Session Two:The Divine Right of Capital

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Excerpted from a book of the same title published in 2003 by Berrett and Koehler
By Marjorie Kelly
Reprinted with permission from the author

Wealth
Where does wealth come from? More precisely, where does the wealth of major public corporations come from? Who creates it?

To judge by the current arrangement in corporate America, one might suppose capital creates wealth - which is odd, because a pile of capital sitting there creates nothing. Yet capital-providers (stockholders) lay claim to most of the wealth that public corporations generate. They also claim the more fundamental right to have corporations managed on their behalf. Corporations are believed to exist for one purpose alone: to maximize returns to shareholders. This principle is reinforced by CEOs, the Wall Street Journal, business schools, and the courts. It is the law of the land - much as the divine right of kings was once the law of the land. Indeed, "maximizing returns to shareholders" is universally accepted as a kind of divine, unchallengeable mandate.

In the business world at large, it is not in the least controversial. Though it should be.

What do shareholders contribute to justify the extraordinary allegiance they receive? They take risk, we're told. They put their money on the line, so corporations might grow and prosper. Let's test the truth of this with a little quiz:

Stockholders fund major public corporations - True or False?

False. Or, actually, a tiny bit true - but for the most part, massively false. What's intriguing is that we speak as though it were entirely true: "I have invested in AT&T," we say, imagining AT&T as a steward of our money, with a fiduciary responsibility to take care of it. In fact, "investing" dollars don't go to AT&T but to other speculators. Equity "investments" reach a public corporation only when new common stock is sold - which for major corporations is a rare event. Among the Dow Jones Industrials, only a handful have sold any new common stock in thirty years. Many have sold none in fifty years.

The stock market works like a used car market, as accounting professor Ralph Estes observes in Tyranny of the Bottom Line. When you buy a 1993 Ford Escort, the money doesn't go to Ford. It goes to the previous owner. Ford gets the buyer's money only when it sells a new car. Similarly, companies get stockholders' money only when they sell new common stock, which mature companies rarely do. According to figures from the Federal Reserve and the Securities and Exchange Commission, about 99 percent of the stock out there is "used stock." That is, ninety-nine out of one hundred "invested" dollars are trading in the purely speculative market, and never reach corporations.

Public corporations do have the ability to sell new stock. And they do need capital (funds beyond revenue) to operate - for inventory, expansion, and so forth. But they get very little of this capital from stockholders. In 1993, for example, corporations needed $555 billion in capital. According to the Federal Reserve, sales of common stock contributed 4 percent of that. I used this fact in one of those large-typeface quotes in a magazine article once, and the designer changed it to 40 percent, assuming it was a typo. It's not. Of all capital public corporations needed in 1993, stockholders provided 4 percent.

Well yes, some will say - that's recently. But stockholders did fund corporations in the past.

Again, only a tiny bit true. Take the steel industry. An accounting study by Eldon Hendriksen examined capital expenditures in that industry from 1900 to 1953, and found that issues of common stock provided only 5 percent of capital. That was over the entire first half of the twentieth century, when industry was growing by leaps and bounds.

So, what do stockholders contribute, to justify the extraordinary allegiance they receive? Very little. And that's my point.

Equity capital is provided by stockholders when a company goes public, and in occasional secondary offerings later. But in the life of most major companies today, issuance of common stock represents a distant, long-ago source of funds, and a minor one at that. What's odd is that it entitles stockholders to extract most of the corporation's wealth - forever. Equity investors essentially install a pipeline, and dictate that the corporation's sole purpose is to funnel wealth into it. The pipeline is never to be tampered with and no one else is to be granted significant access (except executives, whose function is to keep it flowing).

The truth is, the commotion on Wall Street is not about funding corporations. It's about extracting from them.

The productive risk in building businesses is borne by entrepreneurs and their initial venture investors, who do contribute real investing dollars to create real wealth. Those who buy stock at sixth or seventh hand, or one thousandth hand, also take a risk - but it is a risk speculators take among themselves, trying to outwit one another like gamblers. It has little to do with corporations, except this: Public companies are required to provide new chips for the gaming table, into infinity.

* * *

It's odd. And it's connected to a second oddity - that we believe stockholders are the corporation. When we say "a corporation did well," we mean its shareholders did well. The company's local community might be devastated by plant closings, its groundwater contaminated with pollutants.

Employees might be shouldering a crushing workload, doing without raises for years on end. Still we will say, "the corporation did well."

We do not see rising employee income as a measure of corporate success. Indeed, gains to employees are losses to the corporation. And this betrays an unconscious bias: that employees are not really part of the corporation. They have no claim on the wealth they create, no say in governance, and no vote for the board of directors. They're not citizens of corporate society, but subjects.

Investors, on the other hand, may never set foot inside "their" companies, may not know where they're located or what they produce. Yet corporations exist to enrich investor alone. In corporate society, only those who own stock can vote - like America until the mid-1800s, when only those when owned land could vote. Employees are disenfranchised.

We think of this as the natural law of the free market, but it's more accurately the result of the corporate governance structure, which violates free-market principles. In a free market, everyone scrambles to get what they can, and they keep what they earn. In the construct of the corporation, one group gets to keep what another earns.

The oddity of it all is veiled by the incantation of a single magical word: "ownership." Because we say stockholders "own" corporations, they are permitted to contribute very little, and take quite a lot.

What an extraordinary word. One is tempted to recall the comment of Lycophron, a Greek philosopher, during an early Athenian slave uprising against the aristocracy. "The splendour of noble birth is imaginary," he said, "and its prerogatives are based upon a mere word."

* * *

A mere word. And yet the source of untold trouble. Why have the rich gotten richer while employee income has stagnated? Because that's the way the corporation is designed. It is designed to pay stockholders as much as possible, and to pay employees as little as possible. Why are companies demanding exemption from property taxes? Why are they cutting down 300-year-old forests? Because that's the way the corporation is designed. It is designed to internalize all possible gains from the community, and to externalize all possible costs onto the community.

"A rising tide lifts all boats," the saying goes. The corporation really functions more like a lock-and-dam operation, raising the water level in one compartment by lowering it in another.

The problem is not the free market. That notion - buyers and sellers regulating prices without external guidance - is relatively innocent. Indeed, brilliant. Nor is the problem capitalism. The capitalist system - private ownership driven by self-interest - is in many ways superbly effective. Certainly free-market capitalism is the most fruitful economic system the world has yet conceived. If we go rummaging through its entire basket of economic ideas - supply and demand, private property, competition, profit, unconscious regulation, wealth creation, and so forth - we'll find most concepts are sturdy and healthy, well worth keeping. But we'll also find one concept that is inconsistent with the others. It is the lever that keeps the lock and dam functioning, and it is these four words: maximizing returns to shareholders.

When we pluck this notion out of our basket and turn it over in our hands - really looking at it, as we so rarely do - we will see it is an aristocratic edict. In a competitive free market it decrees that the interests of one group will be systematically favored over others. In a system devoted to unconscious regulation, it says corporations will consciously serve one group alone. In a system rewarding hard work, it says members of that group will be served regardless of their productivity.

Shareholder maximization is a form of entitlement. And entitlement has no place in a free market. It is a form of privilege. And privilege accruing to property ownership a remnant of the aristocratic past.

Democracy
Alexis de Tocqueville observed that there are two great ages of human history: the aristocratic age and the democratic age. In the twentieth century, governments worldwide have made a great passage from one to the other. In the years just prior to World War I, kings and emperors sat enthroned atop most nations of the globe - but they did not, by and large, survive the two world wars. After a calamitous interval of dictatorship and communism, a majority of the world's nations had, by the 1990's, turned to democracy.

We have crossed a great divide in history from aristocracy to democracy. But we have done so only in government. We have yet to democratize economics.

We think of capitalism as the handmaiden of democracy, but that's only partially true. Free market theory points toward democratic outcomes in its emphasis on individuals getting what they earn. But corporate governance points towards aristocratic outcomes in its insistence on shareholder primacy. Corporate governance is anti-democratic. Or, perhaps, pre-democratic.

The wealth-owning class today is a kind of secular aristocracy, much as dictators were secular monarchs attempting to reproduce aspects of privilege enjoyed in the aristocratic era. In the past, secular monads largely failed because they lacked the sustaining myth of the divine right of kings. As fallen dictators from Mussolini to Marcos showed the world, power without myth does not long endure. Analyzing the fall of dictators in a chapter tellingly tilted "The Weakness of Strong State," Francis Fukuyama observed, "The critical weakness that eventually toppled these strong states was in the last analysis a failure of legitimacy - that is, a crisis on the level of ideas."

The secular aristocracy must cling to its sustaining myths. They provide the base of its legitimacy, without which the amassing of wealth begins to seem indefensible. That's why the core myth of today's aristocracy - that shareholder returns must be maximized - is considered unchallengeable, nearly sacred. It is a myth with the force of law. We might call it our modern version of the divine right of kings.

* * *

Although such myths serve to legitimate a bias favoring those who own property (which today we call "financial assets") we do not hold them consciously; instead, our legal structures hold them for us, as they once held biases favoring men over women, or whites over blacks.

The first step to changing unconscious bias is to see it. To help us do so is the aim of this essay (and of the book I am writing of the same title). It is a venture into what Michel Foucault would call an "archaeology of knowledge," a foundational dig, examining the ancient conceptual structures on which wealth bias is built. It is an inquiry into the aristocratic echoes in the corporate worldview - the sustaining myths which support shareholder primacy.

I'm primarily addressing public corporations, because they are fundamentally different from smaller, private, family-owned corporations. My premise is that the shareholder primacy that drives these mammoth firms is, like the divine right of kings, an increasingly archaic mandate, imposed on an organic system capable of self-governance. It is a stricture that is blocking the natural evolution of capitalism, because it is increasingly out of step with the times due to a number of massive changes in the nature of major public corporations:

1. Increasing size. Today, among the world's one hundred largest economies, fifty-one are corporations. They have revenues larger than nation-states, yet maintain the guise of being "private."
2. The shrinking of ownership functions. Though still considered "owners," stockholders in major public companies do not manage, fund, or accept liability for "their" corporations. Ownership function has shrunk to one dimension: extracting wealth.
3. The rise of the knowledge economy. For many companies, knowledge is the new source of competitive advantage. To allow shareholders to claim the corporation's increasing wealth - when employees play a greater role in creating that wealth - is a misallocation of resources.
4. The increasing damage to our ecosystem. The rules of accounting were written in the sixteenth century, when nature seemed an unlimited reservoir of resources, and an unlimited sink for wastes. That is no longer true, but the rules of accounting retain fossilized remnants of those ancient attitudes.

Major public corporations have evolved into something new in civilization, structures more massive, more dominant in the world than our democratic forefathers dreamed possible. They left us little guidance on governing these institutions - the word "corporation" appears nowhere in the Constitution - because only a handful of American corporations existed when that seminal document was written. Washington and Jefferson governed a nation of farmers, in which most nonagricultural businesses were indeed "private," run out of the parlor, or in the barn, as part of the private household.

As the name itself implies, "public" corporations are no longer private. The major corporation, as Franklin D.
Roosevelt observed, "represents private enterprise become a kind of private government which is a power unto itself."

* * *

We fail to see the growing public power of corporations because we accept the myth that corporations are pieces of private property owned by shareholders whose primacy is a natural mandate of free markets, just as our ancestors accepted that nations were private kingdoms owned by kings whose supremacy was a natural mandate of God.

We live with these myths like buried shells from an old war, the war we thought we had won, between monarchy and democracy. When these invisible old bombs go off - as they have in the resurgence of sweatshops, the rise of income inequality, or the increasing demands of corporate welfare - we become alarmed. We ask, how can the "free market" go so wrong? Believing the myth that the system must remain unfettered, we feel powerless to reach down and defuse the explosive and buried nub of the problem, which is shareholder primacy. Or in broader terms, wealth bias.

Property
In searching for the source of stockholder privilege, we come around again to the incantation of that single, magical word: "ownership." It is property ownership that gives stockholders power. Thus, like a feudal estate, a corporation must be considered a piece of property - not a human community - so it can be owned and sold by the propertied class.

This word "own" is deceptively small, and worth unpacking. Because stockholders "own" corporations, we are implicitly told: 1) the corporation is an object that can be owned; 2) stockholders are sole masters of that object; 3) they can do as they like with "their" object. It's an entire worldview in three letters. And as a result of this tiny incantation (like the "Shazam" that turns a boy into Captain Marvel), stockholders gain omnipotent powers: they can take over massive corporations, break them apart, sell them, squeeze them dry, or shut them down - while employees and communities remain powerless to stop them.

Power of this sort has an unmistakable feel of something more ancient. Ownership - that bundle of concepts we also label "property rights" - is one antique tradition that has remained impressively intact. It comes down to us from that time when the landed class was the privileged class, by virtue of its wealth in property. To own land was to be master. And in the master's view, what was owned was subordinate, as in the imperial presumption that India was a "possession" of the throne of England. Or the feudal presumption that lords could own serfs, like so much livestock.

Ownership, according to British law, conferred upon the owner "sole and despotic dominion." The phrase is from William Blackstone's eighteenth century Commentaries on the Laws of England. It is a phrase worth lingering over, for "dominion" shares the same root as "domination." And "despotic" means the tyrannical rule of those who are not free.

Even in John Locke's Two Treatises of Government - considered a founding document of democracy - God is conceived of as the Great Property Owner. Locke wrote:

For Men being all the Workmanship of one Omnipotent, and infinitely wise Maker; All the Servants of one Sovereign Master, sent into the World by his order and about his business, they are his Property, whose Workmanship they are....

This notion of one sovereign master extended to the marriage relationship, where only men were permitted to own property. In early American law, a husband became owner of his wife's property upon marriage. He had sole right to administer it, had sole claim to its profits, and was required to render his wife no accounting. In the 1764 case of Hanlon v. Thayer, a Massachusetts court said a husband owned even his wife's clothing - though she'd brought it with her at marriage. Husband and wife were one legal person, and that person was the husband.

* * *

Today, the corporation is considered one legal entity, and that entity is equated with stockholders. Like wives, employees "disappear" into the corporation, where they have no vote. The property of the corporation is administered solely in the interests of stockholders, who like husbands claim the profits, and are required to render employees no accounting. We have thus a "corporate marriage" in which one party has sole dominion. The reason is property.

Profit
The "property" stockholders have in corporations is represented by two numbers. The first is the stream of income, called profit, or earnings. Stockholders get a piece of it in dividends. The second is the value of the corporation itself, called market value, or capitalization. (It's the value of all shares added together.) Stockholders receive their portion of market value when they sell stock and pocket capital gains, if the stock has gone up. In analogy to a rooming house, you might say stockholders own the stream of rent coming in, and they own the house itself.

The key to it all is profits. This is the wealth - the "property" - the corporation creates each year. The value of the corporation as a whole is often expressed as a multiple of profits (generally called "earnings"), as in the price/earnings ratio. If earnings go down, the value of the corporation will often go down. Hence maximizing profits means working in the stockholder's interests - and if necessary, working against employee and community interests. Profit is often viewed as a neutral concept, and it could be, if companies made some rational, periodic analysis of how to allocate it. But they don't. Custom grants to employees and the community no right to a cut of profit. Capitalist theory says it belongs to stockholders alone.

Jeff Gates in The Ownership Solution calls this the "closed loop" of wealth creation. Stockholders are by definition those who possess wealth. And in the design of the corporation, all new wealth flows to those owning old wealth, in a closed loop.

In the current narrative of the corporation, it works like this: A corporation exists to generate profit. Profit belongs to stockholders, but they leave part of it in the corporation to fund growth. So a portion (about a third) is paid out as dividends, and the rest is kept as retained earnings. Those earnings are generated by the income statement, and retained on the balance sheet, where they are added to shareholder equity. Equity is what stockholders initially contributed when they purchased shares from the company. And by the magical closed loop of accounting, equity grows, year after year, while stockholders never contribute another cent out of their pocket.

Ergo- Stockholders "create wealth" without lifting a finger.

We call this "return on equity," or ROE. It is designed to continue into infinity.

It's a bit like the plant in The Little Shop of Horrors, which ate everything in sight. The more equity grows, the more it demands to grow. If equity is at, say, $1 million, and grows 15 percent a year for ten years, it quadruples. So if a 15 percent return on equity initially means shoveling out $150,000 worth of profits to satisfy shareholders, by the tenth year 15 percent requires a shovel four times as big, or $600,000. The company needs four times the profits just to stay in place as far as stockholders are concerned, yielding the same ROE, year after year.

It's like pushing a rock up a hill, and when you push nice and hard, the rock gets bigger. There is no top of the hill. You must do this for eternity.

It's little wonder CEOs at public companies are desperate to boost profits however they can - sending jobs to sweatshops overseas, demanding corporate welfare, refusing to give raises using temporary workers without benefits, wheedling tax breaks, downsizing staff. No one needs to stand up and tell them to do these things. The financial statements make the demand. The closed loop of corporate accounting holds the demand in place forever.

One enforcement mechanism is the hostile takeover, in which CEOs who fail to deliver are given the boot. Return on equity functions a bit like the Mafia, demanding a larger and larger payment every year, or the hostile takeover folks come and break the CEO's kneecaps.

Return on equity lasts forever, as did title of nobility, which had a similarly tenuous connection to merit. At some point, it's true someone did invest dollars in the corporation, just as someone quite often did do something "noble." But that single act granted passive privilege to a string of other folks, who did nothing. They continue to pass on privilege, hand to hand, forever. Of course, privilege of nobility passed by inheritance, while privilege of stock ownership passes by purchase. So we have made a few changes.

* * *

One might debate the legitimacy of this arrangement. One might question the rationale of an infinite payback for a one-time hit of money. (Even credit cards let you off the hook at some point.) But let us sidestep that debate.

Let us assume, for the sake of argument, that all profits legitimately belong to stockholders. Let us assume they own all tangible corporate assets: the book value of the corporation is theirs. (Book value means everything you own minus everything you owe. It's what would be left, theoretically, if you sold everything and paid off debts.) Even granted this, stockholders are still running off with 75 percent of corporate value that's arguably not theirs.
Consider: At year-end 1995, book value of the S&P 500 accounted for only 26 percent of market value. The combined book value of these companies totaled $1.2 trillion. Market value was $4.6 trillion. Thus "intangibles" were worth $3.4 trillion - three times the value of tangible assets.

Thus, even if S&P stockholders owned the companies' tangible assets, they got off scot-free with other airy stuff worth three times as much.

Included in intangibles is discounted future value (what the market will pay today for estimated future value), plus things like patents and reputation. But also included is a company's knowledge base, its living presence. Or to call it by a simpler name: employees.

Human Capital
In owning intangible value, stockholders essentially own employees - or at the very least, they have the right to sell them (which amounts to the same thing).

Take the case of the Maryland company in Chapter 11 bankruptcy, which in 1997 sold itself to Space Applications Corp. (SAC) in Vienna, VA. The company's real assets were its one hundred scientists. So it sold them. As Edward Swallow of SAC told the Wall Street Journal, "The company wasn't worth anything to us without the people."

"Human capital" acquisitions happen all the time. Through 1997, Cisco Systems Inc. in San Jose, California, had made nineteen of them - mostly acquisitions of small software companies with little revenue but fifty to one hundred employees, for which it paid premium prices: up to $2 million per employee.

* * *

It's revealing when the accountants go to record such purchases on the balance sheet. If you pay $100 million for a company with, say, $25 million in tangible assets, what's the other $75 million of stuff you bought? How do you record it? Well, what you don't record is "one hundred scientists." In post-Civil War America, we recoil from the notion human beings might be bought and sold. So we say a company has purchased "goodwill." That's how it's booked: as a line item on the balance sheet called "goodwill."

The parallel to Blackstone is eery: our law does not support the literal buying and selling of persons, but it does support the principle that stockholders can own certain kinds of property in employees. We allow company owners to sell company assets, even when the primary assets are one hundred scientists. This doesn't make these scientists property in the sense slaves were property, because the scientists are free to leave. But neither are they property owners, with a right to vote on the sale and a right to pocket the proceeds. Their status is akin to a third category recognized by Blackstone: "that of a right-bearing subject who is also the property of another."

* * *

Employees-as-property is a disturbing concept. But evidence of it is disturbingly widespread - as in the commonplace observation that "employees are our greatest assets." Assets, of course, are something one owns.

And companies can take this quite literally. Consider the case of Evan Brown. This computer programmer claimed to have dreamed up a concept that would fix outdated computer codes, and he wanted to develop it on its own. But his employer, DSC Communications in Piano, Texas, said the idea was company property, because Brown had signed an agreement granting DSC rights to inventions "suggested by his work." Brown never made notes for his concept. So when DSC sued him, it wasn't for ownership of his papers. It was for ownership of his thoughts.

* * *

How can companies own employees' thoughts? Isn't it unconstitutional to own human beings? Questions like these are not asked in the property-based society of capitalism. The fact that corporations fail to ask them is a sign of their pre-democratic bias: their archaic mental habit of seeing everything - even human knowledge - as property, and seeking to own it.

Through the lens of ownership, one either owns property, or becomes property. There is nothing else.

It's an attitude that says, if I own the assets of a firm, I own everything created on top of those assets. All new wealth flows to old wealth. This is a feudal assumption - and we can see it more clearly if we make the analogy to land. Say a landowner pays a tenant to farm some land, and the tenant builds a house there. Who owns the house? The landowner or the tenant?

In feudal England, the landowner legally claimed the house. But as legal scholar Morton Horwitz points out, American courts rejected this claim, beginning with the 1829 case. Van Ness v. Pacard, where Justice Story wrote: "what tenant could afford to erect fixtures of much expense or value, if he was to lose his whole interest therein by the very act of erection?" Under democratic law, the rule became that "the value of improvements should be left with the developer."

Refusing to bow to ancient property rights, democratic law articulated a new precedent: the house belongs to the person who built it. New wealth flows to those who create it.

In this tradition, employees who "build" atop the corporation (creating new products or new efficiencies) should have a legal right to the value of their improvements. But in corporate law that isn't the case. Corporate law says stockholders own everything, Hence the increasing value of the corporation flows to shareholders, though they haven't lifted a finger to create that value. The presumption is literally feudal.

Personal Assets
Tied up with this feudal presumption is the notion that property owners are the corporation. Employees are incidental: hire them today, get rid of them tomorrow, they're of no consequence. They're not on the balance sheet, so they don't exist in the tally of what matters.

Yes, well. We might puncture this fantasy with a simple question: What is a corporation worth without its employees?

This question was acted out, interestingly enough, in London, with the revolutionary birth of St. Luke's advertising agency, which was formerly the London office of Chiat/Day.

In 1995, the owners of Chiat/Day decided to sell the company to Omnicon - which meant layoffs were looming - and Andy Law in the London office wanted none of it. He and his fellow employees decided to rebel. They phoned clients and found them happy to join the rebellion. And so at one blow, London employees and clients were leaving.

Thus arose a fascinating question: what exactly did the "owners" of the London office now own? Without employees and clients, what was the London branch worth? One dollar, it turned out. That was the purchase price - plus a percentage of profits for seven years - when Omnicon sold the London branch to Law and his cohorts. They renamed it St. Luke's, and posted a sign in the hall: Profit Is Like Health. You Need It, But It Is Not What You Live For. All employees became equal owners. Ownership for St. Luke's is a right that is free, like the right to vote. Every year now the company is revalued, with new shares awarded equally to all.

* * *

Thus we see how the presumptions of property hold up in the knowledge era: the fiction that outsiders can "own" a company, which is nothing but a network of human relationships, is as flimsy as a house of cards. Employees themselves are the cards, willingly holding the place together, even as stockholders walk off with the wealth that employees create.

How long this will be sustainable remains to be seen. But for the time being, employees seem content to remain hypnotized: believing themselves powerless, and accepting (shazam!) that stockholders have sole and despotic dominion.

No one thinks to object when employees are called "assets" - or sold in an acquisition. We don't notice when employees are lumped with "intangibles": as though they are not flesh and blood, but ghosts. It seems rational that corporate accountants recognize the value of "goodwill," even as they ignore the value of employee knowledge.

We accept these notions, because we operate from the unconscious assumption that corporations are objects, not human communities. And if they're objects - akin to feudal estates - then they're something outsiders can own, and the humans working there are simply part of the property. Either you own property, or you become property: there is nothing else in a property-based world.

These antique notions inhabit us at levels beneath awareness. We don't become conscious of them until someone like Andy Law, or Evan Brown, stands up to stockholders and says, "I am not your property." Such gestures are reminiscent of the founding fathers standing up to Great Britain and saying, "America is no longer your property." Or women standing up to men saying, "We are not your possessions."

What seems solid melts under challenge. In the heat of confrontation, the notion of "owning" human beings slips away, like ice melting. Or like an incantation, fading, once we have broken its spell.

Wealthism
It's instructive to recall that at America's founding, the voting franchise was limited by three biases then considered legal: biases based on race, sex, and wealth. All three restrictions on the vote have since been removed. But only the first two restrictions have been recognized as unfair forms of discrimination, which we term "racism" and "sexism." The third, discrimination based on wealth, hasn't yet been fully recognized. We might begin by giving it a name. I suggest "wealthism."

Though it is pervasive, this bias has no coherent history or theory comparable to those dealing with racism and sexism. There is a large literature on "class," which is a vital beginning. But "class" is too amorphous a term. Wealth lurks in its background, but in the foreground are an array of issues, having to do with the family you're from, your mode of dress, where you went to school, how you speak - all of which may be only tangentially related to possession of wealth. Furthermore, America pretends it is a society without classes. But no one would suggest we are a society without wealthy individuals.

In point of fact, "wealthism" has a precision that "class" lacks. Corporate financial statements do not discriminate based on mode of dress. The voting franchise was not restricted based on how people spoke. These structural forms of discrimination find their basis in wealth. Because we fail to name this discrimination precisely, we fail to see how it functions (how many people understand how financial statements work?) and we fail to claim its history. This history lies cloaked in collective amnesia, lost in a kind of vast national forgetting. How many of us could say when or how wealth restrictions on the vote were removed? How many of us remember Thomas Dorr?

Dorr was a hero in the fight for white manhood suffrage in Rhode Island, where property restrictions once kept more than half of adult males from voting. In the Dorr Rebellion of 1842, the disenfranchised rose up and created their own "People's Constitution" - mandating universal suffrage for white males - and elected Dorr as their governor. This put Rhode Island in the awkward position of having two governors until President Tyier stepped in to crush the rebellion. Dorr was sentenced to "life imprisonment" (which lasted one year), but his cause was soon triumphant: In 1843, state suffrage provisions were liberalized. By the 1850s, wealth restrictions on the vote were abolished in virtually all states.

We don't know this history, because wealth prejudice remains largely unconscious. Change begins by seeing. And we do not yet see.

* * *

Wealth bias is articulated - quite brazenly - in the mandate to maximize returns to shareholders. It is given institutional form in the denial of corporate voting rights to employees. It is right in front of our eyes.

The 1919 date of Dodge v. Ford Motor Co. - the case that said the purpose of the corporation is to serve stockholders - is worth noting, for it anchors the notion of shareholder primacy in the era to which it belongs: that era which still denied voting rights to women and blacks, that era when such forms of discrimination were legal. In that time, when only white men were considered full members of society, it seemed natural that only wealth-holders would be full members of corporate society.

Corporations still live in the charmed circle of this taboo. They see their customs as unalterable, like the custom that only stockholders may vote, that wealth's only goal is more wealth, that the measure of success is a rising stock price. We buy into this belief system. With our tiny stashes of stock, we think the system is working for us, even as wages are sluggish, working hours are increasing, layoffs are rampant, and benefits are declining. Even as our children study in poorly funded schools while corporations elude the property taxes that once supported those schools.

There are seams of vulnerability here, once we think to look for them. Great seams of illegitimacy, of a creaky antiquity, One day, when there's been a bit more of a thaw in the climate of opinion, the time will come to strike at a few of these seams. Change might result more quickly than we imagine. Roosevelt enacted his most transformative New Deal laws in just one hundred days, or slightly over three months. This kind of opening for change is likely to come again. For if the system design is unsustainable (and it is), crisis becomes more likely. If the corporate governance system in the meantime seems impenetrable, it's because all closed societies seem impenetrable. The monarchy in its day seemed eternal. Shareholder primacy today seems likewise inevitable and eternal. But history suggests it will not be.

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Marjorie Kelly is the co-founder and editor of Business Ethics, a national publication on corporate social responsibility launched in 1987 and the author of the book The Divine Right of Capital: Dethroning the Corporate Aristocracy, published in November 2001 by Berrett-Koehler Publishers. The book explores why socially responsible practices have failed to take hold and identifies the problem as the mandate to maximize returns for shareholders, which is an aristocratic mandate to serve the interests of wealth-holders above all other interests. For more information go to: www.thedivinerightofcapital.com

Last Updated March 25, 2003