The sale of Tribune Tower and a worry about the future of American capitalism

Tribune Tower in 2009 (author’s own work)

The successors to the Tribune Company have sold the landmark to a real-estate developer for $240 million. The two successor companies to the original Tribune Co. (one for newspapers, the other for broadcasting) will both operate from the building for at least a while longer, but they’re now tenants, rather than owners.

The story in and of itself doesn’t necessarily mean much. But it is symbolic of two trends taking place in American business: One is the shift to an asset-light framework, the other is the demise of great proprietor-owned institutions.

Asset lightness (that is, renting, leasing, or contracting out the things that allow a company to run, rather than owning them outright) seems like an odd strategy in a time of near-zero interest rates (and it may have other substantial shortcomings), but it is in vogue.

The demise of proprietor capitalism, though, is more disturbing and may undermine some important aspects of our national character that could make America much stronger in the future. There aren’t a lot of great family fortunes that are still tied to businesses run by the families as well. These dynasties have been replaced by venture capitalists, professional managers, and public shareholding.

But the problem is that in the long run, anything other than proprietor capitalism runs a very high risk of succumbing to the problem of diffusion of responsibility. If everyone is just a fractional shareholder, then nobody’s really in charge. If managers aren’t really owners, then their interests are hard to align with those of the owners. If the objective is to cash out with a big IPO or some other short-term exit strategy, then nobody is really looking at the long run.

This is not to say that every business should be privately-held, run by a family, and operated according to a 100-year business plan. But if nobody feels a compelling responsibility to a business as an institution worthy of preservation and improvement over a long period of time, then it’s hard to see what incentive is created to make good long-run decisions. That’s a problem for customers, employees, suppliers, and shareholders, each in their own way. And it’s probably no good for a country that once depended upon companies like Tribune to contribute to the civic stature and well-being of their communities.

[cross-posted from my personal site]