ownership and fiduciary duty

The Wall Street mantra is very simple. A company is in business to make money for its owners. These owners are the shareholders, and often include people like you and me. The key assumption is that the shareholders are only interested in making money, to the exclusion of everything else. More about that later.

The mantra means management has to set aside all their personal judgement, emotions, feelings, and common sense and act like ruthless profit seekers. If they have to go against people's interests and cause damage so be it. It is their fiduciary duty. That is a nice word for saying they are bound to act against anything and everything that stands in the way of profits.

Such behavior has been dubbed psychopathic by at least one psychologist. He points out that although management may consist of reasonable people who display normal human traits, such as empathy and altruism, all these have to be put aside in pursuit of making money. Such antisocial behavior without remorse is exactly what psychopaths do. And all this is to done in the name of the shareholders, who are -as I pointed out- people like you and me. People who are, on the whole, normal people with feelings, sympathy and empathy. But let's deal with another point first.

If businesses have to act like psychopaths, and apparently they do, then they cannot be good corporate citizens. Despite all the PR and goodwill they try to buy, they are in essence deceiving us. Oil companies do not want to save the environment or act responsibly like their ads say, they want to stuff their pockets. Pharmaceutical companies do not want to cure illnesses or end suffering, they want to increase their margins. They have to. Their employees and managers may feel differently, but it is their fiduciary duty to act like cold psychopathic monsters and put profits first.

No person, who is immune to the suffering and plight of others can be called a good citizen. And anyone who blatantly disregards the well-being of others in the pursuit of a single-minded dream -in this case greed-can not be a member of society. And companies, true to their manager's fiduciary duty do such things. They uproot towns, they disenfranchise workers, and they destroy the environment in pursuit of money. That means their advertising is a lie. Management has a fiduciary duty to lie when they put out ads saying the company does anything but maximize profits.

So why do we tolerate such behavior and such lies ?

And why, if we are the true owners can we not agree on a different mission ? We own these corporations, in part directly through the shares we buy and indirectly through the money in our pension funds. Money that ultimately belongs to us but that is temporarily administered by professional money managers. Managers who are in a real sense our employees as we employ them to take care of our money.

Why can we not force companies to forgo profits and be good corporate citizens ? Why can we not have a balanced set of goals that includes taking care of families, taking care of the environment, and not just pursue money for the sake of money ?

But what about the original owners you say ? They were in it to make money. Assuming they are not psychopaths, I would argue, they too should have a balanced view. Furthermore, even if they were psychopaths, they get what they bargain for. When they accept new owners by selling shares in a public offering they are in effect giving away part of their company. If entrepreneurs do not want others meddling with their company they should refrain from selling stock to the public.

One could also argue that these social matters are already taken care of. That so-called socially responsible investment funds are the solution to this problem. However, that is clearly not so. These funds chose to invest in companies that are vetted for socially responsible behavior. What I propose is that we, as a society set rules on how we want companies to behave. And that all companies who want our money be forced to behave that way. Not that we go out and find some companies who happen to behave properly -and apparently in violation of their "duty" then- and give them funding instead.

You may argue that this is not feasible. But the reality is quite to the contrary. We do have a government to do this. And if that government is really by the people and for the people -and not the other way around- then this should not be a problem. We vote on how we want thing to be, including companies. We own them after all.

Then managers would no longer be in a bind and be forced to behave against their better judgement. They could take into account other values and they could truly represent what society wants for the greater good. How is that for a change ?