The Shareholder Delusion

By diderot

April 13, 2019

 
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et’s say you open a small business, and the first dollar of revenue walks through the front door.  What do you do with it?  That’s easy—and mandatory.  You use it to meet expenses. After all, if you don’t make your monthly nut, then everything disappears—poof!

However, once that goal is accomplished, there are decisions to make.  Where do surplus dollars go?  Should you just pocket them?  Or invest to grow your business?  Maybe add new locations—even a new product line? R and D?  What about your employees—do they deserve more?  And then there’s the community where you operate.  Should you connect with it—even serve it--better? Businesses used to consider these options all the time.    

But not anymore. 

If you’re big enough to be a publicly-traded corporation…and include a viable board of directors…there’s only one right answer now: “maximize shareholder value”.


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he term was effectively reinvented in the 80’s, and is often associated with legendary General Electric CEO Jack Welch, who once described it as, “…the dumbest idea in the world.” (He later recanted under pressure from his Wall Street peers.) It didn’t take long for CEOs to adopt it as a universal get-out-of-jail-free card. It’s the solution that erases a lot of mistakes—“I did it for the shareholders!” (For example, it’s the rationale used by the Sackler family and Purdue Pharma to disguise the true strength of Oxycontin from the doctors who they convinced to prescribe it—leading to some 200,000 overdose deaths.) It’s the strategy that gooses your quarterly earnings…maximizes your own compensation…and makes those board members happy. Employ it, alongside the holy grail of “productivity’ (pillage your own workers and destroy their unions), and all is forgiven.


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y complaint about shareholder value isn’t original. Books have been written about it.  It’s been recognized as the gargantuan excavator shoveling wealth out of the middle class and dumping it directly into the coffers of the investor class.

Today, with a moronic president who doesn’t know the difference between a stock market and an economy, people are starting to say ‘enough’. Here are a few data points Trump ignores—but citizens can’t:  

  • While the Dow Jones has climbed, the number of Americans with any financial investment has cratered.  In 2007, 65% of people reported invested assets.  Today that’s plummeted to 52%—thirteen points down in 12 years. 

  • We’re not just talking about stocks.  This number includes IRAs, pensions, HSAs, mutual funds, etc.—the whole thing. Put another way, barely half of us has investments in anything at all.  It’s hard to invest when there’s not enough to pay the bills.

  • This is the corollary to the fact that more than 60% of Americans say they could not absorb an unexpected expense of $1,000.  Medical emergency?  Busted transmission?  If friends and family can’t help, you’re out of luck.

  • Even rich millennials are dumfounded when they discover that not only are sleek corporations like Amazon and Netflix paying no federal income taxes—they’re actually seeking refunds.  Somehow this same math does not calculate for those millennials whose outstanding college loans stretch beyond the financial horizon. 

This is insane…and more people are noticing.


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ost pubic-facing corporations don’t realize that eventually, shareholder value is often self-defeating.  Gouging the middle class ultimately guts yourself.  Relatively few can afford uber-luxury brands. Steal money from the middle of the economy, and it’s no wonder that Sears stumbles along the cliff of bankruptcy.  Ford’s bond rating is one tick above junk status.  Even technology darlings GoPro and Fitbit are said to be nearing extinction. People with little money buy little.  People with loads of money buy what they want—but mainly move their wealth to the sidelines, where it does an economy no good.

Add to that the fact that today we have politicians either bowing without fail to their corporate paymasters…or fantasizing about a new utopia without a map showing how to get there.

The river to a stronger country flows through a wider middle class.  It does not divert to the cesspool of ‘shareholder value’. 

It doesn’t have to be this way. CEOs with the long-range vision and the courage to look beyond their next quarterly earnings report can and have done wonders.

But overall, a former state Attorney General put it best: “the party on Wall Street never ends—while the rest of us pick up the tab and suffer the hangover.”


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