They are not your friend.

I never thought this would happen, but I think I recently read two articles that stresses the role shareholders (or investors) play in our inequality. I saved one of the articles but apparently, I didn’t save the other. Now, the articles didn’t directly say that investors play a role in the growing inequality, but I think it’s implied.

I must have been in college when I first thought “shareholders are not your friend”. I was reading an article about some company laying off its employees and the stock price jumped upward upon announcement of that action. These employees form your marketplace so if you cut off their source of income, you lose them as buying customers because they don’t have the money. Taking layoffs to its extreme, those cost-cutting measures would weaken the marketplace and companies would start to die off from lack of paying customers.

That was my thinking at the time, and it really hasn’t changed although the news no longer report that stock prices rise upon layoff announcement. Or maybe I have become so inured to the story plot that I no longer read it and note it.

I know that in my early days of working, the common mantra was “shareholder value”. Shareholder value, shareholder value, shareholder value. One time, after a series of layoffs, the CEO said something like, “Okay, now let’s get back to work to provide value for our shareholders.”

Ugh. Picture that emoticon with the green vomit.

So I went through periods where everything was about the shareholders with bad Al Dunlap type behaviors, constant cost cutting and layoffs. Until sometime in the 2000s, after the Enron debacle in 2001, the shareholder mantra quietly slipped away.

I didn’t realize it the time, but the news and executives did not talk as much about shareholder value. That didn’t mean the shareholder primacy was gone; no, we still had the cost cutting.

Or, it could be that I had managed to jump to a company whose focus was more on the customers and executives did not harangue us about making money for the shareholders.

Then 2008 happened and the topic slowly turned to the “evils of capitalism”. I think that was the sentiment. We had the “Occupy Wall Street” which probably did not view capitalism in a positive light. It was also after 2008 that I first learned about the Milton Friedman New York Times articles in the 70’s that infamously laid out the philosophy that the sole concern for businesses was to maximize profits, not caring about community or society. I might have had this as part of my readings when I was pursuing my MBA but it didn’t register.

In addition, it was after 2008 that I learned about the disconnect between productivity and income that occurred after the 80s. The theory was that the more productive society is, the higher the wages, but that relationship was cut in the 80s.

The gains from the productivity increase went to …you guessed it…to the shareholders. They captured practically all of the productive gains.

Then in 2017, Business Roundtable put out a stakeholder capitalism statement whereas businesses should not focus just on the shareholders but should include customers, community, society, employees, suppliers. The stakeholders in the business.

I was thinking, they still don’t get that the shareholder is a big part of the problem. They drive the behaviors of the CEOs and senior executives. But I thought stakeholder capitalism was a move in the right direction so I was happy for that change.

It was just only recently that I read something that discussed the role of shareholders driving the corporate cost cutting mania. I found only one article is my “file folder” where I keep articles to pull up when I want to review.

The article that I have in my “file folder” is about STEM and how STEM is a poor investment. Apparently, graduates in STEM fields eventually work in non-STEM positions or field. Curiously, over the long-term, there is no salary advantage.

The author posits that the reason for students going elsewhere is because (boldface and italics are mine):

“Employers, and the investors who drive their behavior, depress the national returns on STEM education investments.”

LA Times, “Opinion: Why pushing STEM majors is turning out to be a terrible investment”, John D. Skrentny, 1/9/2024

Bingo! I perked up at that. The first sign that maybe some people are realizing that the investors are driving the boat.

There is a couple of very interesting points about our capitalism (“burn and churn” management, threat of layoffs, investors demanding cost reductions, etc.) but the last paragraph of the article was the most interesting:

“But investors repeatedly reward employers for treating STEM grads like fast fashion — discarded when broken or no longer appealing — or for deploying STEM skills in lucrative yet harmful business models. A better return on STEM education will require corporations to move away from maximizing short-term shareholder value and consider more stakeholders and moral limits on money making.”

LA Times, “Opinion: Why pushing STEM majors is turning out to be a terrible investment”, John D. Skrentny, 1/9/2024

So, I’m going to be on the lookout for more such articles, if they do come out. Not sure if this is a start of a new thinking. Only time will tell.