January 22, 2002
Book Review: The Divine Right of Capital
by Susan Wennemyr
Marjorie Kelly argues persuasively for the creation of a new corporate structure, one that puts a
priority on those that create wealth, not on those that own the company.
If you have grown weary of platitude, if you enjoy economic history, and if you want to be current
on proposed corporate reform, read The Divine Right of Capital: Dethroning the Corporate Aristocracy, by Marjorie Kelly.
You will find in it fresh imagery for important ideas, pleasurable romps through Enlightenment
thought, and intriguing possibilities for stakeholder entitlement. Above all, you will find precise
clarifications of the elemental assumptions that are at the heart of corporate behavior. These
assumptions regard how CEOs are hired, how costs are calculated, how employees are regarded
vis-à-vis shareowners, and how fiduciary duty is defined.
Ms. Kelly invites the
reader to make the mental leap that she has made - a move from congratulating isolated instances of
corporate heroism to demanding systemic change in the laws governing corporations in the United
States. To do so, she escorts her reader through the history of laws governing corporate conduct,
arguing persuasively that the American Revolution marked the triumph of economic democracy over
arbitrary privilege, a victory that was overturned by nineteenth century industrialists.
At the same time, Ms. Kelly's style makes this prodigious volume altogether accessible. To read
it is to feel present in an Ivy League lecture hall at one moment, only to be transported to your
best friend's kitchen table the next. Never pretentious, Ms. Kelly's casual tone creates a feeling
of safety - safety to change one's mind.
Perhaps Ms. Kelly's single most impressive
achievement is her teasing out of wheat from chaff in existing economic ideologies. "Communist
theory did correctly identify property (wealth) as the source of the problem," she maintains, "but
in seeking to eliminate private property altogether, it eliminated incentive." By the same token,
she applauds the conservative defense of free markets and efficiency, but distinguishes free
markets from shareowner property rights so that she can lobby for employee ownership schemes on the
basis that "efficiency is best served when gains go to those who create the wealth."
Especially enjoyable is the glimpse the reader gains of Ms. Kelly's active imagination at work.
Some of her recommendations for legal reform are old ideas in fresh garb, but some reveal creative
genius at play. A call to serious mischief-making in Chapter 12 is downright fun, as is a call to
imagine a world in which the treatment of labor and of capital are reversed, with stockowners
negotiating their dividends individually behind closed doors while wage figures are paraded across
the nightly news.
This book is certain to generate debate. Ms. Kelly devotes much of the
first half of the book to promoting a shift in accounting practices such that stockowner pay-offs
would be counted as a pre-profit cost.
If one grants Ms. Kelly's view that it is
prejudicial to count salaries as a cost to be minimized and stock returns as a vital sign to be
maximized, one is not sure why stocks remain at all in her utopia. If she is right that "infinite
and increasing flows of wealth for a onetime hit of money are artificial, aristocratic, and
absurd," why would not all corporate capitalization assume the form of bonds or bank loans? One
can speculate as to her reasons and hope that bonds and loans will be among the terms that appear
in some subsequent work by this first-rate thinker.
Marjorie Kelly has carefully crafted
an exceedingly thoughtful call for practical reforms in corporate structure. The core concepts she
expounds will surely appear in discussions about business ethics in the decade to come.