Three problems with shareholders

Problem 1:

In theory, a business succeeds by pleasing enough customers to turn a profit. But a publicly traded company is first beholden to shareholders.

Remember when Target stores in the American South bowed to pressure and moved their Pride products to the back of the store? I don’t know how management felt about equity, but I do know that a boycott could have cost them their jobs and exposed them to civil actions — even if the stores survived and profited.

This was driven home to me early in my career. I worked for a company whose whose most profitable clients marketed products that, though legal, harmed people. I argued to our executives (who missed no opportunity to boast of their morality) that the more responsible course would be to decline such. An experienced Board member objected. “If you decline those clients,” he said, “I’ll resign from this Board. Shareholders could sue us for excluding most–profitable customers.”

Concepts like “right” and “wrong” have no place in a company whose shareholders care only about maximizing profits.

Problem 2:

Having shareholders places stress upon a company to report positive quarterly earnings. Thus a fear of showing low earnings or even a loss in the short term can prevent management from investing in long–term profitability and growth strategies. Thus the pressure for positive quarterly returns works against the company and, ultimately, against the very shareholders management seeks to please.

Problem 3:

Then there’s the whole private equity thing. Ideally, you’d think people would acquire a business for its profit and growth potential. But there are firms whose business model is to acquire a company’s shares and then make money by driving it into the ground, ultimately bankrupting it.

Unbridled capitalism is an amoral system.

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