Business Worried About Growing Anti-Corporate Consciousness

Business Week
September 11, 2000
Section: Cover Story; Number 3698; Pg. 144
Too Much Corporate Power?
Byline: By Aaron Bernstein; With Michael Arndt in Chicago, Wendy Zellner in
Dallas, and Peter Coy in New York

Amid the good times, citizens feel uneasy about Big Business. The growing
political issue is one that companies ignore at their peril

The U.S. has rarely been as buoyant as it is today. The golden economy
has delivered years of plentiful jobs and soaring incomes -- after decades
of going sideways. From janitors to dot-com billionaires, almost everyone
is feeling the flush times. Paychecks are rising, and wealth is piling up
on a scale unimaginable just a few years ago, when the U.S. struggled
through the recession of the early 1990s. Even many of America's worst
ghettos are seeing an influx of investment and jobs.

Most Americans recognize that Corporate America gets much credit for the
good fortunes. A solid two-thirds of the U.S. public gives companies kudos
for today's prosperity, according to a BUSINESS WEEK/Harris Poll released
on Aug. 31. About the same number say large corporations make good products
and compete well in the global economy.

Yet amid the good times, Americans feel uneasy. BUSINESS WEEK's poll shows
that nearly three-quarters of Americans think business has gained too much
power over too many aspects of their lives. In a response that surprised
the pundits, the public seemed to rally around the sentiment expressed at
the Democratic convention, when Al Gore declared that Americans must
''stand up and say no'' to ''Big Tobacco, Big Oil, the big polluters, the
pharmaceutical companies, the HMOs.'' Gore sensed the frustration of many
voters and their desire to blunt some of the power of business, crafting a
new campaign strategy that so far is working (page 150). Indeed, 74% of
those polled by BUSINESS WEEK agreed with the Veep's remarks.

Gore's neo-Populist rhetoric has tapped a vein of discontent. Consumers are
seething about insensitive corporate behavior. And that is only adding to a
souring of attitudes toward large companies. While Americans give companies
their due for producing more wealth and higher incomes, only 47% think that
what's good for business is good for most Americans, according to BUSINESS
WEEK's poll. And 66% think large profits are more important to big
companies than developing safe, reliable, quality products for consumers.
Adding to the disenchantment is the perception that companies often buy
their way into government: Witness the success of Senator John McCain
(R-Ariz.) in pushing for campaign-finance reform during his Presidential
run. ''There's a widespread sense of unfairness and distrust today, where
people think companies are not quite playing by the rules,'' says Ruy
Teixeira, a polling expert at the Century Foundation, a Washington think
tank.

So how is it that Corporate America is both hero and villain? Oddly enough,
part of the anticorporate mood may be a consequence of the rip-roaring
economy itself. Now that Americans' material needs are so well satisfied,
they have the luxury of focusing on their quality of life. Just as U.S.
companies claim to be the architects of the boom, so too are they held
responsible for its excesses and failings. ''The slippage in service --
it's almost epidemic, across every aspect of our lives,'' fumes Anne
Zenzer, an executive recruiter in Oak Brook, Ill., who flies 100,000 miles
a year, mostly on United Airlines Inc. -- notorious these days for delays.

The revved-up New Economy has also left many families feeling overworked
and stressed out. The sticking point in last month's strike at Verizon
Communications was workers' complaints about burnout and mandatory
overtime, which management finally agreed to limit. At the same time, many
Americans feel they're not getting their fair share of the riches. The
reason: Average wages and benefits have outpaced inflation by only 7.6%
since the last recession ended in 1992, while productivity has jumped by
17.9%. The gap between the rich and the poor also grates on many
middle-class people. Chief executives inflame matters by granting
themselves multimillion-dollar pay packages, which 73% of the public sees
as excessive, the poll shows. NO REINS. Indeed, corporate leaders are
perceived as insensitive and more concerned with profits than with those
they're supposed to be serving. ''Some companies get big, they get
arrogant, and they lose touch with the community,'' concedes Jerry
Jasinowski, head of the National Association of Manufacturers. Part of the
problem is that no one's reining in business anymore. Most of the
institutions that historically served as a counterweight to corporate power
-- Big Government and strong unions -- have lost clout since Ronald Reagan
came to town crusading for deregulation and local control. The conservative
ascendancy that followed discredited much of the New Deal social structure,
leaving corporations to fill the vacuum, says Boston College sociologist
Charles K. Derber, author of a 1998 book, Corporation Nation: How
Corporations Are Taking Over Our Lives And What We Can Do About It.

It's this power imbalance that's helping to breed the current resentment
against corporations. Some experts draw analogies to a previous period of
unchecked corporate power -- in the late 1800s -- when the opening of the
wide-open frontier economy and robber-baron capitalism gave rise to the
Populist movement. Such raw anticorporate sentiment was on display in this
summer's Big Tobacco trial in Miami. When it ended, the foreman of the jury
that delivered a $ 144.8 billion punitive-damage judgment against the
industry took the opportunity to speak out, saying the jurors' deliberate
intention was to ''put the companies on notice -- not just the tobacco
companies, all companies -- concerning fraud or misrepresentation of the
American public.''

For Corporate America, there is danger in the new climate: In a word,
renewed government regulation. For two decades, market deregulation has
fostered competition and lowered many prices. But the pendulum may have
swung too far for many citizens, who now take the gains for granted and
want to dampen the extremes that can come with unfettered capitalism.
Already, Washington is making noises about curbing megamergers, regulating
health-maintenance organizations and drug prices, imposing new rules on
airlines, and capping energy rates in cities such as San Diego, where costs
skyrocketed after the city deregulated its utilities.

Unless companies placate critics, they may prod politicians into more
government intervention. While Gore's new pitch undoubtedly involves some
calculated appeal to the liberal base of the Democratic Party, he also may
have to deliver on some of the promises if he's elected. Certainly, the
pressure to rein in companies isn't likely to let up anytime soon. Just
look at longtime consumer advocate Ralph Nader, who in his Presidential
campaign has zeroed in on companies as the bad guys responsible for many of
the nation's ills (page 152). ''There's an increased readiness to believe
negative things about corporations today, which makes it a dangerous time
for companies,'' warns Daniel Yankelovich, chairman of pollster DYG Inc.
''Executives haven't had to worry about social issues for a generation, but
there's a yellow light flashing now, and they better pay attention.'' OUT
OF CONTROL. Another risk for Corporate America is weakened support for free
trade. At home and abroad, citizens facing globalization worry that
powerful corporations override national sovereignty and can undermine
political and monetary systems. On Aug. 25, Federal Reserve Chairman Alan
Greenspan warned the annual gathering of central bankers in Jackson Hole,
Wyo., that the ''unease about the way markets distribute wealth'' could
cause the ''latent forces of protectionism and state intervention'' to
reassert themselves, both in the U.S. and other countries. The French have
made a hero of the farmer who lashed out at McDonald's Corp., not so much
because they hate the fast-food company but because many think
multinationals crush local culture. McDonald's executives say they see few
effective ways to combat this attitude, except to emphasize local
franchises' neighborhood roots. ''It comes with the turf,'' laments
McDonald's Vice-Chairman James R. Cantalupo. ''I don't know if you ever get
over it as long as you are the No. 1 brand.''

Similarly, the Asian crisis drove home the loss of control many citizens
feel when companies and investors upend the money supply or yank investment
dollars at a moment's notice. Europe has had even more demonstrations than
the U.S. against corporate-driven globalization. World Bank and
International Monetary Fund officials are bracing for another round when
their annual meetings open in Prague on Sept. 19. ''The whipping boy is the
corporation because it's the leading agent of change in the new global
markets being created,'' says Boston College's Derber.

Also at play, at least in the U.S., is a shift in cultural norms. Put
simply, it's becoming fashionable to be anticorporate. The sudden
prevalence of the dot-com companies, with their sneakers and parrots in the
office, have led many professionals to turn against the hierarchical,
buttoned-down environment of Corporate America. In today's tight labor
markets, even Wall Street and white-shoe law firms have ditched pinstripes
for slacks and sweaters, hoping to stanch the flow of talent to the online
world. Madison Avenue, too, sees chic in the anti-big-corporation fad. A
recent ad for financial consultants Salomon Smith Barney -- whose parent,
Citigroup, is a monster conglomerate if ever there was one -- plays off the
dot-com sensibility that derides business-suited executives, saying:
''Suits aren't necessarily bad. When they're working for you.''

Anticorporate feelings are seeping into popular entertainment, too. Rock
musicians and other artists have always identified with the counterculture,
but today they are rebelling against the clout of media and retail
companies. Many artists perceive their decisions not to buy ''offensive''
material as corporate censorship. And Hollywood has seen a spurt of movies
that portray companies as sinister baddies (page 158). All the negative
imagery tarnishes Corporate America's legitimacy.

To some degree, corporations are victims of their own success. In the past
decade, they have created global brand names by cultivating emotional
connections with consumers that go beyond products. In the process, they
raise consumers' expectations about their favorite companies -- making them
sitting ducks. ''Multinationals like Nike, Microsoft, and Starbucks have
sought to become the chief communicators of all that is good in our
culture: art, sports, community, connection, equality,'' asserts Naomi
Klein, author of No Logo: Taking Aim at the Brand Bullies, a book that
documents youth rebellion against the pervasiveness of brand names. ''But
the more successful this project is, the more vulnerable these companies
become'' to attacks on their image.

When brands do wrong, she argues, loyal consumers feel betrayed, much as
fans turn against a fallen movie star or sports hero. All those college
students who show up at demonstrations against globalization see
corporations such as Nike Inc. as self-serving organizations that violate
human rights and pollute the earth. Even teens think it's cool to hate
corporations. Suburban 13-year-olds accuse Starbucks Corp. of driving local
coffeehouses out of business and sport T-shirts that say: ''Friends don't
let friends drink at Starbucks.'' Says Irene Krugman, an 11th grader who in
1998 helped to start the Student Committee Against Labor Exploitation at
her New York high school: ''I still shop at those brand-name stores, but I
feel really guilty about it.''

Whether they admit it or not, corporate chieftains are certain to be
watching this trend closely. Citizen attacks on corporations have been
surprisingly effective, and many executives have seen how stonewalling and
defensiveness have boomeranged. In some cases, the criticism intensifies,
with the potential to damage brand images and sales, undermine companies'
standing with regulators and politicians, and, ultimately, whack a
company's stock price. Yet some of the moves critics find the most
egregious are the ones managers say they're forced to use to compete, from
downsizing to in-your-face ad blitzes to political lobbying.

In a few cases, companies have realized that the new climate requires a
response before a consumer backlash spins out of control. Last April, for
example, after months of protests by human-rights and student groups,
Starbucks agreed to buy coffee from importers who pay Third World farmers a
premium over world market prices. In mid-May, 3M said it would voluntarily
stop making Scotchgard, a 40-year-old product with $ 300 million in sales,
after 3M tests showed that the compound didn't decompose in the
environment. And in late August, McDonald's tried to head off concerns
about the treatment of animals through regulations for farmers who provide
it with 1.5 billion eggs a year. ''Corporations have to prove themselves,''
says John P. Rowe, CEO of Unicom Corp., a Chicago utility that has spent
$1 billion to improve service after huge blackouts last summer. ''Don't
promise the moon, but don't promise so little that any damn fool could
deliver.''

If today's anticorporate backlash is more low-key than the counterculture
revolution of the 1960s, it may be even more dangerous for Corporate
America. Back then, antibusiness attitudes were restricted mostly to youth
and college students. And they were just one element of a broader
generation gap that led baby boomers to reject the entire Establishment,
from its sexual mores to the Vietnam War and the military-industrial
complex. Today, those Americans angry at corporations cut across
generations, geography, and even income groups. And the Net amplifies the
power of the tech-savvy discontented who use it the way the colonists used
Paul Revere, getting out the word about the most recent outrage or expose.
''With the Internet, information flows instantly, so even if we don't have
more people concerned about companies, those who are can do more about
it,'' says Harvard University labor economist Richard B. Freeman.

Also unlike the 1960s, students today aren't necessarily antibusiness: The
e-mail that anti-sweatshop activists send to muster rallies flashes with
ads. But that doesn't preempt protesters from targeting companies they deem
offensive -- no matter how benign their products seem to be. ''We suffer
from not enough people knowing what we do [with philanthropic causes],
because we can't beat our own drum too loudly, for fear of weakening the
trust that we do have,'' laments David Olsen, Starbucks' senior
vice-president for corporate responsibility.

And once activists have lost faith in a company, it can be hard to rebuild
confidence. Tobacco companies have been so vilified that they may never
regain the tolerance they enjoyed just a few years ago. Now, HMOs have
become the whipping boy for a public fed up with bureaucratic decisions and
lousy health care; 43% of Americans give HMOs poor marks at serving
customers, according to the BUSINESS WEEK poll, a rating as bad as tobacco
received. For several years, critics have hammered the industry with
gut-wrenching stories like those of Ian Malone, the baby Gore introduced to
the Democratic convention, who was denied coverage for a full-time nurse he
needed after he was injured at birth by a medical error. LISTEN TO ME. Such
tales have put HMOs on the defensive in Congress, where the industry has
been battling furiously against a bill granting patients the right to sue
health-care providers. HMOs concede that more regulation is needed to give
patients a way to challenge corporate health-care decisions. But they want
to avoid fat jury awards with a system of independent reviews. ''The
logical extension of the demonization of HMOs is to push the problem into
the courts, but employees will lose if costs go up and their employers
can't afford to cover them anymore,'' warns Karen M. Ignani, president of
the American Association of Health Plans, the industry's trade group in
Washington.

Mistrust of big companies -- and a feeling that they listen to citizen
complaints only when forced to do so -- is a common refrain among critics.
Take genetically modified foods. Initially, the industry brushed off the
so-called Frankenfoods complaints, arguing that no scientific studies had
validated critics' concerns about health or environmental hazards. But over
the past year, hundreds of protesters have descended on Food & Drug
Administration hearings. This summer, potato giant J.R. Simplot Co., a
major McDonald's supplier, told its farmers to stop growing Monsanto Co.'s
genetically modified ''NewLeaf'' potato, bred to resist insects. Overall,
the U.S. acreage of biotech corn and soybeans has leveled off after several
years of explosive growth, according to the Agriculture Dept. biotech
setbacks were one reason industry leader Monsanto saw its stock fall,
leading to its acquisition by Pharmacia Corp. in March.

Executives even occasionally admit their mistakes. In an extraordinary
essay, The Welcome Tension of Technology: The Need for Dialogue about
Agricultural Biotechnology, published in February by Washington University
in St. Louis, former Monsanto CEO Robert B. Shapiro wrote: ''We've learned
that there is often a very fine line between scientific confidence on the
one hand, and corporate arrogance on the other.'' Shapiro, now the
nonexecutive chairman of Pharmacia, added: ''It was natural for us to see
this as a scientific issue. We didn't listen very well to people who
insisted that there were relevant ethical, religious, cultural, social, and
economic issues as well.'' LOCAL HEROES. Similarly, many residents upset
about urban sprawl feel ignored by the big companies they battle. When
Kmart Corp. set out last year to build a 100,000-square-foot superstore in
South St. Louis, local citizens feared that a big box store would destroy
small businesses and ruin the pedestrian scale of the neighborhood. A group
of 20 neighborhood associations swung into action against the chain. The
group, called the Southtown Coalition, defeated Kmart before the local
zoning board earlier this year by going door to door with a petition and
packing board hearings with 150 to 300 people. Southtown, which has been
talking with smaller stores about developing the location, brought the
troops out again on Aug. 23 after Kmart reapplied to a city appeals board.
''This is a multibillion-dollar corporation trying to shove a big box down
our throats,'' charges Kerri Bonasch, a marketing manager and resident who
volunteers at the coalition.

After hundreds of battles nationwide, local antisprawl groups such as the
Southtown Coalition now have a sophisticated body of knowledge about how to
mount zoning battles and pass referendums to restrict store size. Activists
haven't stopped big stores in their tracks, but they have blocked them in
more than 120 locations, estimates Al Norman, the head of Sprawl-Busters, a
nonprofit group. Some 40 or 50 such clashes are going on at any one time
today, more than triple the number of a few years ago, he says. Perhaps
three-quarters of the battles involve Wal-Mart Stores Inc., followed by
Home Depot Inc. ''The citizen's movement is costing the industry millions
of dollars in lost sales, and at least $ 200,000 to $ 300,000 to campaign
against us in each battle,'' says Norman.

Wal-Mart CEO H. Lee Scott Jr. says that ''without a doubt'' his company
faces more challenges to new stores these days, even though it wins many
battles. A company spokesman estimates that activists block at least two to
three new stores a year. Concedes retired CEO David D. Glass, now chairman
of the Wal-Mart board's executive committee: ''Retailers need to be more
responsible to look and see if problems are being created'' by big-box
stores. ANGRY MOMS. Some of the most extreme anticorporate language comes
from parents opposed to advertising in schools. Many object to exclusive
marketing deals signed by Coca-Cola Co., PepsiCo Inc., and other companies
that pay schools for the right to sell their products in the classroom.
Channel One Network became a target of their ire as soon as it was launched
a decade ago. A unit of Primedia Inc., the service offers schools money,
supplies, and programming in exchange for the right to beam ads to students
on its classroom TVs. Some 12,000 schools have accepted the deal -- but far
from diminishing over time, the battles have become more intense.

When Diane Gramley, a mother of five, discovered last year that the
Franklin (Pa.) high school her children attend carries Channel One, she
formed a group with other parents. They agitate at every school board
meeting to end the arrangement, distribute flyers by the hundreds, write
op-ed pieces in the local paper denouncing the company, and now plan to
petition parents to get rid of it. Like other Channel One foes, the parents
object to their children's exposure to commercials at school. They also
argue that the company's educational programming is mostly a waste of time
that diverts children from their studies. ''This is a big company preying
on my children,'' says Gramley.

Similar battles are going on in hundreds of communities, says San
Francisco's Center for Commercial-Free Public Education. The group, which
provides resources to grassroots groups like Gramley's, says it gets some
100 requests a month for help. Channel One Network Affairs Executive
Vice-President Jeffrey H. Ballabon dismisses all the attacks as the work of
a small number of groups. He points out that 98% of schools renew their
contracts to carry the station.

Assaults from citizens groups are bad enough, but for most executives, the
most potentially hazardous attitudes lie with their own employees. The best
economy in 30 years has brought a bounty of jobs and exuberant consumer
spending. The competitive wars against Europe and Japan of the 1980s and
1990s have been won. But many employees in Corporate America think they're
being worked to the breaking point by CEOs who aren't sharing the wealth.
Last year, 43% of workers at large corporations said they ''find it very
difficult to balance my work and personal responsibilities,'' up sharply
from 36% in 1997, according to Chicago's International Survey Research
(ISR), which surveys employees at hundreds of large companies annually.
Meanwhile, 44% said that they are ''very much underpaid for the work I
do,'' up from 38% two years earlier.

Such feelings reflect the stark discrepancy between the high productivity
rate the U.S. economy has achieved in recent years and the slower pace of
wage gains. This is one reason an astonishing 40 million employees say they
would vote in a union today if given the chance, double the number of a
decade ago, according to pollsters Peter D. Hart Research Associates.
Organizing drives have ticked up in recent years, forcing companies to
fight harder to fend off unions. But even though management still usually
wins such battles, today's labor-short economy means that disgruntled
employees have more options and can jump ship if companies don't respond to
demands for higher pay.

Certainly, soaring profits and high CEO pay have embittered many employees
who feel squeezed. Just ask Reed T. Hinchliffe, a 20-year veteran at
Raytheon Co. The 58-year-old computer engineer stood up at the company's
annual meeting in April and demanded that CEO Daniel P. Burnham return his
$ 900,000 bonus because the company lost $ 181 million in the first quarter
and its stock was trading at 20, down from a high of 76 last year. Burnham
refused. ''I asked him how he justifies this, but he just said: 'I intend
to keep it,' like I was a peon and should shut up and leave him alone,''
complains Hinchliffe. He says he has personally talked to about 300 of the
600 people at his unit, a Defense Dept. computer complex in Northern
Virginia, and ''they're virtually all ticked off.'' A Raytheon spokesman
says Burnham told Hinchliffe that he respected his point of view.

Several factors have contributed to the ascendancy of the corporation in
the past decade or so. The fall of communism and the triumph of Western
capitalism set the stage, as did the rollback of government in the U.S. But
mostly, it's the incredible success of the economy that allows companies to
wield enormous power in American society today. With that power, however,
comes added responsibility. Corporate executives would be wise to deal with
the burden -- and take care to avoid the hubris that so often accompanies
heady success. If they don't, a growing number of Americans stand ready to
call them to account.

For additional stories, go to the Sept. 11 issue online at
www.businessweek.com. York

SOME POINTS OF FRICTION ARTISTIC CONTROL
Rock musicians, indie filmmakers, and other artists are rebelling against
control by big media and retail companies.
BRANDS
In-your-face marketing campaigns have sparked antibrand attitudes among
students.
CEO PAY
Nearly three-fourths of Americans see executive pay packages as excessive.
COMMERCIALISM IN SCHOOLS
Parent groups have mounted battles in hundreds of communities against
advertising in the public schools.
CONSUMERISM
Anger and frustration are mounting over high gasoline and drug prices, poor
airline service, and HMOs that override doctors' decisions. The latest
fiasco: faulty auto tires.
FRANKENFOODS
Europeans' skepticism about genetically modified food is taking hold in the
U.S., making targets of companies such as Monsanto.
GLOBALIZATION
Environmentalists, students, and unionists charge that global trade and
economic bodies operate in the interests of multinational companies.
POLITICS
Public revulsion over the corporate bankrolling of politicians has
energized campaign-finance reform activists.
SWEATSHOPS
Anti-sweatshop groups have sprung up on college campuses; they routinely
picket clothing manufacturers, toymakers, and retailers.
URBAN SPRAWL
Groups in more than 100 cities have blocked big-box superstores by Wal-Mart
and other chains.
WAGES
Some 56% of workers feel they are underpaid, especially as wages since 1992
have topped inflation by 7.6%, while productivity is up 17.9%.