The contention that the shareholders own companies is based, at best, on lack of understanding of the law, of business, and of history. At worst, it is driven by greed, power, and the desire to protect a business governance that has devastated much of America for some 40 years.
Why, you might ask, is the issue of who owns the corporation so vitally important? Because at the heart of the debate between two versions of capitalism lies controversy. One side feels a deep need to protect the interests of the shareholder first and foremost. The other side feels the pain that comes from de-prioritizing the other stakeholders in a corporation – including its employees, customers, and the community in which it lives.
In truth, the shareholder almost certainly will do as well with either version of capitalism. Change is always hard and threatening to those wanting to protect the status quo even if it won’t cost them a thing. But I contend there is a problem with the status quo, with the current version of capitalism, which serves the shareholders well, but has proven to be catastrophic for the vast majority of the American people and detrimental to American competitiveness on the global stage, particularly in our economic rivalry with China.
Further, it is now proving to be a major threat to our democracy. Thus, a change away from shareholder primacy capitalism must be made decisively and with utmost urgency. The defense of the status quo—shareholder primacy governance—rests increasingly on the rationale that the shareholders are the true owners of the corporation and therefore have the right to demand whatever is in their best interest.
But before we blindly adhere to that idea, it is vital we examine these versions of capitalism, the experience the nation has had with each; and why the issue of corporate ownership becomes an important – if not central — consideration.
Capitalism And Its Multiple Versions Of Governance
The ferocious debate in the U.S. today is really between two forms of capitalism. Not of capitalism itself which continues to be the most powerful economic engine ever created by humankind. Capitalism by itself with access to needed resources, including capital, labor, and a sustainable supply chain and embracing the principles of prudent risk taking, wise apportionment of incentives and rewards, and a commitment to practical long-term investment—acts like a brilliant inanimate engine.
It has no ethical or moral components. And that’s why the governance, the rules of engagement, become so very critical. Vitally, governance identifies the beneficiary of this amazing capitalist engine. In China, the capitalism engine is working brilliantly given what China intended. And there, the major beneficiary of much of the value creation goes to the Communist government. In some Nordic European nations, capitalism rewards both shareholders and, through taxes, government projects which provide citizens with some combination of free education and/or free healthcare. Much of Europe, through taxes, has a very elaborate societal safety net. But the engine is still primarily free enterprise capitalism.
Shareholder Primacy Capitalism
In the United States, the governance for the last 40 years has been clearly committed to give the shareholder priority over any other company stakeholders. This is the concept of shareholder primacy every CEO and board director knows: The purpose of business is to maximize short-term shareholder value. Recently, it has been contended that this is fair and just because the shareholders own the company.
The other stakeholders, for the last four decades, became secondary: the customers, the workers, the corporation itself, the vendors, community, the planet. Even in this system, the capitalist engine worked magnificently. As intended, it drove short-term shareholder value to unimaginable wealth and prosperity. The other stakeholders became deprived and exploited. And the guardians of this governance became the financial community which enforced the system with aggressive brutality.
The CEOs and others in the C-suite of top corporations became corrupted by equally unimaginable compensation, as long as they delivered on this shareholder demand. And if they couldn’t or didn’t do it, they were summarily dismissed. If and when the CEOs and boards of directors tried to deviate from this strict behavior, the company was punished by the financial community which has the power to drive down the company’s price in the stock market.
Before the pandemic, Bank of America downgraded Chipotle’s stock because an analyst decided the company was paying its workers too much. As a result, the company’s price declined by 3%. When American Airlines announced pay raises for its pilots and flight attendants, Wall Street punished the company by dropping its stock price 5%. The message sent to the market was clear — workers were to be squeezed and the benefits belong to shareholders. So, for 40 years workers’ wages have been relatively flat sitting at, or often below, inflation.
Lastly, in the past decade, shareholder primacy expanded the intensity of activists who acted like terrorists, blackmailing and terrorizing CEOs and corporate boards alike. Historically, activists have served the business community well. Often, they worked with management to help increase value creation. Occasionally, they did take over the company with intention to hold the stock and capitalize on the inherent, but previously underperforming, value creation.
But this new group of activists employ a different strategy. They take over the company, take out the cash, cut R&D, fire as many people as possible and in the shortest possible time, flipping the company after taking it public or selling the corpse to a strategic buyer. All in the name of maximizing short-term value. Of late, they don’t even have to take over the company. They buy in to the target company and threaten to run their standard play if the company will not “voluntarily” provide that extra short-term value at the expense of all the other stakeholders.
Another brutal tactic to drive shareholder value is the tax efficient practice of stock buybacks. Trillions of dollars have been created to benefit current shareholders in the stock market by reducing the number of available shares. This artificially increased the value of the remaining shares, without creating organic value to the enterprise. This is financial engineering at its best. (Prior to 1982, stock buybacks were illegal and were considered stock manipulation.)
Before the pandemic, 54% of business’ operating profits went to shareholders through stock buybacks and an additional 37% were distributed in dividends. Some 90% of American businesses’ operating profits ended up with shareholders. As a result, 25% of Americans by income, almost all shareholders, came to own close to 98% of the value of the stock market.
In the first four months of 2021, the stock buybacks practice continued and recorded the highest levels in 20 years. And what a negative impact this extraordinary use of operating profits turns out to be. Workers are grossly underpaid. And corporations that used to lead the way by investments in R&D and basic research were starved by this choice. America used to be the leader in technology, transportation, semiconductors, computers, medical science and more.
For example, America invented synthetic biology but now we trail Chinese scientists. And where are we on 5G technology? In a recent interview, Intel CEO Pat Gelsinger cried out, “Our competition is out to eat our lunch. And if we don’t fight for it, every single frickin’ day, we are at risk of losing it.” Government investment support continues to be anemic as well. Simply put, business must step up. Because right now we’re setting stock buyback records. We are world champions at this, indeed.
But the most cruelly treated victims of shareholder primacy were the workers. Their unfair, unjust, and unreasonable wages created a catastrophic microeconomic disaster. It affected families; it created an unequal quality of education which placed American kids at the bottom half of the developed world. It also catapulted America as the most unequal nation with the most immobile society among peer nations. Just one more fact.
Prior to the pandemic, some 60% of American homes had to borrow money most months to put food on the table, or to pay to keep from losing the roof over their heads. So, this is the fallout from the shareholder primacy system. A perverse version of capitalism that the shareholder community today is fighting to protect. And it’s finding some allies in Congress as well, who are the recipients of huge contributions to their reelection campaigns.
Another serious impact of four decades of shareholder primacy is our democratic way of life. The affected Americans are losing hope in our government’s ability to be fair and just. Populist forces have exploited this group and authoritarian forms of government sprang forth in various parts of the world in the last 40 years (Turkey, Hungary, Poland). The same movement has been active and threatening our democratic institutions here in the United States.
This unjust version of capitalism is the driving force that created our vast socio-economic inequality here at home. It must be noted that the most egregiously affected and deprived groups in our society have been the black and brown communities as the Covid-19 pandemic so tragically demonstrated.
But if the shareholders do not own a public corporation, how can one continue to defend such a flawed and damaging form of capitalism? And this is why the question of who owns the corporation becomes an important part of why a better, more just, more balanced form of capitalism is absolutely America’s best choice moving forward.
So, Who Really Owns The Corporation?
Simply and clearly, the corporation owns its own assets. In the simplest terms, a private company became a public company when the original owners gave up ownership. In turn, they received a stock certificate outlining certain rights to profits and other privileges. What they got, again, was a stock certificate not a certificate of ownership. The word “ownership” does not appear in that document.
Additionally, while the shareholders are entitled to a portion of profits, as shareholders, they are no longer exposed to liabilities of the companies in which they hold shares. They are granted, in essence, total immunity! Furthermore, the shareholders can come into a stock whenever they want, and leave when they want (with very, very few exceptions). In today’s world, the stock owner may be a machine and shares may be held in a timeframe of milliseconds.
To me, these facts are ample and logical evidence that preclude a shareholder from being a true owner. Do you know any business “owner” large or small who assumes no risk or liability? I highly doubt it. Legally, there is no evidence that stakeholders are owners. No law – absolutely none— can be found which states that shareholders own the corporation.
In her 2012 book The Shareholder Value Myth, Lynn Stout, who taught at Cornell University Law School, successfully argued that shareholders don’t own the company – this was the foundational insight of that book. The lie being purveyed was that the law required companies to serve shareholders with as much profit as quickly as possible. She was quick to dispel the notion, citing three core reasons:
- Directors of public companies aren’t required by law to maximize shareholder value. Companies are formed to conduct legal activities, that’s all, and profit is not a mandatory requirement, though profitability is always an advantage.
- Directors of a company have full control of it. Shareholders have no legal right to govern the activity of a company for their own benefit. Directors can decide to reduce, not increase share price, if they believe it’s in the best interest of the company itself.
- Shareholder primacy, where short-term profits are the primary goal, often leads to tragic consequences for the common good.
How prescient Stout’s comments turned out to be.
For those desiring a more in-depth explanation, one can find it in the words of Marty Lipton, arguably one of the most respected iconic stewards of American corporate law. When participating in a roundtable discussion hosted by the American Enterprise Institute, Lipton concludes that the shareholder fundamentally does not own the corporation. In his own words, “I don’t view the shareholders as outright owners of the corporation in a way one would own a house or a car.
They’re investors in the corporation and own the equity, and they are thus important constituents, but they are not the owners of the corporation as a whole. And for that reason the company should not be run solely in the interest of the shareholders.” He adds, “corporations can only exist within the overall umbrella of government and society.” His dispassionate rigor and logic are most convincing.
The full roundtable transcript for those interested is here. Then there’s an “agency” ownership argument. Joseph Bower and Lynn Paine laid that argument to rest in a seminal piece in the Harvard Business Review in 2017. Conclusively, the shareholders are owners of stock in the corporation. They are not the owners of a corporation’s assets. There can be no further, reasonable argument.
The Best Path Forward For Business: Stakeholder Capitalism
Multi-Stakeholder Capitalism was the capitalist governance that started the modern capitalism era in America in 1945. It lasted for some 40 years. During this period, America became the most dominant economic and military nation in the world. In addition, America’s middle class grew to remarkable size and wealth. This group became the world’s largest economic market.
Remarkably, in this 40-year period, the middle class’s value grew more than twice the rate of America’s top one percent (by income). It was a period when most all segments in America saw significant economic progress (a tragic exception was most of the African American community). Business clearly understood the power and meaning of this multi-stakeholder capitalism.
The Johnson & Johnson Credo brilliantly encapsulated this business responsibility in a truly authentic document of historic importance. Thus, multi-stakeholder capitalism is not an experiment. It is a remarkable 40-year demonstration period in our business history. Moving from history to present day relevance, JUST Capital has become the leading not-for-profit organization promoting the adoption of stakeholder capitalism.
(As a disclosure, I serve as a director of JUST Capital.) It ranks the largest 1,000 corporations in America on a “justness” criterion — as defined by the American people via polling —a surrogate for the principles of stakeholder capitalism. The findings are dramatic. Many of the most “just” companies also deliver the greatest return to the shareholders. As I noted earlier, stakeholder capitalism works superbly well in producing long-term shareholder value. Think about it. Workers now receive a proper living wage.
They produce incremental value for the corporation, motivated by sharing in the incremental value they create. The key is that incremental value is now produced. Next, corporations invest more in R&D and Basic Research to compete with China and other nations. The planet will become more livable by their ESG commitments. All these activities in a synergistic and symbiotic way produce that greater long-term value for shareholders. This is what Milton Friedman truly advocated.
It turns out that shareholder primacy and its devastating consequences promptly belong in the dustbin of history. Freed of the false myth of corporate ownership and it’s dangerous governance, stakeholder capitalism opens the door to the entrepreneurial power of a truly free version of capitalism that can lift all boats and create inclusive prosperity for all Americans.
In the end, stakeholder capitalism is one of the essential pillars of a sustainable democracy and the journey to create an equal opportunity for all future generations. That vision is worth the battles we must fight today. So, onwards.
Peter Georgescu is the Chairman Emeritus of Young & Rubicam Inc., a network of preeminent commercial communications companies dedicated to helping clients build their businesses through the power of brands. I served as the company’s Chairman and CEO from 1994 until January 2000. For my contributions to the marketing industry I have been inducted into the Advertising Hall of Fame. I immigrated to the United States from Romania in 1954. I graduated from Exeter Academy, received my B.A. with cum laude honors from Princeton and earned an MBA from the Stanford Business School. In 2006, I published my first book The Source of Success, asserting that personal values and creativity are the leading drivers of business success in the 21st Century. My second book, The Constant Choice, was published in January 2013. My latest book is Capitalists Arise! which deals with the consequences of income inequality and how business must begin to help solve the problem
Individual Retirement Account (IRA) New Account Application ederated The USA PATRIOT Act requires the Funds to obtain, verify, and record information that identifies each person who opens an account. Failure
Eaton Vance Mutual Funds Eaton Vance Mutual Funds Individual Retirement Account (IRA) Distribution Request Form Return to: Eaton Vance Funds, P.O. Box 9653, Providence, RI 02940 Overnight Mail: Eaton Vance
COVERDELL EDUCATION SAVINGS ACCOUNT APPLICATION IMPORTANT: To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain,
SCOTT & WHITE RETIREMENT/401(K) PLAN Plan Number 090337 Plan Information as of 05/16/2015 This legally required notice includes important information to help you compare the investment options under your
Artisan Funds Education Savings Account Application Use this application to establish an artisan funds education savings account. there is an acceptance fee of $5.00 and an annual maintenance fee of $15.00.
The Bank of New York Mellon BuyDIRECTSM A Direct Purchase and Sale Plan for the Common Stock of Norfolk Southern Corporation THE PLAN AND PARTICIPATION IN THE PLAN IS GOVERNED BY THE PLAN BOOKLET IN ITS
Shareowner Service Plus Plan SM Investment Brochure Dividend Reinvestment & Direct Stock Purchase Plan for investors in RPM International Inc. CUSIP# 749685 10 3 Sponsored and Administered by: Wells Fargo
IRA Systematic Distribution Form PO Box 55932 Boston, MA 02205-5932 800-525-1093 Use this form to establish systematic distributions from your IRA. Do not use this form for a one-time distribution. Print
IRA APPLICATION It s easy to establish your account. Simply fill out this application, completing all relevant sections, sign in ink and return to: Regular Mail FundX Upgrader Funds c/o US Bancorp Fund
Tax Guide for 2015 TAX ASPECTS OF MUTUAL FUND INVESTING INTRODUCTION I. Mutual Fund Distributions A. Distributions From All Mutual Funds 1. Net Investment Income and Short-Term Capital Gain Distributions
Manning & Napier Fund, Inc. Individual Retirement Account (IRA) Distribution Request Form This form is not intended for required minimum distributions, trustee to trustee transfers, recharacterizations,
FPA Funds P.O. Box 2175 Milwaukee, WI 53201 Individual Retirement Account (IRA) Application FPA Capital Fund, Inc. FPA Crescent Fund FPA International Value Fund FPA New Income, Inc. FPA Paramount Fund,
INDIVIDUAL RETIREMENT ACCOUNT (IRA) PERIODIC REQUEST FORM Use this form to request a periodic distribution or contribution of assets from Traditional IRAs, SEP IRAs, SIMPLE IRAs, Roth IRAs, and Education
Account Application. Step One Account Registration. Institutional Class Shares. Customer Identification Program. What this means for you:
Account Application Institutional Class Shares This application can only be used for initial purchase of the Institutional Class shares of The Royce Funds listed on page 3. It cannot be used to open an
Authorization to Convert a Janus Traditional IRA PO Box 55932 Boston, MA 02205-5932 800-525-1093 Use this form to convert assets from an existing Janus Traditional IRA to a new or existing Janus Roth IRA.
TABLE OF CONTENTS The Bank of New York Global BuyDIRECT Overview Summary of Plan Services 3 Page 1 Global BuyDIRECT SM Frequently Asked Questions and Answers Contacting the Plan Administrator 4 A Direct
Traditional, Roth, SEP-IRA, or SIMPLE IRA Application A fund family of Everence Please call if you have any questions about filling out this application. (800) 977-2947 Send this application, and if applicable,
Financial Advisor New Account Application For Trusts, Partnerships, Corporations, Estates, or Other Entities Complete this application to establish an account for a trust, partnership, corporation, estate,
Future Scholar welcome guide New account information futurescholar.com 888.244.5674 Monday Friday, 8:00 a.m. 8:00 p.m. Eastern Curtis M. Loftis, Jr. State Treasurer State of South Carolina A message from
BRIGHT START COLLEGE SAVINGS Investment Change Form Investing Through a Financial Professional Instructions Print clearly in all CAPITAL LETTERS using blue or black ink. When requested, please color in
RBC Funds – Class A IRA Application For Traditional, ROTH, SEP, and SIMPLE IRAs >> Mail to: RBC Funds c/o U.S. Bancorp Fund Services, LLC PO Box 701 Milwaukee, WI 53201-0701 Overnight Express Mail To:
A Direct Stock Purchase and Share Ownership Plan for Common Stock, $.10 par value per share, of Verizon Communications Inc. Verizon Communications Direct Invest Purchase Verizon shares conveniently. Build
A User s Guide to Self-directed Brokerage Accounts (SDAs) From Retirement Brokerage Services Table of Contents Introduction Managing Your Self-directed Brokerage Account (SDA) Funding Your SDA pg. 3 Transferring
USAA NEW YORK MONEY MARKET FUND SUPPLEMENT DATED APRIL 1, 2016 TO THE FUND’S PROSPECTUS DATED AUGUST 1, 2015
USAA NEW YORK MONEY MARKET FUND SUPPLEMENT DATED APRIL 1, 2016 TO THE FUND’S PROSPECTUS DATED AUGUST 1, 2015 This Supplement updates certain information contained in the above-dated prospectus for the
AMG FUNDS SIMPLE INDIVIDUAL RETIREMENT ACCOUNT (IRA) DISTRIBUTION REQUEST FORM This form is not intended for required minimum distributions, trustee to trustee transfers or conversion requests. I. PARTICIPANT
Self-Direct Brokerage sdb Direct Advantage sdb Advisor Advantage Your employer is pleased to offer the Self-Direct Brokerage (sdb) service. An sdb account gives you more flexibility in managing your retirement
SEP-IRA New Account Application ederated The USA PATRIOT Act requires Federated to obtain, verify, and record information that identifies each person who opens an account. Failure to provide required information
Frequently Asked Questions Individual Retirement Accounts What is an IRA? IRA stands for Individual Retirement Arrangement. An IRA is a taxed deferred vehicle used to set aside assets for retirement. What
Individual Retirement Account (IRA) New Account Application ederated The USA PATRIOT Act requires the Funds to obtain, verify, and record information that identifies each person who opens an account. Failure
Prospectus Dominion Direct 11,000,000 Shares of Common Stock (Without Par Value) (NYSE: D) March 7, 2014 Dominion Resources, Inc. Investing in Dominion Common Stock involves risks. For information about
IRA DISTRIBUTION REQUEST Additional Copies or Assistance If you need additional copies of this application, or would like assistance completing it, please call Nuveen Investments at 800.257.8787 or go
SOURCE CAPITAL, INC. DIVIDEND REINVESTMENT AND DIRECT STOCK PURCHASE PLAN A Dividend Reinvestment and Direct Stock Purchase Plan ( Plan ) is available to all record holders of Common Stock of Source Capital,
Instructions Fidelity Investments Distribution Form Before you complete the Fidelity Investments Distribution Form, please read the following instructions. Each item listed below corresponds with the steps
NEW ACCOUNT TUTORIAL The following tutorial provides general information about opening an account online. If you have any questions about the Fund s Online Account Application, please call the fund s toll
IRA Application For Traditional, ROTH, SEP, and SIMPLE IRAs >> Mail to: Aegis Funds c/o U.S. Bancorp Fund Services, LLC PO Box 701 Milwaukee, WI 53201-0701 Overnight Express Mail To: Aegis Funds c/o U.S.
This Authorization Form may be used to do the following: Fidelity Investments Registered Investment Advisor Authorization Form For Plan Participants: 1. Authorize Fidelity Investments ( Fidelity ) to provide
Prospectus Supplement dated September 4, 2012 Filed pursuant to Rule 424(b)(3) To Prospectus dated November 10, 2011 File No. 333-177897 TSYS Dividend Reinvestment and Direct Stock Purchase Plan This is
Check here if you are establishing this Account in connection with a SIMPLE IRA plan maintained by your employer.
LEGG MASON FUNDS 1 BNY Mellon Investment Servicing Trust Company SIMPLE Individual Retirement Custodial Account Application and Adoption Agreement This application should be used to open a SIMPLE IRA investing
Prospectus PG&E Corporation Dividend Reinvestment and Stock Purchase Plan 1,821,465 shares of PG&E Corporation common stock, no par value This prospectus describes the PG&E Corporation Dividend Reinvestment
QUESTIONS AND ANSWERS CONCERNING EXCHANGING WYETH COMMON STOCK. 3. What is the value of my of merger consideration?
QUESTIONS AND ANSWERS CONCERNING EXCHANGING WYETH COMMON STOCK Tax-Related: 1. Since the transaction is fully taxable, how will the Company report my merger consideration for tax purposes? The Company
Understanding Your Brokerage Account Statements Understanding Your Brokerage Account Statements North American Securities Administrators Association, Inc.? What can my statement tell me? INTRODUCTION How
GENERAL GROWTH PROPERTIES, INC. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN Plan Sponsored by General Growth Properties, Inc. and Administered by Mellon Bank, N.A. not by General Growth Properties, Inc.
IRA ADOPTION AGREEMENT Please complete and sign this IRA Adoption Agreement after you have read the prospectus carefully. You may invest in as many of the UMB Scout Funds as you wish using just this application.
A. Current account owner(s) Complete section 2, you may need to obtain a Medallion Guarantee. B. New account owner(s) Complete sections 3 through 10.
Non-Retirement Accounts N 1 Instructions Overview FOR ASSISTANCE with this form, call Shareholder Services at (800) 662-0201, or the Timothy Plan at (800) 846-7526. SIGNATURE GUARANTEE: For gifts over
IRA Application Class C and S Shares Instructions Use this form for IRA individual, custodial, trust,profit-sharing and pension plan accounts. Do not use this form for ICON Funds Class A accounts. For
Inheriting an IRA Individual Beneficiary Checklist PO Box 55932 Boston, MA 02205-5932 800-240-4313 Re-registration Requirements Completed Janus IRA Beneficiary Claim Form Individual Beneficiary Certified
Thank you for choosing to roll over your retirement plan (e.g., 401k, 403b, 457) assets to an Ariel Investments IRA. Please take the steps outlined below to complete the roll over process. 1. If you do
Shareowner Service Plus Plan SM Investment Brochure Div