Peter Robinson linked to an article on NRO yesterday about the free market approach to global warming. The article discusses solar power company SunPower which is majority owned by Cypress Semiconductor. And, of course, Cypress Semiconductor is run by T.J. Rodgers.
Rodgers became famous in business circles for his 1996 response to “Sister Doris Gormley, OSF of the Sisters of St. Francis of Philadelphia. At the time the Sisters owned Cypress Stock. In the Sister's letter she expressed disappointment that Cypress' Board of Directors had no female or minority members and thus would vote accordingly during the annual shareholder's meeting coming up.”
“Sister Gormley, the Director of Corporate Social Responsibility for the Sisters, stated in her form letter that a corporation "is best represented by a Board of qualified Directors reflecting the equality of the sexes, races, and ethnic groups." She also stated, "We urge you to enrich the Board by seeking qualified women and members of racial minorities as nominees."
Rodgers response is a free enterprise classic which should be taught in every B-school nationwide. I have excerpted the letter below (emphasis added) or you can read it in its entirety here:
Dear Sister Gormley:
Thank you for your letter criticizing the lack of racial and gender diversity of Cypress's Board of Directors. I received the same letter from you last year. I will reiterate the management arguments opposing your position. Then I will provide the philosophical basis behind our rejection of the operating principles espoused in your letter, which we believe to be not only unsound, but even immoral, by a definition of that term I will present.
We would quickly embrace the opportunity to include any woman or minority person who could help us as a director, because we pursue talent -- and we don't care in what package that talent comes.
I believe that placing arbitrary racial or gender quotas on corporate boards is fundamentally wrong. Therefore, not only does Cypress not meet your requirements for boardroom diversification, but we are unlikely to, because it is very difficult to find qualified directors, let alone directors that also meet investors' racial and gender preferences.
I infer that your concept of corporate "morality" contains in it the requirement to appoint a Board of Directors with, in your words, "equality of sexes, races, and ethnic groups." I am unaware of any Christian requirements for corporate boards; your views seem more accurately described as "politically correct," than "Christian."
My views aside, your requirements are -- in effect -- immoral. By "immoral," I mean "causing harm to people," a fundamental wrong. Here's why:
I presume you believe your organization does good work and that the people who spend their careers in its service deserve to retire with the necessities of life assured. If your investment in Cypress is intended for that purpose, I can tell you that each of the retired Sisters of St. Francis would suffer if I were forced to run Cypress on anything but a profit-making basis. The retirement plans of thousands of other people also depend on Cypress stock -- $1.2 billion worth of stock -- owned directly by investors or through mutual funds, pension funds, 401k programs, and insurance companies. Any choice I would make to jeopardize retirees and other investors from achieving their lifetime goals would be fundamentally wrong.
So, that's my reply. Choosing a Board of Directors based on race and gender is a lousy way to run a company. Cypress will never do it. Furthermore, we will never be pressured into it, because bowing to well-meaning, special-interest groups is an immoral way to run a company, given all the people it would hurt. We simply cannot allow arbitrary rules to be forced on us by organizations that lack business expertise. I would rather be labeled as a person who is unkind to religious groups than as a coward who harms his employees and investors by mindlessly following high-sounding, but false, standards of right and wrong.
You may think this letter is too tough a response to a shareholder organization voting its conscience. But the political pressure to be what is euphemistically called a "responsible corporation" today is so great that it literally threatens the well being of every American. Let me explain why.
In addition to your focus on the racial and gender equality of board representation, other investors have their pet issues; for example, whether or not a company:
is "green," or environmentally conscious.
does or does not do business with certain countries or groups of people.
supplies the U.S. Armed Forces.
is "involved in the community" in appropriate ways.
pays its CEO too much compared with its lowest-paid employee.
pays its CEO too much as declared by self-appointed "industry watchdogs."
gives to certain charities.
is willing to consider layoffs when the company is losing money.
is willing to consider layoffs to streamline its organization (so-called downsizing).
has a retirement plan.
pays for all or part of a health-care plan.
budgets a certain minimum percentage of payroll costs for employee training.
places employees on its Board of Directors (you forgot this one).
shares its profits with employees.
Despite our disagreement on the issues, The Sisters of St. Francis, the ethical funds, and their investors are merely making free choices on how to invest. What really worries me is the current election-year frenzy in Washington to institutionalize "good ethics" by making them law -- a move that would mandate widespread corporate mismanagement.
But the following analysis of this proposal underscores the fact that the simplistic solutions fashioned by politicians to provoke fear and anger against America's businesses often sound reasonable -- while being fundamentally wrong.
In conclusion, please consider these two points: First, Cypress is run under a set of carefully considered moral principles, which rightly include making a profit as a primary objective. Second, there is a fundamental difference between your organization's right to vote its conscience and the use of coercion by the federal government to force arbitrary "corporate responsibilities" on America's businesses and shareholders.
Cypress stands for personal and economic freedom, for free minds and free markets, a position irrevocably in opposition to the immoral attempt by coercive utopians to mandate even more government control over America's economy. With regard to our shareholders who exercise their right to vote according to a social agenda, we suggest that they reconsider whether or not their strategy will do net good -- after all of the real costs are considered.