The Divine Right of Capital: Dethroning the Corporate Aristocracy [Paperback]

Marjorie Kelly (Author), William Greider (Foreword)

Book Description

Publication Date: January 9, 2003

Wealth inequity, corporate welfare, and industrial pollution are the symptoms of our sickened economy, Marjorie Kelly suggests. The underlying illness is shareholder primacy. In The Divine Right of Capital, she shows that the corporate drive to maximize shareholder profits at any cost is not only out of step with democratic and free-market principles, but is detrimental to the long-term health of individual companies and the economy as a whole. Kelly offers a far-reaching solution to rebuild corporations in a way that serves all.

Editorial Reviews

From Library Journal

The founder and editor of Business Ethics and a frequent contributor to NPR, Kelly here considers how corporations strive to make money for their shareholders regardless of the costs to society. The first of the book's two parts discusses the principles of economic aristocracy, showing how the corporation exists not for the employees or the community it supposedly serves but for the investor. Examples include the maxim that paying stockholders is more important than paying employees, the belief that the corporation is a property that can be owned and sold, and the fact that only stockholders can vote to determine the company's future. This power structure has resulted in layoffs, plant closings, and other forms of social discord. In the second part, she examines a thought-provoking course of action that would improve matters a new set of paradigms and laws that would result in economic democracy, insuring that corporations exist for the public good. Jefferson, Lincoln, Roosevelt, John Locke, and Adam Smith are some of the luminaries she cites to support her points of view. This well-documented and readable book is a good choice for business school libraries. Steven J. Mayover, Philadelphia
Copyright 2001 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.

Review

"Brilliant. So simple. So direct. And so beautifully written. I think we have found our Thomas Paine for the new millennium." - David Korten, author of When Corporations Rule the World "A marvelous piece of work - clear, concise, and beautifully written. It raises all the right questions with insight and provocative observations." - Dee Hock, Founder and CEO Emeritus, Visa International

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Product Details

• Paperback: 288 pages
• Publisher: Berrett-Koehler Publishers (January 9, 2003)
• Language: English
• ISBN-10: 1576752372
• ISBN-13: 978-1576752371
• Product Dimensions: 9.2 x 6.2 x 0.9 inches
• Shipping Weight: 14.4 ounces (View shipping rates and policies)
• Average Customer Review: 4.4 out of 5 stars  See all reviews (24 customer reviews)
• Amazon Best Sellers Rank: #215,150 in Books (See Top 100 in Books)

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55 of 57 people found the following review helpful:

5.0 out of 5 stars How capitalism and democracy should work, February 6, 2002

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Malvin (Frederick, MD USA) - See all my reviews
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This review is from: The Divine Right of Capital: Dethroning the Corporate Aristocracy (Hardcover)

The Divine Right of Capital expands on a theme that many Leftist writers allude to but rarely explore in depth: the correlation between the profit motive and the co-optation of our democracy by private corporate interests.

Inspired by the work of Thomas Paine -- who in an earlier era helped build support for the American Revolution by communicating to ordinary people in clear, uncluttered prose -- Marjorie Kelly makes her case for the democratization of capital in an accessible manner, making this a highly readable book.

The work challenges our basic assumptions. Why are balance sheets constructed to highlight the rate of return from a shareholder perspective only? The author points out that accounting practices could easily be changed to create a more balanced view of the company's value to society. It could measure things such as the value of its employees, the amount of financial support corporations may have siphoned off the public trust, the depletion of natural capital, etc.

Kelly explains that such exercises are rarely taken because shareholders make infinite demands on capital, in much the way that Monarchs declared perpetual domain over land and people in an earlier time. The author refers to writings by Jefferson and other revolutionaries to support her case that the colonists were concerned about limiting the power of corporations even while they were struggling to overthrow the King: corporate charters were usually awarded during this era for limited time periods and were often revoked when companies misbehaved.

Regrettably, corporations later used their power to petition the courts and eventually claimed status as "persons", leading to numerous abuses of power (such as the relatively recent argument that corporate campaign contributions are equivalent to free speech and are therefore protected); these abuses unfairly skew the democratic process in favor of big money. This is just one of many reasons why Kelly believes that citizens must reclaim their rights and cast off the corporate aristocracy.

Could it be that in the wake of the Enron scandal -- which so compellingly shows how deeply corporate money and political power are connected -- the people will demand the kind of change that Kelly advocates? If so, they would do well to consider some of the ideas in this outstanding book.

43 of 46 people found the following review helpful:

5.0 out of 5 stars Feudalism is alive and well, February 28, 2002

By 

J. Grattan "Ideas can move the world" (Lawrenceville, GA USA) - See all my reviews
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This review is from: The Divine Right of Capital: Dethroning the Corporate Aristocracy (Hardcover)

The central aim of "The Divine Right of Capital" is show that the structure and legal basis of the modern American corporation bears a great deal of resemblance to feudal estates of the Middle Ages. However, this situation is at odds with an era that holds democracy to be sacred. Large corporations that draw upon the ideas of an era of aristocratic privilege are contrasted with corporations organized democratically. A secondary and less successful interest of the book is to show paths that have or could be taken to bring about such a change.

The author outlines those characteristics of modern corporations that can be considered aristocratic. The aristocratic corporation adopts the legal pretense of being a non-public, private entity. Based on private property rights, a distant and ever-changing group of stockholders have the liberty and voting rights to choose the CEO, while the core constituent body of the corporation and the actual wealth producers, the employees, have no legal voice. Financial gains for the stockholders by virtue of their "ownership" position, irrespective of any real corporate functionality, are to be maximized while costs, which employees represent, are minimized. It is this "wealth privilege" that is truly reminiscent of the status of the olden feudal lord.

By contrast democratically organized corporations would be developed and viewed much differently. First, it would be acknowledged that corporations are semi-public entities with obligations for the public good and subject to control by both the community and employees. A body of distant, amorphous "owners" would not be able to disenfranchise a stable, human community of workers, that is, the employees. The aims of the corporation would reflect the primacy of employees. Payouts to stockholders would be viewed as costs to be contained with the rewards of productivity improvements accruing to employees.

Historically, however, the author notes that in the early republic corporations were chartered by state governments for fixed terms to accomplish specific functions and were subject to some government oversight with the possibility of charter revocation. But a series of court decisions established the "bizarre" notion that corporations are private entities with full rights as persons. In that construct, employees are subsumed within the corporation with only a subservient role to perform.

Turning to more recent attempts at ameliorating the primacy of shareholders, the author notes that some states have enacted legislation that obligates corporations to act in the best interests of other stakeholders including employees, customers, and the community. But much of that legislation is relatively weak and untested. In addition, voluntary corporate initiatives such as codes of conduct or enlightened management seem to be mostly reactionary with little staying power.

At this point in our economic and political history, any change in the structure of corporations would be a most difficult task.
Free market economic theory, the current rage in the U.S., holds that more or less equal entities freely interact in the economy. The fiction of corporate personhood dovetails with the theory perfectly. Corporations are just people; the non-democratic power dynamics and the privileges of corporations are neatly hidden away. But without public understanding of the aristocratic vestiges of corporations, the privileges of wealth, there will be no public clamor for change. Even the Enron debacle is likely to be viewed as simply personal criminality rather than an example of more general flawed corporate structure. The author does not delve into the public's perceptions of corporations or for that matter the media's role in manipulating those perceptions. But that may be a subject for others. "The Divine Right of Capital" certainly delineates the aristocratic nature of corporations in a democratic age.

39 of 43 people found the following review helpful:

4.0 out of 5 stars Thinking outside the box, October 10, 2001

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tom abeles (minneapolis, mn USA) - See all my reviews
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This review is from: The Divine Right of Capital: Dethroning the Corporate Aristocracy (Hardcover)

In a knowledge age, it is becoming increasingly apparent that, in sharing the profits, intellectual capital should often hold sway over traditional equity investments and that this return should flow to the individuals who create the value. On this premise alone, Marjorie Kelly cogently and clearly argues that our current system of awarding the majority of the spoils to stockholders may be an idea whose time has past or, perhaps, never should have come.

The Divide Right of Capital is a tightly constructed, highly readable, volume that explores this singular issue along with a number of Wall Street Myths and sacred cows in order to lead the readers down a path that questions traditional investment wisdom and the present structure of our capital markets. Kelly gathers her arguments from across the intellectual spectrum, facts from economics, and political and social rationales, with equal facility, from philosophers. Footnotes inform and enlighten without the heavy hand of academic validation. In fact, with this slim volume, Marjorie Kelly solidifies her position as a public intellectual, a role that has, indeed, been almost vacated by the academic community.

Ms Kelly skillfully points out that, in the 90's, there was potentially, a net outflow of equity capital from the corporate community with corporate buyback of stocks exceeding the investments through new stock offerings. The increase in value in the stock prices through sales in the market did not directly accrue to the corporations whose stock was traded, leading the reader to question what the difference might be between Las Vegas and Wall Street or whether the stock analysis underpinning investment decisions might not be as different as schemes of gamblers to win at games of chance. In fact, many of the developers of complex dynamic computer programs, that execute stock and commodity trades, consciously ignore the underlying corpus that the stocks represent.

But Kelly's major point is that money, once invested does little over time to enhance the value of the corporation. Rather, those employed are the parties who increase the net worth of the business and thus should enjoy an equal, if not greater share, of the profits with the success of the enterprise. What Kelly is arguing for is a change in how current capital markets work. In the end, she skillfully lobbies for a radical change in the relationship between those who create the wealth and those who benefit through investments directly or indirectly in the equity of the company.

The volume is not a blueprint for a change in the current capital markets. Rather it is a call to rethink current economics. If Kelly's argument has a flaw it is in its negligence of what one might term the hope of the gambler. Individuals have the great desire to take limited capital resources and receive an annuity as if they had won the lottery. The stock market represents this hope for persons at all financial levels, almost with the same enticement as a lottery or a casino.

Kelly is to be commended for trying to balance the market instinct with a more appropriate reward structure for private sector employees, and for also trying to raise the larger issue of the corporate citizen in the community. The volume arose out of Kelly's epiphany that corporate responsibility across the business spectrum would not come solely from an enlightened management, but rather required both sticks and carrots to achieve the goals of a greater public good.

Unfortunately, the volume is written as a logically argued, dispassionate, piece. And though the logic is there, the volume lacks the clarion call to arms of a Martin Luther or a Thomas Paine. It is a volume that leaves one comfortable that change must come but does not inflame the reader with either righteous indignation or the passion from the same epiphany that awoke the author's passions.

Whether one accepts or rejects Kelly's thesis, it cannot be blithely dismissed. Its arguments deserve a hearing in business schools and political science departments. It should be in the brief case of the ubiquitous management and human resource consultants and union officials as they travel across the country.