I just had a brief back and forth with Whole Foods honcho John Mackie about this Walter Williams column in which the economist (whose work I typically enjoy, by the by) excoriates “weak-kneed CEOs” who “capitulate” to anti-capitalist NGOs by agreeing to carry “fair trade” products when, as the Milton Friedman line has it, a corporation’s only “social responsibility”is to maximize shareholder value. Mackie thought that, given the extraordinary success of the company, he knew a thing or two about maximizing shareholder value, and that there was nothing wrong with a company achieving various other values—in particular when, far from “capitulating” to outside groups, they’re satisfying their own customers‘ preference for those kinds of products. I had a few thoughts as well.
Increasingly, we live in an economy driven by semiotic consumption. So, for instance, I’m not just buying a pair of Nikes, if by that we mean a particular pair of shoes that have nice ankle support or whatever other intrinsic properties. I’m also buying what the Swoosh means, or what a Diesel logo means, or what a hybrid Prius means, etc. If commodity “value” on the consumer end can have this character, why not shareholder “value”?
The “value” of a given stock portfolio is already dependent on a subjective risk profile. The same stock will be far more or less valuable to me individually depending on whether I’m a 25 year old with high tolerance for risk or a 55 year old looking for something more stable to last through retirement. Once we acknowledge “shareholder value” varies with risk profiles, why can’t it equally well value with a broader set of social value? Why is time preference on the monetary dimension the sole admissible subjective component here? People in the real world presumably have any number of reasons for holding stock—many people clearly buy shares because they believe in what a company is doing, not just because they expect it togenerate the highest returns. Plenty of people will refuse to own shares in tobacco companies or weapons manufacturers for the opposite reason.
My friend Doug Rushkoff likes to criticize corporations by means of a computer science analogy—they’re running strings of pernicious “code,” in the form of their constitutive rules and institutions—and by this he means (as I understand him) precisely the lexical priority given in law to maximizing monetary value. I think that was the upshot of a mostly silly-sounding documentary from last year called “The Corporation“(which I didn’t see). The idea in both cases, though, was that the fiduciary responsibility to maximize shareholder value—defined in a narrow monetary sense—obligated management to do things they weren’t particularly happy about, which probably most shareholders wouldn’t much care for either. But given that shareholder micromanagement isn’t really a live option, you’ve got this narrow conception of fiduciary responsibility that foreloses the possibility of management acting on their sense of non-monetary values shareholders might hold.
I don’t know any clean way around that, because as soon as you admit a semiotic component to shareholder value (and therefore fiduciary obligations) you open the door to highly impressionistic (and potentially exploitative) interpretations by management of what, precisely, their responsibility is. And one can imagine some kind of contractual way around this, perhaps, but it does seem to get awfully messy. Still, something worth thinking about: How to create stockholder/firm relationships that capture non-monetary values without requiring shareholders to approve by vote any deviation from the default of revenue maximization at all costs.