[Plura-list] There's no such thing as "shareholder supremacy"
Cory Doctorow
doctorow at craphound.com
Wed Sep 18 08:41:22 EDT 2024
Read today's issue online at: https://pluralistic.net/2024/09/18/falsifiability/
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On September 24th, I'll be speaking in person at the Boston Public Library!
https://bpl.bibliocommons.com/events/66cf2d8bf520192f005fcc50
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The paperback edition of The Lost Cause, my nationally bestselling, hopeful solarpunk novel is out this month!
https://us.macmillan.com/books/9781250865946/thelostcause
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Today's links
* There's no such thing as "shareholder supremacy": When "fiduciary duty" means "whatever I wanted to do."
* Hey look at this: Delights to delectate.
* This day in history: 2004, 2014, 2023
* Upcoming appearances: Where to find me.
* Recent appearances: Where I've been.
* Latest books: You keep readin' em, I'll keep writin' 'em.
* Upcoming books: Like I said, I'll keep writin' 'em.
* Colophon: All the rest.
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🍳 There's no such thing as "shareholder supremacy"
Here's a cheap trick: claim that your opponents' goals are so squishy and qualitative that no one will ever be able to say whether they've been succeeded or failed, and then declare that *your* goals can be evaluated using crisp, objective criteria.
This is the whole project of "economism," the idea that politics, with its emphasis on "fairness" and other intangibles, should be replaced with a mathematical form of *economics*, where every policy question can be reduced to an equation...and then "solved":
https://pluralistic.net/2023/03/28/imagine-a-horse/#perfectly-spherical-cows-of-uniform-density-on-a-frictionless-plane
Before the rise of economism, it was common to speak of its subjects as "political economy" or even "moral philosophy" (Adam Smith, the godfather of capitalism, considered himself a "moral philosopher"). "Political economy" implicitly recognizes that every policy has squishy, subjective, qualitative dimensions that don't readily boil down to math.
For example, if you're asking about whether people should have the "freedom" to enter into contracts, it might be useful to ask yourself how desperate your "free" subject might be, and whether the entity on the other side of that contract is very powerful. Otherwise you'll get "free contracts" like "I'll sell you my kidneys if you promise to evacuate my kid from the path of this wildfire."
The problem is that power is hard to represent faithfully in quantitative models. This may seem like a good reason to you to be skeptical of modeling, but for economism, it's a reason to pretend that the qualitative doesn't exist. The method is to incinerate those qualitative factors to produce a dubious quantitative residue and do math on *that*:
https://locusmag.com/2021/05/cory-doctorow-qualia/
Hence the famous Ely Devons quote: "If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, ‘What would I do if I were a horse?’"
https://pluralistic.net/2022/10/27/economism/#what-would-i-do-if-i-were-a-horse
The neoliberal revolution was a triumph for economism. Neoliberal theorists like Milton Friedman replaced "political economy" with "law and economics," the idea that we should turn every one of our complicated, nuanced, contingent qualitative goals into a crispy defined "objective" criteria. Friedman and his merry band of Chicago School economists replaced traditional antitrust (which sought to curtail the corrupting *power* of large corporations) with a theory called "consumer welfare" that used mathematics to decide which monopolies were "efficient" and therefore good (spoiler: monopolists who paid Friedman's pals to do this mathematical analysis always turned out to be running "efficient" monopolies):
https://pluralistic.net/2022/02/20/we-should-not-endure-a-king/
One of Friedman's signal achievements was the theory of "shareholder supremacy." In 1970, the *New York Times* published Friedman's editorial "The Social Responsibility of Business Is to Increase Its Profits":
https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html
In it, Friedman argued that corporate managers had exactly one job: to increase profits for shareholders. All other considerations - improving the community, making workers' lives better, donating to worthy causes or sponsoring a little league team - were out of bounds. Managers who wanted to improve the world should fund their causes out of their paychecks, not the corporate treasury.
Friedman cloaked his hymn to sociopathic greed in the mantle of objectivism. For capitalism to work, corporations have to solve the "principal-agent" problem, the notoriously thorny dilemma created when one person (the principal) asks another person (the agent) to act on their behalf, given the fact that the agent might find a way to line their own pockets at the principal's expense (for example, a restaurant server might get a bigger tip by offering to discount diners' meals).
Any company that is owned by stockholders and managed by a CEO and other top brass has a huge principal-agent problem, and yet, the limited liability, joint-stock company had produced untold riches, and was considered the ideal organization for "capital formation" by Friedman et al. In true economismist form, Friedman treated all the qualitative questions about the duty of a company as noise and edited them out of the equation, leaving behind a single, elegant formulation: "a manager is doing their job if they are trying to make as much money as possible for their shareholders."
Friedman's formulation was a hit. The business community ran wild with it. Investors mistook an editorial in the *New York Times* for an SEC rulemaking and sued corporate managers on the theory that they had a "fiduciary duty" to "maximize shareholder value" - and what's more, the courts bought it. Slowly and piecemeal at first, but bit by bit, the idea that rapacious greed was a legal obligation turned into an edifice of legal precedent. Business schools taught it, movies were made about it, and even critics absorbed the message, insisting that we needed to "repeal the law" that said that corporations had to elevate profit over all other consideration (not realizing that no such law existed).
It's easy to see why shareholder supremacy was so attractive for investors and their C-suite Renfields: it created a kind of moral crumple-zone. Whenever people got angry at you for being a greedy asshole, you could shrug and say, "My hands are tied: the law *requires* me to run the business this way - if you don't believe me, just ask my critics, who insist that we must get rid of this law!"
In a long feature for *The American Prospect* Adam M Lowenstein tells the story of how shareholder supremacy eventually came into such wide disrepute that the business lobby felt that it had to do *something* about it:
https://prospect.org/power/2024-09-17-ponzi-scheme-of-promises/
It starts in 2018, when Jamie Dimon and Warren Buffett decried the short-term, quarterly thinking in corporate management as bad for business's long-term health. When *Washington Post* columnist Steve Pearlstein wrote a column agreeing with them and arguing that even moreso, businesses should think about equities other than shareholder returns, Jamie Dimon lost his shit and called Pearlstein to call it "the stupidest fucking column I’ve ever read":
https://www.washingtonpost.com/news/wonk/wp/2018/06/07/will-ending-quarterly-earnings-guidance-free-ceos-to-think-long-term/
But the dam had broken. In the months and years that followed, the Business Roundtable would adopt a series of statements that repudiated shareholder supremacy, though of course they didn't admit it. Rather, they insisted that they were clarifying that they'd *always* thought that sometimes *not* being a greedy asshole could be good for business, too. Though these statements were nonbinding, and though the CEOs who signed them did so in their personal capacity and not on behalf of their companies, capitalism's most rabid stans treated this as an existential crisis.
Lowenstein identifies this as the forerunner to today's panic over "woke corporations" and "DEI," and - just as with "woke capitalism" - the whole thing amounted to a a PR exercise. Lowenstein links to several studies that found that the CEOs who signed onto statements endorsing "stakeholder capitalism" were "more likely to lay off employees during COVID-19, were less inclined to contribute to pandemic relief efforts, had 'higher rates of environmental and labor-related compliance violations,”' emitted more carbon into the atmosphere, and spent more money on dividends and buybacks."
One researcher concluded that "signing this statement had zero positive effect":
https://www.theatlantic.com/ideas/archive/2020/08/companies-stand-solidarity-are-licensing-themselves-discriminate/614947
So shareholder supremacy isn't a legal obligation, and statements repudiating shareholder supremacy don't make companies act any better.
But there's an even more fundamental flaw in the argument for the shareholder supremacy rule: *it's impossible to know if the rule has been broken.*
The shareholder supremacy rule is an unfalsifiable proposition. A CEO can cut wages and lay off workers and claim that it's good for profits because the retained earnings can be paid as a dividend. A CEO can *raise* wages and hire *more* people and claim it's good for profits because it will stop important employees from defecting and attract the talent needed to win market share and spin up new products.
A CEO can spend less on marketing and claim it's a cost-savings. A CEO can spend more on marketing and claim it's an investment. A CEO can eliminate products and call it a savings. A CEO can add products and claim they're expansions into new segments. A CEO can settle a lawsuit and claim they're saving money on court fees. A CEO can fight a lawsuit through to the final appeal and claim that they're doing it to scare vexatious litigants away by demonstrating their mettle.
CEOs can use cheaper, inferior materials and claim it's a savings. They can use premium materials and claim it's a competitive advantage that will produce new profits. Everything a company does can be colorably claimed as an attempt to save or make money, from sponsoring the local little league softball team to treating effluent to handing ownership of corporate landholdings to perpetual trusts that designate them as wildlife sanctuaries.
Bribes, campaign contributions, onshoring, offshoring, criminal conspiracies and conference sponsorships - there's a business case for *all* of these being in line with shareholder supremacy.
Take Boeing: when the company smashed its unions and relocated key production to scab plants in red states, when it forced out whistleblowers and senior engineers who cared about quality, when it outsourced design and production to shops around the world, it realized a savings. Today, between strikes, fines, lawsuits, and a moutnain of self-inflicted reputational harm, the company is on the brink of ruin. Was Boeing good to its shareholders? Well, sure - the shareholders who cashed out before all the shit hit the fan made out well. Shareholders with a buy-and-hold posture (like the index funds that *can't* sell their Boeing holdings so long as the company is in the S&P500) got screwed.
Right wing economists criticize the left for caring too much about "how big a slice of the pie they're getting" rather than focusing on "growing the pie." But that's *exactly* what Boeing management did - while claiming to be slaves to Friedman's shareholder supremacy. They focused on getting a bigger slice of the pie, screwing their workers, suppliers and customers in the process, and, in so doing, they made the pie so much smaller that it's in danger of disappearing altogether.
Here's the principal-agent problem in action: Boeing management earned bonuses by engaging in corporate autophagia, devouring the company from within. Now, long-term shareholders are paying the price. Far from solving the principal-agent problem with a clean, bright-line rule about how managers should behave, shareholder supremacy is a charter for doing whatever the fuck a CEO feels like doing. It's the squishiest rule imaginable: if someone calls you cruel, you can blame the rule and say you had no choice. If someone calls you feckless, you can blame the rule and say you had no choice. It's an excuse for every season.
The idea that you can reduce complex political questions - like whether workers should get a raise or whether shareholders should get a dividend - to a mathematical rule is a cheap sleight of hand. The trick is an obvious one: the stuff *I* want to do is empirically justified, while the things *you* want are based in impossible-to-pin-down appeals to emotion and its handmaiden, ethics. Facts don't care about your feelings, man.
But it's feelings all the way down. Milton Friedman's idol-worshiping cult of shareholder supremacy was never about empiricism and objectivity. It's merely a gimmick to make greed seem scientifically optimal.
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🍳 Hey look at this
* Academic Journal Publishers Antitrust Litigation https://www.lieffcabraser.com/antitrust/academic-journals/
* DEF CON 32 - Disenshittify or die! How hackers can seize the means of computation https://www.youtube.com/watch?v=4EmstuO0Em8
* Is Telegram really an encrypted messaging app? https://blog.cryptographyengineering.com/2024/08/25/telegram-is-not-really-an-encrypted-messaging-app/ (h/t Bruce Schneier)
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🍳 This day in history
#20yrsago Wikipedia breaks 10^6 articles https://meta.wikimedia.org/wiki/Wikimedia_press_releases/One_million_Wikipedia_articles_(US)/Print
#10yrsago The filthiest camp at Burning Man https://journal.burningman.org/2014/09/black-rock-city/leaving-no-trace/moop-map-2014-the-map-youve-never-seen/
#10yrsago Drone flythrough of Toronto’s magnificently renovated reference library https://www.torontopubliclibrary.ca/renovations/toronto-reference-library-revitalization.jsp
#1yrago Justin C Key's "The World Wasn't Ready For You" https://pluralistic.net/2023/09/19/justin-c-key/#clarion-west-2015
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🍳 Upcoming appearances
* The Right to Read, Boston Public Library, Sep 24
https://bpl.bibliocommons.com/events/66cf2d8bf520192f005fcc50
* SOSS Fusion (Atlanta), Oct 22
https://sossfusion2024.sched.com/speaker/cory_doctorow.1qm5qfgn
* TusCon (Tucson), Nov 8-10
https://tusconscificon.com/
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🍳 Recent appearances
* DEF CON 32 - Disenshittify or die! How hackers can seize the means of computation
https://www.youtube.com/watch?v=4EmstuO0Em8
* The Van Show
https://www.youtube.com/watch?v=eDa_a-NlILs
* HC4US
https://soundcloud.com/hc4us/081224-cory-doctorow-a-canadian-british-science-fiction-author-activist-and-journalist
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🍳 Latest books
* The Bezzle: a sequel to "Red Team Blues," about prison-tech and other grifts, Tor Books (US), Head of Zeus (UK), February 2024 (the-bezzle.org). Signed, personalized copies at Dark Delicacies (https://www.darkdel.com/store/p3062/Available_Feb_20th%3A_The_Bezzle_HB.html#/).
* "The Lost Cause:" a solarpunk novel of hope in the climate emergency, Tor Books (US), Head of Zeus (UK), November 2023 (http://lost-cause.org). Signed, personalized copies at Dark Delicacies (https://www.darkdel.com/store/p3007/Pre-Order_Signed_Copies%3A_The_Lost_Cause_HB.html#/)
* "The Internet Con": A nonfiction book about interoperability and Big Tech (Verso) September 2023 (http://seizethemeansofcomputation.org). Signed copies at Book Soup (https://www.booksoup.com/book/9781804291245).
* "Red Team Blues": "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books http://redteamblues.com. Signed copies at Dark Delicacies (US): and Forbidden Planet (UK): https://forbiddenplanet.com/385004-red-team-blues-signed-edition-hardcover/.
* "Chokepoint Capitalism: How to Beat Big Tech, Tame Big Content, and Get Artists Paid, with Rebecca Giblin", on how to unrig the markets for creative labor, Beacon Press/Scribe 2022 https://chokepointcapitalism.com
* "Attack Surface": The third Little Brother novel, a standalone technothriller for adults. The *Washington Post* called it "a political cyberthriller, vigorous, bold and savvy about the limits of revolution and resistance." Order signed, personalized copies from Dark Delicacies https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html
* "How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59?sk=f6cd10e54e20a07d4c6d0f3ac011af6b) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)
* "Little Brother/Homeland": A reissue omnibus edition with a new introduction by Edward Snowden: https://us.macmillan.com/books/9781250774583; personalized/signed copies here: https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html
* "Poesy the Monster Slayer" a picture book about monsters, bedtime, gender, and kicking ass. Order here: https://us.macmillan.com/books/9781626723627. Get a personalized, signed copy here: https://www.darkdel.com/store/p2682/Corey_Doctorow%3A_Poesy_the_Monster_Slayer_HB.html#/.
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🍳 Upcoming books
* Picks and Shovels: a sequel to "Red Team Blues," about the heroic era of the PC, Tor Books, February 2025
* Unauthorized Bread: a middle-grades graphic novel adapted from my novella about refugees, toasters and DRM, FirstSecond, 2025
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🍳 Colophon
Today's top sources:
Currently writing:
* Enshittification: a nonfiction book about platform decay. Today's progress: 759 words (49842 words total).
* A Little Brother short story about DIY insulin PLANNING
* Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. FORTHCOMING TOR BOOKS JAN 2025
* Vigilant, Little Brother short story about remote invigilation. FORTHCOMING ON TOR.COM
* Spill, a Little Brother short story about pipeline protests. FORTHCOMING ON TOR.COM
Latest podcast:
Anti-cheat, gamers, and the Crowdstrike disaster https://craphound.com/news/2024/09/15/anti-cheat-gamers-and-the-crowdstrike-disaster/
This work - excluding any serialized fiction - is licensed under a Creative Commons Attribution 4.0 license. That means you can use it any way you like, including commercially, provided that you attribute it to me, Cory Doctorow, and include a link to pluralistic.net.
https://creativecommons.org/licenses/by/4.0/
Quotations and images are not included in this license; they are included either under a limitation or exception to copyright, or on the basis of a separate license. Please exercise caution.
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"*When life gives you SARS, you make sarsaparilla*" -Joey "Accordion Guy" DeVilla
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