While I’m writing things that I’ve been intending to write for a while… one of the things that I think that a lot of people who haven’t been involved in like… banking or corporate shenaniganry miss about why our economy is its current flavor of total fuckery is the concept of “fiduciary duty to shareholders.”
“Why does every corporation pursue endless growth?” Fiduciary duty to shareholders.
“Why do corporations treat workers the way they do?” Fiduciary duty to shareholders.
“Why do corporations make such bass-ackwards decisions about what’s ‘good for’ the company?” Fiduciary duty to shareholders.
The legal purpose of a corporation with shareholders – its only true purpose – is the generation of revenue/returns for shareholders. Period. That’s it. Anything else it does is secondary to that. Sustainability of business, treatment of workers, sustainability and quality of product, those things are functionally and legally second to generating revenue for shareholders. Again, period, end of story. There is no other function of a corporation, and all of its extensive legal privileges exist to allow it to do that.
“But Spider,” you might say, “that sounds like corporations only exist in current business in order to extract as much money and value as possible from the people actually doing the work and transfer it up to the people who aren’t actually doing the work!”
Yes. You are correct. Thank you for coming with me to that realization. You are incredibly smart and also attractive.
You might also say, “but Spider, is this a legal obligation? Could those running a company be held legally responsible for failing their obligations if they prioritize sustainability or quality of product or care of workers above returns for shareholders?”
Yes! They absolutely can! Isn’t that terrifying? Also you look great today, you’re terribly clever for thinking about these things. The board and officers of a corporation can be held legally responsible to varying degrees for failing to maximize shareholder value.
And that, my friends, is why corporations do things that don’t seem to make any fucking sense, and why ‘continuous growth’ is valued above literally anything else: because it fucking has to be.
If you’re thinking that this doesn’t sound like a sustainable economic model, you’re not alone. People who are much smarter than both of us, and probably nearly as attractive, have written a proposal for how to change corporate law in order to create a more sensible and sustainable economy. This is one of several proposals, and while I don’t agree with all of this stuff, I think that reading it will really help people as a springboard to understanding exactly why our economy is as fucked up as it is, and why just saying ‘well then don’t pursue eternal growth’ isn’t going to work – because right now it legally can’t. We’d need to change – and we can change – the laws around corporate governance.
Towards Accountable Capitalism: Remaking Corporate Law Through Stakeholder Governance
This concept of ‘shareholder primacy’ and the fiduciary duty to shareholders is one I had to learn when I was getting my securities licenses, and every time I see people confusedly asking why corporations try to grow grow grow in a way that only makes sense if you’re a tumor, I sigh and think, ‘yeah, fiduciary duty to shareholders.’
(And this is why Emet and I have refused to seek investors for NK – we might become beholden to make decisions which maximize investor return, and that would get in the way of being able to fully support our people and our values and say the things we started this company to say.)
Anyway, you should read up on these concepts if you’re not familiar. It’s pretty eye-opening.
This is really interesting and important to understand our current economic shortcomings, it is now my excuse for not going out, I have fiduciary duty to the shareholders (I want to sleep in the stuffie pile)
