Do we need a new kind of owner?

Moving from shareholder capitalism to stakeholder capitalism


Let’s talk about forms of ownership.

Back in the day, newspapers were privately owned. The newspaper business model was working well.

“When newspaper companies began going public in the late 1960s, the books were opened, and Wall Street was delighted with what it saw,” wrote Philip Meyer in a 1995 article,  “Learning to Love Lower Profits.” “Before technology began to create alternate toll routes,” Meyer pointed out, “a monopoly newspaper in a medium-size market could command a margin of 20 to 40 percent.”

Wall Street wanted in. Private owners began selling to publicly held newspaper companies.* Each time that happened, responsibility for the local daily shifted, from an owner who likely lived in — and cared about — the community the newspaper served, to a fragmented and largely anonymous population of shareholders and a management team that was, and remains, legally responsible for one thing: maximizing shareholder value.

In this era of falling ad revenue, many managers have chosen to maximize shareholder value by cutting costs, including newsroom jobs. (To read about a particularly egregious case, see the July 2015 NiemanLab article  “Newsonomics: Do Newspaper Companies Have a Strategy Beyond Milking Papers for Profit?”)

Not all managers behave that way, to be sure. In Berkshire Hathaway’s 2012 letter to its shareholders, Warren Buffett defended the recent purchase of 28 dailies (see p. 16). Referring to his partner, Charlie Munger, Buffett wrote, “Charlie and I believe that papers delivering comprehensive and reliable information to tightly bound communities and having a sensible Internet strategy will remain viable for a long time.” Buffett made it clear that he doesn’t believe cutting the news staff or reducing the frequency of publication are paths to financial success.

But alas, Buffett and his partner appear to be in the minority.

Is it time for a new form of ownership? Many states are creating one called a benefit corporation. In essence, it gives managers the cover they need to do the right thing — to manage for public benefits beyond shareholder value.

The idea is to move from the shareholder capitalism of the past to the stakeholder capitalism of the future, with the stakeholders including the shareholders, but society, too. It seems like a natural fit for the newspaper business model, and it’s being tried in a big market.

In January, the company that controls The Philadelphia Inquirer, the Philadelphia Daily News and was converted to a public benefit corporation. “Given the purpose of pursuing publicly beneficial goals, such so-called B corporations are protected from demands by shareholders that they maximize profits,” noted.

* 3/23/2016 Addendum — Here’s a sample of how explosive the growth of a public media company could be: Gannett Co, Inc., grew from 28 papers in 1967 (when it went public) to 85 dailies, 35 non-dailies, 16 radio stations, 6 TV stations, the largest outdoor advertising firm in North America, Louis Harris & Associates (an opinion research firm), Gateway Films, and a one-half interest in MacNeil-Lehrer Productions by the end of 1984. [From a paper I wrote for an MBA course in 1985. I used the company’s annual reports as my source.]

Author: TAM

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