The destructive cult of shareholder value

[phantom power]

I have said and continue to maintain that it will be impossible to fix the economy until we begin to prioritize wages over assets. There are many causes of the problem, but the cult of shareholder value highlighted most recently in a tremendous post by Steve Pearlstein is among the most significant

...

The corruption of this ideology is total. Lobbyists make politicians afraid to do anything that might disrupt the stock market lest next quarter's earnings go south; businesses are afraid to invest in long-term stability and real productivity lest some other company use smoke and mirrors to beat them on the next earnings report; and society rots as wages are pushed down while financial trickery and economic inequality increase.

Employee-owned companies can help set this to right, as could stronger corporate responsibility charters--though I'm skeptical of the efficacy of the latter approach. Punishing tax rates on the very highest incomes can reduce the incentives to engage in chicanery. But it's a complex problem that will likely require multiple solutions to solve.

Be sure to read Pearlstein's whole piece. Much food for thought there.

http://digbysblog.blogspot.com/2013/09/the-destructive-cult-of-shareholder.html

[arcane1]

1. "cult of shareholder value" indeed! Kicking to read later.

[Laelth]

2. k&r for exposure. n/t

-Laelth

[JHB]

3. Some suggestions from the original piece:

Among the growing chorus of critics of “shareholder value,” however, a consensus is emerging around a number of relatively modest changes in tax and corporate governance laws that could help lengthen time horizons and rebalance the focus of corporate decision-making:

●The capital gains tax could be recalibrated so that short-term trading profits are taxed the same as wages and salary, while gains from investments held for long periods are taxed more lightly than they are now, or not at all. A small transaction tax could also dampen enthusiasm for short-term trading.

●The Securities and Exchange Commission could adopt rules that discourage corporations from giving quarterly earnings projections or guidance, while accounting regulators could insist that corporate financial reports better reflect long-term costs and benefits and measure long-term value creation.

●States could make it easier for corporations to adopt governance rules that give long-term shareholders more power in selecting directors, approving mergers and takeovers and setting executive compensation.

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/09/how-the-cult-of-shareholder-value-wrecked-american-business/

I'll add another one that's farther afield (and thus even less likely to be done): employee representation on the board of directors, with commensurate input on selection and compensation of the top executives. Something along the lines of what was put in place in postwar (West) Germany in order to strengthen worker rights and discourage broad-based discontent for the Soviets to exploit.