Saving Capitalism: For The Many, Not The Few

by Robert B. Reich

Why should shareholders take prominence over employees? As I have noted, corporations are nothing more than collections of contracts and property rights. They are not “owned” by shareholders the way ordinary goods are owned. It is common for the individual shareholders of large companies to be blissfully unaware of which specific companies they own, or for how long, because their ownership is through pension funds or mutual funds that tend to move quickly into and out of shares of stock, seeking quick speculative gains. If nothing else, high-frequency trading illustrates the irrelevance of stock ownership to effective corporate governance. Shareholder “ownership” is therefore a legal fiction. So is the idea that CEOs and other corporate executives have a fiduciary duty to maximize the value of corporations’ shares of stock. Corporate charters, issued by states, require no such thing. While shareholders select a corporation’s directors, the directors are under no legal obligation to put their interests above all others. Indeed, as we’ve seen, the idea that the sole purpose of a corporation is to maximize shareholder value is relatively new, dating back only to the 1980s. The dominant view in the first decades after World War II was that corporations had responsibilities to all of their stakeholders.