Obama's Victory: A Consumer-Citizen Revolt

The election confirms it's time for sober reappraisal and reinvention within the business community. If you don't do it, someone else will

By Shoshana Zuboff

This column is dedicated to the top managers of American business whose policies and practices helped ensure Barack Obama's victory. The mandate for change that sounded across this country is not limited to our new President and Congress. That bell also tolls for you. Obama's triumph was ignited in part by your failure to understand and respect your own consumers, customers, employees, and end users. The despair that fueled America's yearning for change and hope grew to maturity in your garden.

Millions of Americans heard President-elect Obama painfully recall his sense of frustration, powerlessness, and outrage when his mother's health insurer refused to cover her cancer treatments. Worse still, every one of them knew exactly how he felt. That long-simmering indignation is by now the defining experience of every consumer of health care, mortgages, insurance, travel, and financial services—the list goes on.

Obama was elected not only because many Americans feel betrayed and abandoned by their government but because those feelings finally converged with their sense of betrayal at the hands of Corporate America. Their experiences as consumers and as citizens joined to create a wave of revolt against the status quo—as occurred in the American Revolution. Be wary of those who counsel business as usual. This post-election period is a turning point for the business community. It demands an attitude of sober reappraisal and a disposition toward fundamental reinvention. If you don't do it, someone else will.

The Seeds of Despair

Long before the dark bloom of this economic crisis, our businesses were broken. An indicator of this disrepair was the almost complete loss of trust that Americans expressed toward business and its leaders. This had not always been the case.

After World War II and right through most of the 1970s, American businesses understood themselves as part of the social fabric. In the mid-1950s, 80% of U.S. adults said that Big Business was a good thing for the country, and 76% believed that business required little or no change (Roper, August, 1954). Business was lauded for job creation, its effectiveness as a mass producer, the development and improvement of products, payment of big taxes, and support of education (University of Michigan Survey Research Center, July, 1951).

In 1966 55% of Americans had a great deal of confidence in the leaders of big companies (Harris Poll #22, Feb. 28, 2008). By 2006 only 5% of Americans said corporations do right by their consumers and only 7% voiced a high degree of trust in corporate leaders (Lichtman/Zogby, May, 2006). In those 40 years an unbridgeable chasm had opened between corporations and the people who depend upon them as employees and consumers. What happened to the trust? Unlike the illusory wealth of financial engineering, it didn't vanish overnight. It was worn down, agonizing step by step, over decades.

A Giant Money Machine

About 30 years ago, the socially embedded corporation of the post-World War II period was reconceived as a giant money machine. This started innocently enough. As global competition began to affect American industries, many wondered how to make managers more accountable for the firm's performance. The idea was that managers were not acting in shareholders' interests to maximize profits. Theorists suggested all kinds of reasons why this might be so, from inertia and self-interest to community loyalty and even "honor."

One solution eventually dominated all others: markets for corporate control. A new breed of activist investors led tender offers, often hostile, to take over companies whose share prices were regarded as underperforming. Most stockholders responded simply by choosing the highest offer. Leveraging up debt and driving new economies of scale by combining or reorganizing resources were seen as ways to impose discipline on teams of managers and limit their divergence from shareholder-wealth maximization. New compensation and incentive systems linked executive pay to the performance of the company's stock price.