~2 min read The core idea of shareholder primacy is one of duty. The executives of the company should not be using the company to pursue other aims other than for the benefit of the people who invested money in the company. The executives should not be "to employ still more men; to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes" as Henry Ford put it. (Read the first part for context.) It also has been represented as settled case law in the US for a while now. Specifically two things: (1) there is no duty beyond shareholder primacy, and (2) the only thing shareholders could rationally want for you to do is maximize their returns. I contend that these aren't true. But even more broadly, that we don't actually want this. Both as people who found businesses and those who own them and those that buy from or sell to them. If shareholder primacy is indeed the only real duty. It means, in the limit, if I become minority investor in your company, say 0.1%. In many ways, I can be worse than a loan shark. More than just insist that you make me money back, I can insist that forever more that you maximize my return. Indeed, I can't make you as an executive of a company do anything, but I can lobby to get the board changed. I can try to get you as the CEO fired if you don't listen to me. I can tie compensation to share price to align our incentives so you make the stock price go up in the short term via stock buy backs. (Which interestingly used to be effectively banned.) And once I have milked the business for all its worth via various means, I can let it fail. Like say, TWA, Sears, Joanne Fabrics, and many more examples. A broken and empty husk. The choice is often presented more acutely though: let us continue to have a goose that lays golden eggs, a wonderful marvel unto itself, or kill the golden goose now and sell its broken up body now. If the math implies to some particularly nasty super minority investor, that the company will make more money by killing it now, then suddenly, the incentives setup for the board are such to treat your theoretical world as actual, and make it happen. Thus, shareholder primacy ignores that companies exist to do a thing in the world. Certainly, most professional investors would prefer to buy a box that spits out cash on a schedule. They don't really care what the company does. In fact, the "best" investors somewhat ignore it. But these same people are often annoyed by private companies like Valve, Publix, and In-N-Out. They're closely held by a few people and prevented from having these kinds of pressures applied to them, because the people who own them realize the companies exist to do things, not just to make money. To be very, very clear, there's ample evidence that Henry Ford was not actually a socialist. He broke up labor unions and did plenty of other evil things himself. My point isn't to make a hagiography to him. Shareholder maximization even among some of the most celebrated capitalists like Ford wasn't assumed even 100 years ago, and that it is not progress or a betterment of the world to assume that the end all be able of humanity is to make big number go up. — Robert This message is 100% organic human effort, so it will have typos. No, I didn't send it through an LLM to typo check it. It was made with just my fingers and my eyes. |