Stakeholder capitalism: Difference between revisions

Shareholders’ interest, in turn, can also be measured along a single, simple dimension: ''profit''. Nothing else matters. The [[professional-managerial class]], and their endemic [[agency problem]], are hemmed in: you can’t hide from after-tax profit.

Since then, things have only got worse for Adam Smith’s conviction. We are cancelling and redrawing the world: let us cancel and redraw our corporate aspirations too. The profit motive is, by design, venal, selfish and riven with [[Unconscious bias|bias]]. Its stampede for profit demonstrates an abject want of care for everyone, and everything, else. And so it has come to pass: “''stakeholder'' capitalism” has displaced [[shareholder capitalism]]. The wider world is the constituency. Greed is not good.

Shareholder capitalism has little to say about [[Externality|externalities]], sure. But ''stake''holder capitalism codifies the [[agency problem]]. It diffuses accountability for anything the corporation does, putting the [[professional-managerial class]] who run the company beyond the reproach of the one stakeholder group with the necessary means, justification, incentive and consensus to call it out: their [[Shareholder|shareholders]].

And “we the shareholders” are [[diverse]] in every conceivable dimension, bar one. Shareholders don’t have to know each other, like each other or care less about each other. On any other topic, their aspirations and priorities will jar, clatter and conflict: if you put a group of them in a room to discuss anything ''but'' their shareholding, do not be surprised if a fight breaks out.

But on that one subject — their company’s performance — they are necessarily aligned: each will say, “whatever else I care about in life, members of the executive board, know this: ''I expect you to maximise my return''.”

''That is not the deal''. The Board are the shareholders’ ''servants'' and don’t — ''shouldn’t'' — get to moralise on their behalf. Besides, to ditch this narrow financial interest is to miss Adam Smith’s single clinching insight. Shareholders may disagree about polar bears. They probably do. They ''won’t'' differ about the value of [[cash]].

''As long as it is all about return, there can be no arguments.''

There is no dog who can eat a [[Chief executive officer|chief executive]]’s homework, no looking on the bright side because employee engagement is up, no consolation in the popularity of the company’s float in the May Day parade: if the annual return disappoints, members of the executive board, ''expect to get shot''.  

But surely, the mighty shareholders need no protection from chief executive officers? Well, in 2018 the Economic Policy Institute mapped CEO compensation against worker compensation and the performance of the S&P500 since 1965.<ref>https://www.epi.org/publication/ceo-compensation-2018/</ref>  It gives a pretty good picture of how shareholders, workers and executives are doing relative to each other.   

So, before we cast the shareholders’ interests down the well, ask this: by switching to stakeholder capitalism, ''[[Cui bono|who benefits]]''?   

As a ''vox pop'' in Bakan’s film puts it: “If you don’t like Pepsi-Cola, Bank of America, well, if you don’t like what they do, don’t use ’em. That’s the way I see the people’s power is.”  

Of course the disenfranchised minorities at the margins need a voice. As we argue [[Critical theory|elsewhere]], an optimal society is pluralistic, tolerant, defends those at the margins and, [[all other things being equal]], prefers their interests when they conflict with a majority that is perfectly able to look after itself. But the question is not ''whether'' to protect their interests, but ''how''.

 

There are plenty of better ways than through stakeholder capitalism: representative democracy, for a start.  

But even so, beyond their shareholding, shareholders are not monolithic investing homunculi: they are ordinary people with disposable income. If they want to beautify the inner city, save polar bears or fight water scarcity, they can do that ''directly''. There are charities whose very mandate is to agitate for just that. That is a far better way to allocate capital. It puts control in the investors’ hands, where it should be. Investors do not need to channel their charitable activity through the medium of their equity portfolio.  

 

Let governments, NGOs, supra-nationals and dedicated charities with resources, expertise and focus deal with water scarcity. If your shareholders care about water scarcity, they can give their disposable resources to water scarcity specialists. That is surely a better way of doing it than buying your stock. And how should those charities and NGOs feel about you competing for their direct funding?