencies. And
Speaker 1: so I think that that type of corporation something, a
Speaker 1: corporation that has in mind not just their own independent
Speaker 1: small fyfems, but increasing the the the flourishing of their
Speaker 1: society and their community as well. That those kinds of
Speaker 1: corporations I think are the ones that are going to
Speaker 1: succeed long term. Why aren't there more Patagonias than today?
Speaker 1: That's a very good question. I think there is that
Speaker 1: there really has been a cultural shift. Now you don't
Speaker 1: expect corporations to have those kinds of those kinds of goals. Right,
Speaker 1: as we mentioned earlier, the today it is sort of
Speaker 1: corporation corporate law one oh one that says that part
Speaker 1: executives not only should be only thinking about profits, but
Speaker 1: they actually might even have a fiduciary duty to only
Speaker 1: consider uh profits. And so I think that is part
Speaker 1: of it. There's pressure on executives to say, well, I
Speaker 1: can't I can't frame my business strategy in terms of
Speaker 1: anything but share older profits. And so my book and
Speaker 1: in many ways, is to explore how that shift came about,
Speaker 1: How why did this happen? Historically speaking, you know, environmental
Speaker 1: social governance E s G investing, that's become a bigger
Speaker 1: part of I think, the the investing landscape. Do you
Speaker 1: think and you know, do you think shareholders may be
Speaker 1: able to affect some change here? As even Blackrock, the
Speaker 1: biggest you know, asset manager out there, is really pushing
Speaker 1: its managers to incorporate E s G. Yes, E s
Speaker 1: G is going to be an increasing trend. I think
Speaker 1: in the history of corporations, I've always thought that environment
Speaker 1: makes a lot of sense, social makes a lot of sense. Governance,
Speaker 1: I think is it's sort of an outlier here, right,
Speaker 1: the idea that we should be in moving the governments
Speaker 1: of corporation doesn't quite seem like the environment and social causes.
Speaker 1: That said, it's there's going to be increasing pressure. We've
Speaker 1: already seen increasing pressure on corporation is to be considering
Speaker 1: these other elements. Part of the problem, though, if with
Speaker 1: the current E s G movement, is that they've been
Speaker 1: struggling to find real metrics. Right. It's hard to find
Speaker 1: a metric to say, well, this corporation is doing better
Speaker 1: on E s G than this other one. That just
Speaker 1: doesn't make a lot of sense currently. So history isn't
Speaker 1: always a guide for what's to come. But based on
Speaker 1: what you've learned about the history of corporations, where they
Speaker 1: came from, where they went, um, can you get any
Speaker 1: indication of kind of where they are going ultimately longer term?
Speaker 1: Especially I think with Paul, you know, Paul and I
Speaker 1: we talked about it all the time. Battle the money
Speaker 1: going into E s G. You would think that might
Speaker 1: have an impact in terms of companies initiatives and being
Speaker 1: maybe more purpose driven as well as profit driven. But
Speaker 1: where do companies go from here? Ultimately? Sure? I think
Speaker 1: that the message that I take away when I examine
Speaker 1: these historical corporations is that humanity works best when it
Speaker 1: works together. Corporations are these tremendous vessels for improving economic efficiency,
Speaker 1: for producing goods, for responding to the demands of consumers.
Speaker 1: Right there, this tremendously efficient vehicle for doing that. But
Speaker 1: they also have these flaws, and so each each generation
Speaker 1: we have a new type of corporation. I think we're
Speaker 1: currently living in the age of the startup, right, the
Speaker 1: Facebook world, the Twitter world, and we're starting to see
Speaker 1: some of the downsides of that startup world. Right, We've
Speaker 1: got Twitter engaging in all sorts of difficult content moderation,
Speaker 1: uh questions. We've got Facebook involved an election disinformation and
Speaker 1: so we're going to be seeing a lot of developments
Speaker 1: in the legal world in the next few years, and
Speaker 1: I think we'll also developments and in corporations as well.
Speaker 1: All it really appreciated. Uh. William Magnusson, Professor, Associate Professor
Speaker 1: of at Texas A and M Law School, his new
Speaker 1: book for Profited History of Corporations