American liberals long hailed Warren Buffet as a model of the enlightened executive. He’s pledged to give the vast swath of his wealth away, insisting that his descendants should have to work hard to earn their keep. He’s donated millions to democratic politicians such as Barack Obama and Hillary Clinton. And, probably most significantly, he’s consistently advocated for higher taxes on the rich and on corporations. He famously said “I prefer liquor store robbers with hungry kids to companies that locate offshore to avoid U.S. taxes.”
However, despite all the progressive credentials, Buffet and his Berkshire Hathaway have failed to keep up with liberal orthodoxy, according to a recent article in the New York Times. Here’s an excerpt that explains what exactly puts Buffet at odds with his progressive-minded corporate counterparts:
“Yet as the Berkshire faithful gather for their annual meeting in Omaha on Saturday, Mr. Buffett is decidedly out of step with the progressive orthodoxy in corporate boardrooms. To Mr. Buffett, boards’ rightful role is, as ever, to serve the shareholders who have risked their capital. Institutional investors such as BlackRock’s Larry Fink have pushed E.S.G. — or environmental, social and governance — investing to turn corporations into agents of progressive change.
Scores of corporations have in the last few years adopted climate and diversity policies. The Business Roundtable, a chief executives group, proclaimed it no longer believed that corporations exist principally to serve shareholders. This is a little like the Communist Party dropping its primary allegiance to workers.
Mr. Buffett is having none of it. He is socially conscious and over the years has expressed concerns on topics as varied as inflation and nuclear proliferation. But he is dismissive of social governance warriors seeking to hijack the corporate mission. Most such critics represent institutions. Mr. Fink, mutual fund groups like Vanguard and state pension funds manage other people’s money — they advocate their opinions, not their purses. Mr. Buffett feels a greater allegiance to shareholders who purchased stock as he did — with their own cash.”
Reading this article, I found myself wondering whether Buffet’s management theory translated in the utility business. Are utilities best when they serve shareholders, or should they try to balance the pursuit of profits with the interests of the public?
The simple answer is that utilities should pursue the interests of their shareholders, but that they should be reigned in by regulators to keep their interests in line with those of the consumers. The problem, of course, is that regulators don’t always share the same interests as consumers, even if they claim to. This is evidenced by rapid shifts in regulator goals we witness with every administration change. In short, regulation is heavily politicized.
The increased politicization of public utility regulation has negative consequences for regulation as an institution. First, it leads to more special-interest influence, which may co-opt the public interest. Second, regulators increasingly emphasize the effects on the local environment, climate, job creation, and economic development, resulting in less concern for customers. Third, increased politicization raises the likelihood of subsidies and the socialization of costs for new investments, which can cause serious harm. Subsidies of any form almost always fail a cost-benefit test from a public-interest perspective.
A small libertarian in me is saying that if the regulatory system is broken, it should be simply done away with. But that impulse is misguided. If something isn’t working as intended because it’s become politicized, the solution is to depoliticize it. Regulation still holds the promise to keep utilities loyal to the interests of society. While I’m sure of good regulation’s necessity in today’s power landscape, I have no idea how to make it good. Any ideas?