Marjorie Kelly, cofounder and editor, Business Ethics magazine,
author, The Divine Right of Capital (Berrett-Koehler, 2001),
before the State of Minnesota Senate Judiciary Committee,
February 19, 2004.
Good afternoon, Mr. Chairman and members of the committee. I thank
you for holding this important hearing and allowing me the opportunity
My name is Marjorie Kelly, and for 16 years I have been co-founder
and editor of Business Ethics magazine, working as a business journalist
covering the field of corporate social responsibility. In the mid-1990s
I did a weekly column on business ethics in the Minneapolis Star-Tribune.
I am also author of the recently published book The Divine Right of
Capital, which analyzes why corporations are socially dysfunctional
and offers ideas on making them more democratically accountable.
As a theorist of corporate system design, I can say with confidence
that the bill before us today, the Code for Corporate Responsibility,
is to my mind a virtually ideal bill. It goes straight to the heart
of what is wrong with corporate America, which is corporate purpose.
If corporations are designed in law solely to make money for shareholders
- which is what directors' duties now say - then the logical
result is Enron. At Enron, CEOs Kenneth Lay and Jeff Skilling were both
"laser-focused" on earnings per share, which is the basis
of shareholder value. They succeeded so well at driving shareholder
gain - which rose 40 percent in 1998, 60 percent the next year,
and 90 percent the year after that - that no one questioned their
actions. They were succeeding in precisely the way that the law defines
The lesson here is writ large upon the sky, if we can dare to read
it. It is simply this: Managing a company solely for maximum share price
can destroy both share price and the company itself.
Managing a corporation with the single measure of shareholder gain
is like driving the family car sole for maximum speed. It's guaranteed
to end in a crackup. It's like a farmer forcing more and more of a crop
to grow, until the soil is depleted and nothing will grow. Or like an
athlete using steroids to pump up muscle mass, until the health of the
body is damaged.
In a complex world, directors simply cannot manage corporations by
a single measure of success. They must manage not only for stockholders
but for a variety of stakeholders, including the community, the environment,
employees, and shareholders. This is the lesson of Enron. And it is
fasting becoming the consensus today, both in business and among the
public at large. Corporations may not pursue inflated share price at
the expense of the environment, human rights, the public health, the
community, or the dignity of employees. If you were to ask any Minnesotan
if they agree with this statement, the vast majority would say yes.
What the bill before us today will do is write this consensus into law.
The bill does this in an elegant way. It leaves a duty to shareholders
in place - thus not tampering with many decades of tradition -
but it appends a clear statement of another longstanding legal tradition:
that one may not use one's property to damage others. One must act responsibly.
One must do business in a spirit of fair dealing. These are simple principles
on which we can all agree, and they are properly written into the law
of directors' duties.
A movement to make this change to directors' duties is emerging across
the country, and in the UK. Minnesota is in the lead, and has an opportunity
to be first in the nation to enact this landmark legislation.
No dire consequences will result. Corporations will not be besieged
by lawsuits, because the bill creates no right of private action. What
it does create is a duty for directors to be diligent in making decisions,
and to weigh carefully the impact of corporate actions. Surely this
is what directors should in fact be doing. As Minnesota State Rep. Bill
Hilty has suggested, the result of the law will be that groups believing
they are harmed by corporate actions can ask to appear before the board.
Some real governance may begin to happen. More thoughtful decisions
and less corporate harm will result.
Stockholders themselves will also benefit. At Business Ethics, we publish
an annual listing of the 100 Best Corporate Citizens, ranking the Russell
1000 - the largest public companies - on numerical measures
of service to a variety of stakeholders, including the community, the
environment, employees, and stockholders. Independent research by a
professor of accounting has found that the companies on this list significantly
outperform their peers in the S&P 500, in purely financial terms.
In other words, managing for a variety of stakeholders also benefits
stockholders. Good corporations are already being managed in this way.
Requiring all corporations to be managed in this way is a logical next
I urge you today, Senators, to support this legislation. I can think
of no more important bill being heard anywhere in this nation.
Editor and Publisher, Business Ethics
PO Box 8439, Minneapolis, MN 55408
Author, The Divine Right of Capital
published in paperback by Berrett-Koehler, 2003