Drew Field
Direct Public Offerings

The Divine Right of Capital: Dethroning the Corporate Aristocracy by Marjorie Kelly, Berrett-Koehler Publishers, Inc. 2001


Marjorie Kelly co-founded the magazine Business Ethics in 1987 and was

its editor until 2006[1].   In the preface to her book, she says that she had believed “that voluntary change by progressive businesspeople would transform capitalism.  I no longer believe that.”  She had concluded that change was being blocked by “the mandate to maximize returns for shareholders, which means serving the interests of wealth before all other interests.”


The subtitle suggests that the issue is the power of a wealthy aristocracy and the solution is to take away that power and give it to a democracy.  By contrast, we believe that most power is really in the people who manage the flow of capital, skimming a bit for themselves.  These are the CEOs of large corporations, the politicians/lobbyists who channel tax monies and, most of all, the investment bankers, hedge fund managers and other intermediaries who take fees from churning capital.  Our solution is to build direct relationships between individuals who could provide capital and the entrepreneurs who would be stewards of that capital.


Kelly makes the point that all the buying and selling of shares is not providing new capital to American businesses.  It’s just speculative trading, placing bets on whether the stock price will go up or down.  To support this conclusion, she draws from the Federal Reserve Board’s Flow of Funds Accounts, showing that stock buybacks by corporations were greater than the amount of new issues of stock.  Figure 1 of the book shows how the amount of shares outstanding has gone down since the 1980s, while the market value of those shares has increased many times.  Her point is that:


     “Stockholders for decades have been an immense cash

     drain on corporations.  They are the deadest of deadwood.”


Digging into the components of the Federal Reserve table (F-213 Corporate Equities) shows that financial intermediaries are draining off money from financing business growth.  Over $100 billion of new capital went into mutual funds and real estate investment trusts in 2006, while the equity capital of nonfinancial corporate businesses decreased by $614 billion.  Every year since 1998, capital has flowed out of productive businesses and into financial intermediaries. 


The income of individuals who work for financial intermediaries has reflected the commissions and fees from this capital flow[2].  Greg Ip, in the October 12, 2007 Wall Street Journal, reported a study from the University of Chicago that the highest half of one percent of taxpayers included more than twice as many from Wall Street as from all  nonfinancial companies.  


To support the aristocracy vs. workers inequity, Kelly shows that output per employee in the 1990s increased at three times the rate of compensation increases, that the work week has gotten longer while wages and benefits have decreased and that, when employees come up with new products or efficiencies, the benefits go to the shareowners.     

“Protecting the interests of the monied class seems the only moral value the corporation fully recognizes.”


As the book moves into suggested solutions, the basic premise is:


            “The time has come to recognize that all human beings have

            equal economic rights.  . . . Shareholder property rights can

            remain in some measure, but they must take their place

            alongside property rights for employees and the community.       

            Aristocratic privilege must give way to economic equality, in

            a new corporate order that recognizes a constellation of

            economic rights.”


Part of Kelly’s solution is to broaden the ownership of capital and she draws upon the Employee Stock Ownership experience, as well as the share distribution concepts of Jeff Gates, Peter Barnes and others.  But her primary remedy is “to reconceptualize the public corporation as a semipublic government . . . to structure corporations to be accountable to a broader set of interests.”  The concept is to separate control from ownership, “away from control by the financial aristocracy and toward control by ordinary people.” rather than moving toward direct ownership by “ordinary people.”


The first step Kelly suggests in moving corporate control from owners is to have “employees naturally seen as voting citizens of the corporation . . . with access to all the tools that stockholders now use . . ..”  Another action would be reversing the U.S. Supreme Court’s ruling that corporations are persons under the Constitution and “untangling the twisted legal reasoning under which wealth privilege and corporate privilege hide today . . ..”


The book’s final chapter, “A Little Rebellion,” draws upon what worked in the American Revolution, to change our thinking.  Then it was getting people to carry the thought that all persons have equal rights to “Life, Liberty and the Pursuit of Happiness.”[3]   Today, the thoughts are “that all person have equal economic rights, that corporations are subordinate to the people.” 


To change our thinking, Kelly suggests many specific and highly practical actions.  Some of them are attention-getting antics reminiscent of the Yippies, others are organizing and lobbying around issues and many are simply setting an example for the rest of us to see.


It is heartening to have an author who has kept the fire of rebellion and tempered it with the wisdom that comes from history and from personal battles.

[1] When it merged into The CRO, a new corporate membership organization for “Corporate Responsibility Officers.”


[2] From testimony by Robert Kuttner before the House Committee on Financial Services, October 2, 2007:  “Since repeal of Glass Steagall in 1999, after more than a decade of de facto inroads, super-banks have been able to re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s - lending to speculators, packaging and securitizing credits and then selling them off, wholesale or retail, and extracting fees at every step along the way.”


[3] The Virginia Declaration of Rights, adopted June 12, 1776 phrased the rights as “the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety.”