Ending Shareholder Dominance

Rising inequality is the defining feature of our economic time. Over the last 30 years, the gap between the rich and the poor (and the rich and everyone else) has grown dramatically. The share of total income taken home by the top 1% of Americans has gone from 8.9%, in the 1970’s, to 22%, by 2015. This is inequality that has not been seen since the ‘gilded age’ of the robber barons.

One of the major causes of the widening wealth gap is the priority in corporate America to pay off shareholders before anyone else. Current corporate governance holds that shareholder value must be maximized while neglecting all other stakeholders in the company, such as workers, suppliers and customers. Shareholder value is maximized even to the extent that it jeopardizes the company future competitiveness. Shareholder maximization is occurring at such a rate that more money is being stripped and ripped from America’s companies than being invested. (Here's a study) This cannibalization, this wholesale looting of America’s top corporations for the personal financial enrichment of the very few is toxic for our economic future.

One of the major tools to maximize shareholder value is the ‘share buyback.’ Up until 1982, share buybacks were ILLEGAL. They were, and still are, a means to manipulate share prices and boost earnings per share (EPS). Share prices and EPS are used regularly as the metric at which CEO’s compensation structures are driven. When a CEO has a choice between investing in a new business opportunity that might grow the company ten years down the road or buying back company stock to boost EPS, they elect to buy back shares and reap the enormous compensation packages. This market manipulation is great for CEO’s and Wall Street shareholders, but in the long run it is bad for their company, it is bad for their employees and it is bad for the overall economy. It is a very shallow and shortsighted way to increase the wealth of select few elite members of society while offering no benefits to the rest of us.

Since 2010, companies have bought back more than $2 trillion of their own stock. That is $2 trillion that could have gone to R&D, new factories, new employees, or new green technologies. Instead it was used to manipulate stock prices. We are sacrificing our future economy to enrich a few individuals in the short term. This market manipulation serves no other economic utility.

The priority to maximize shareholder value has been incredibly rewarding for the CEO’s of America’s top companies. While average workers have seen their wages stagnate for over 30 years, the CEO’s of America’s top 500 companies cashed out $10 billion dollars in 2017. (Don't believe me?). Not only are shareholders prioritized, but in many circumstances any increase in workers wages is punished by investors and Wall Street.

“More recently, in late April, American Airlines CEO Doug Parker announced modest pay increases for pilots and flight attendants, who previously were making below the industry average. Wall Street again went ballistic. “This is frustrating. Labor is being paid first again. Shareholders get leftovers,” scribbled Citi analyst Kevin Crissey. J.P. Morgan’s Jamie Baker said the action “establishes a worrying precedent, in our view, both for American and the industry.” Not only did American’s stock price tank, so did every major airline stock, as investors punished the whole industry because one of its leaders dared to side with employees.” – Unfriendly Skies

The maximization of shareholder value disregards all other public obligations. In order to address the dangerous income inequality in our country we must address the rules that govern our corporations. Corporations must respect and invest into the interest of all stakeholders in their company. That includes their community, employees, customers, suppliers, environment and government.


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