November 22, 2009
UTNE READER

Shareholders Need to Share the Wealth

Investors are no more important to companies than workers- so why do they get all the goodies?

July/August 2002 Issue
By Craig Cox, Utne Reader 
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The idea that corporations exist for the sole purpose of maximizing a shareholder’s investment has been an unchallenged capitalist creed since the Michigan Supreme Court ruled on Dodge v. Ford Motor Co. in 1919. But Marjorie Kelly, author of The Divine Right of Capital (Berrett-Koehler, 2001), argues that the rights conveyed to corporate shareholders are a relic of feudal days and serve only to justify shortsighted business decisions that have long-term social consequences.

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"Why have the rich gotten richer while employee income has stagnated?" she asks. "Because that’s the way the corporation is designed. It is designed to pay stockholders as much as possible, and to pay employees as little as possible. . . . Why are [companies] cutting down 300-year-old forests? Because that’s the way the corporation is designed. It is designed to internalize all possible gains from the community, and to externalize all possible costs onto the community."This entire worldview, writes Kelly, is based on the myth that shareholder investment is vital to the health of publicly traded companies. It’s commonly assumed that companies rely on shareholders for capital, but that occurs only when a company sells common stock, an occurrence that has become as rare as a Fortune 500 CEO turning down a pay raise. Only about 1 percent of shareholder investment actually reaches publicly traded companies each year. "In the life of most major companies today, issuance of common stock represents a distant, long-ago source of funds, and a minor one at that," she writes. "What’s odd is that it entitles stockholders to extract most of the corporation’s wealth—forever."Where does the rest of that vital shareholder investment go? It’s simply traded in the speculative market, Kelly explains. So, by putting the interests of its shareholders above those of its workers, customers, and communities, corporations are doing no more than ensuring that the Dow Jones casino stays open.It is also widely accepted that shareholders own corporations, a concept that Kelly says leads us also to believe that companies are objects that can be owned and that stockholders can do what they want with them. Trouble is, a company is really nothing more than a "network of human relationships," she explains. Take the case of St. Luke’s advertising agency in London. When Omnicon purchased the London office of Chiat/Day’s advertising agency in 1995, staffers abandoned ship with the agency’s clients and started their own firm. Without the agency’s employees or its clients, the sale was suddenly rendered moot. The company was worthless. (Actually, Omnicom got $1 and a percentage of St. Luke’s profits.) Still, Kelly says it proves the point: "No one thinks to object when employees are called ‘assets’—or sold in acquisitions," she writes. "We accept these notions, because we operate from the unconscious assumption that corporations are objects, not human communities. And if they’re objects—akin to feudal estates—then they’re something outsiders can own, and the humans working there are simply part of the property."
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