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The Founder of Panera Bread Explains the Economic Forces that Led to Trump

By Sheelah KolhatkarNovember 23, 2018

Panera had its own encounters with activist investors. In 2007, the Shamrock Activist Value Fund bought a stake in the company, and, in 2015, Luxor Capital did the same thing. “I had activists twice—I almost lost this company,” Shaich told me. Panera was still in the midst of its transformation, and was spending a hundred and fifty million dollars to develop new technology for online and mobile ordering. The efforts hadn’t shown results yet, but the investors wanted him to outsource the project or shut it down. They also wanted him to step down as C.E.O. “When you have activists attacking you, the very things you’re sworn to protect—the vision, the organization, other shareholders—your ability to protect them, like your children, are at risk.” Almost all public companies now face similar pressure, though Shaich points out that the most successful new businesses, such as Facebook and Amazon, have stock structures that make it difficult for hedge-fund investors to buy shares and tell the managers what to do. In 2017, Shaich took Panera private to protect it from short-term pressures, and sold it to a European fund called JAB Holding Company, which also owns Pret A Manger, Krispy Kreme, and Keurig Dr Pepper. He believes that the fixation on short-term profits is jeopardizing the future of American business, and creating social instability that has contributed to our current state of political polarization.

In the summer of 2017, Lynn Paine and Joseph Bower, two Harvard Business School professors, published a piece in the Harvard Business Review arguing that the idea that profits are all that should matter to a company’s leadership is a relatively new one. They trace it to an essay by the free-market economist Milton Friedman, which ran in the Times Magazine in 1970. In the piece, Friedman outlined what he called the “Friedman business doctrine,” which holds that ideas of corporate social responsibility, which had become popular in the business world, were undermining the American way of life. “The businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers,” he wrote. Instead, he went on, “They are preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these last decades.” The article caused a sensation, and Friedman’s idea that managers of companies were nothing more than “agents” of shareholders was taken up by economists and business school professors, who helped build it into the dominant attitude in the United States and beyond. In their article, Paine and Bower argue that this theory is “rife with moral hazard.” Stock owners have no public accountability for what the company does, and no responsibility, as executives do, to place the company’s interests above their own. The costs of prioritizing shareholders’ interests are borne by the company, and by society as a whole, which is robbed of innovations, jobs, and tax revenue.

kalm wrote:Good read and I think this guy gets it.

Corporate accountability and conscience is "pure unadulterated socialsim" according to one of the founders of the modern "free market" movement.

The Founder of Panera Bread Explains the Economic Forces that Led to Trump

By Sheelah KolhatkarNovember 23, 2018

Panera had its own encounters with activist investors. In 2007, the Shamrock Activist Value Fund bought a stake in the company, and, in 2015, Luxor Capital did the same thing. “I had activists twice—I almost lost this company,” Shaich told me. Panera was still in the midst of its transformation, and was spending a hundred and fifty million dollars to develop new technology for online and mobile ordering. The efforts hadn’t shown results yet, but the investors wanted him to outsource the project or shut it down. They also wanted him to step down as C.E.O. “When you have activists attacking you, the very things you’re sworn to protect—the vision, the organization, other shareholders—your ability to protect them, like your children, are at risk.” Almost all public companies now face similar pressure, though Shaich points out that the most successful new businesses, such as Facebook and Amazon, have stock structures that make it difficult for hedge-fund investors to buy shares and tell the managers what to do. In 2017, Shaich took Panera private to protect it from short-term pressures, and sold it to a European fund called JAB Holding Company, which also owns Pret A Manger, Krispy Kreme, and Keurig Dr Pepper. He believes that the fixation on short-term profits is jeopardizing the future of American business, and creating social instability that has contributed to our current state of political polarization.

In the summer of 2017, Lynn Paine and Joseph Bower, two Harvard Business School professors, published a piece in the Harvard Business Review arguing that the idea that profits are all that should matter to a company’s leadership is a relatively new one. They trace it to an essay by the free-market economist Milton Friedman, which ran in the Times Magazine in 1970. In the piece, Friedman outlined what he called the “Friedman business doctrine,” which holds that ideas of corporate social responsibility, which had become popular in the business world, were undermining the American way of life. “The businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers,” he wrote. Instead, he went on, “They are preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these last decades.” The article caused a sensation, and Friedman’s idea that managers of companies were nothing more than “agents” of shareholders was taken up by economists and business school professors, who helped build it into the dominant attitude in the United States and beyond. In their article, Paine and Bower argue that this theory is “rife with moral hazard.” Stock owners have no public accountability for what the company does, and no responsibility, as executives do, to place the company’s interests above their own. The costs of prioritizing shareholders’ interests are borne by the company, and by society as a whole, which is robbed of innovations, jobs, and tax revenue.

https://www.newyorker.com/business/curr ... 0tIXL4066A

Ivytalk wrote:

kalm wrote:Good read and I think this guy gets it.

Corporate accountability and conscience is "pure unadulterated socialsim" according to one of the founders of the modern "free market" movement.



https://www.newyorker.com/business/curr ... 0tIXL4066A

You mean this CHICK gets it...

Actually, my career in Delaware corporate law gave me a thorough course in this. A Chancery Court judge created a sensation a generation ago when, in a footnote, he suggested the mere possibility that corporate directors may owe allegiance to constituencies other than stockholders (employees, communities, the public at large, etc.). The judicial focus is still on maximizing shareholder value, but not all shareholders are alike. Hedge funds, institutional investors like pension funds, and social-justice funds have different ownership and control objectives than you, I, or Flaggy. And don’t get me started on dual-class stock structures, which enable entrepreneurs like Zuckerberg to control a majority of the voting power while holding a minority of the equity. Now Delaware and other states have created “benefit corporations,” which expressly authorize companies and their boards to pursue goals other than profit maximization. Relatively few public companies are B-Corps, though. My BIL, a sustainability expert, may know more about creating B-Corp business plans than anyone else in America.

This stuff is just fascinating, and it is developing quickly. Friedman overstated his case.

kalm wrote:

Ivytalk wrote: You mean this CHICK gets it...

Actually, my career in Delaware corporate law gave me a thorough course in this. A Chancery Court judge created a sensation a generation ago when, in a footnote, he suggested the mere possibility that corporate directors may owe allegiance to constituencies other than stockholders (employees, communities, the public at large, etc.). The judicial focus is still on maximizing shareholder value, but not all shareholders are alike. Hedge funds, institutional investors like pension funds, and social-justice funds have different ownership and control objectives than you, I, or Flaggy. And don’t get me started on dual-class stock structures, which enable entrepreneurs like Zuckerberg to control a majority of the voting power while holding a minority of the equity. Now Delaware and other states have created “benefit corporations,” which expressly authorize companies and their boards to pursue goals other than profit maximization. Relatively few public companies are B-Corps, though. My BIL, a sustainability expert, may know more about creating B-Corp business plans than anyone else in America.

This stuff is just fascinating, and it is developing quickly. Friedman overstated his case.

Interesting. Wasn't there a time long ago when all corporations were granted charters based on the public's interest and AG's would revoke their standing as soon they wore out their usefulness?

89Hen wrote:TL;DR

kalm wrote:

89Hen wrote:TL;DR

That's OK. It would hurt your feelings anyway.