Two recent news stories, seemingly unrelated, point to a question we must increasingly ask: How many institutions are controlled by the people they’re supposed to serve?
The first is that Republican state attorneys general are going after investment fund BlackRock for misbehavior. Instead of managing money from state pension funds and other investors to earn the greatest return, BlackRock, they say, is investing to advance its management’s social and political goals. Under the rubric of environmental, social and governance (or ESG) policies, the fund managers are rating companies not on money-making criteria but on, well, environmental and social ones.
The money belongs to someone else, but the control of the money effectively belongs to them.
Another, ostensibly unconnected, story involves the Democratic Party. A left-wing pollster, the Democrat-aligned Winning Jobs Narrative Project, surveyed 60,000 voters to find out what mattered to them. It discovered that the Democrats’ standard policies and talking points aren’t that popular with voters. Turning corporations into villains and hammering away on social issues like abortion don’t appeal to Americans. Instead, such conservative-sounding approaches as “respect for work” and putting government in “a supporting rather than primary role” polled best.
This survey, one of a number that revealed the Democrats’ economic message doesn’t resonate, found that it’s particularly unpopular with Latino voters, whom Democrats have long regarded as their eventual demographic saviors but who have been trending Republican since 2016.
“Woke” politics play well with the wealthy white activist crowd but not with actual voters. Twitter, the pollsters warned, is not real life.
The thing is, though, the Democratic Party (like lefty-activist Twitter) is controlled by the wealthy woke white activist crowd. The party is supposed to exist for the benefit of poor, minority and working-class people, but it’s run according to the interests of the people who control it, who are mostly financially secure woke white people. (In 2022, the multiracial working-class party is increasingly the GOP.)
So in an important way, the Democratic Party is much like BlackRock: leveraging its power over other people’s assets to advance the interest of the people who actually control the levers of the organization, not those it’s supposed to serve.
In the field of corporate finance, this is known as “the separation of ownership from control.” Shareholders own the company. Management is supposed to act entirely and exclusively for their benefit, not its own. But management controls the company’s operations, and managers are often more concerned with their own welfare than with increasing shareholder wealth.
In theory, the board of directors, elected by shareholders, will ensure that management does what it is supposed to do. In practice, boards are as likely to be an arm of management as a fierce protector of shareholders.
Sometimes lawsuits discipline this, but courts have been content to give management its head most of the time, resulting in enormous freedom for managers to pursue their own agendas. At the political-party level, there’s even less accountability. In principle, parties ought to be disciplined by the threat of losing elections, but in practice that has less influence than you’d expect.
Looking around, it seems pretty clear that this isn’t a problem just for BlackRock and the Democratic Party. All over America — and to a substantial degree, the world — institutions seem to be run on behalf of the people who control them rather than to support their missions or the people they’re supposed to serve.
No one would seriously argue that the federal bureaucracy places serving citizens at the top of its priorities. COVID demonstrated that public-school leaders place their own comfort and well-being above educating their students. And nonprofits, as The New Republic noted over two decades ago, have moved away from success metrics to undemanding systems that allow every project to be called successful, regardless of the actual results. Promotions all around!
This problem is worsened by what Hannah Arendt called the bureaucratic diffusion of responsibility: In a corporation, or a party or a bureaucracy, no one is really responsible, in the sense that there are unlikely to be significant personal costs to organizational failure.
Unsurprisingly, when there are many benefits to distorting the mission and few major consequences for failure, we see a lot of dysfunctional organizations that founder.
Time for more consequences. And less failure.
Glenn Harlan Reynolds is a professor of law at the University of Tennessee and founder of the InstaPundit.com blog.