The Fruits of Civilization (44-5) Shareholder Interest

Shareholder Interest

Corruption, embezzlement, fraud, these are all characteristics which exist everywhere. It is human nature. No one has ever eliminated any of that stuff. ~ Alan Greenspan

A proximate cause of the evil inherent in corporations lay in their structure. Shareholders own corporations, and managers typically run their corporation in pursuit of shareholder tribute.

The problem is that shareholders don’t have a company’s best interest at heart. Shareholders often insist on strategies that maximize short-term profits. A manager who does not abide this short-termism is likely to be booted, especially during turbulent times, when foresight is most needed and least appreciated.

Shareholders are the most mobile of a company’s stakeholders: they may sell their shares at any time, disabusing their financial investment in the wink of a trade. In contrast, the other stakeholders – managers and employees – are vested with their livelihoods. Their interest is in the company’s abiding well-being, so that they may continue to earn a living, and do so decently.

Ease of exit is exactly what makes shareholders unreliable guardians of a company’s long-term future. ~ Ha-Joon Chang