The Pandemic and Shareholder Value

Shareholder value has driven corporate governance in North America for over a century. In the wake of significant financial crises and growing inequalities, corporate America decided in 2019 to embrace a more egalitarian model, in which all stakeholders matter equally. The brutal pandemic that wreaked havoc in the first half of 2020 exposed a startling disconnect between the real economy and the stock market. This disconnect is due to a gap between explicit and implicit corporate governance. While officially corporate America wants to convert to a new doctrine, the pandemic has shown that shareholder capitalism has remained the default model. Good intentions and official declarations are not enough in a system that has been specifically designed to serve the shareholders. If stakeholder capitalism is to succeed, it needs a clear normative content and perhaps a more radical reform of institutions and regulation.

From exit to control: The structural power of finance under asset manager capitalism

Political economists have theorized the structural power of finance as a function of the scarcity of financial capital, which empowers its owners and intermediaries to (threaten) exit. This theory has trouble explaining the non-death of the rentier at a time when financial capital is abundant and lacks a credible exit option. This paper presents a theory updated for a world characterized by financial capital abundance, and by a shift in the predominant function of finance from banking to asset management. Today, asset managers pool financial capital on a scale that often puts them in a position of (near) control, while also maintaining a high degree of portfolio diversification. This defining feature of asset manager capitalism, although observable across asset classes, is most pronounced in the corporate economy. Whereas the control-based dominance of finance capital during the early 20th century was characterized by credit-debt relationships between banks and corporations, today asset managers’ equity holdings dominate; and whereas the shareholder capitalism of the late 20th century was characterized by impatient investors wielding the threat of exit, the power of asset managers in corporate governance is based on their large and illiquid, yet fully diversified shareholdings. Theorizing the structural power of finance as based on control and diversification helps explain both the rentier’s longevity and asset managers’ contribution to that outcome.

Fase di ‘transizione critica’ per il Sistema-Terra

Pandemic, health crisis, climate risk after decades of stressing natural capital because of overexploitation of resources and moreover increasing socio-economic inequalities are considered by many scholar to cause a tipping point in the evolution of bio-physical and socio-technical processes on a global level. In light of the systemic interdependencies of a hyper-connected world, the scenario of a global systemic crisis does not appear unlikely. We can try to avoid it by taking on new strategic priorities and mindset, then defining theoretical imperatives and application criteria. In this perspective, an example is the paradigm shift represented by the passage from the so-called shareholder capitalism to the stakeholder capitalism.

The new permanent universal owners: Index funds, patient capital, and the distinction between feeble and forceful stewardship

Fundamental change is happening in global finance – the shift from active management to index funds. This money mass-migration into index funds has far-reaching socio-economic consequences, as it has the potential to transform the nature of shareholder capitalism. We call BlackRock, Vanguard, and State Street the ‘New Permanent Universal Owners’ that are invested indefinitely in thousands of firms. We provide novel findings on the combined ownership of the Big Three in European countries and Japan and investigate how this signals a shift away from the shareholder capitalism that has been dominant for the past three decades. We discuss the future role(s) of the New Permanent Universal Owners in corporate governance including whether they foster patient capital and introduce the distinction between feeble and forceful stewardship.

9. Entrepreneurs and the global economy, 1980–2020

“Entrepreneurs and the global economy, 1980–2020” charts important shifts in corporate culture from managerial capitalism to shareholder capitalism. Other upheavals were brought about by deregulation, free-market economics, and increasing financial complexity. Silicon Valley was emblematic of the changing business landscape, creating small, nimble companies and cult figures such as Steve Jobs. The personal computer, eventually taking the form of the smartphone, was one of the most disruptive inventions of the time. The early 2000s were characterized by financial innovation and scandal, culminating in a recession that lasted through 2010. Recently, business leaders have been criticized for political lobbying, environmental recklessness, monopolistic behavior, and creating wealth inequality.

Stakeholder capitalism strategies and opportunities for corporate governance

Stakeholder capitalism is the notion that a company focuses on meeting the needs of all of its stakeholders: customers, employees, partners, the community, and society as a whole. In August 2019, 183 of the 206 Business Roundtable (BR) companies signed the BR Statement of the Purpose of a Corporation advocating stakeholder capitalism beyond the traditional shareholder capitalism. The major research question of this paper is whether companies who have committed to stakeholder capitalism are fulfilling their commitments and to provide some recommendations to their boards. We closely study the scrutiny from institutional investors and stakeholder capitalism report developed by KKS Advisors and TCP (2020). The findings show that the BR company signatories have failed to deliver fundamental shifts in corporate purpose to stakeholder capitalism (Bebchuk & Tallarita, 2020; Goodman, 2020). However, non-BR companies, primarily public benefit corporations (PBCs) and B corporations, have implemented stakeholder capitalism strategies and offer innovative stakeholder opportunities for corporate governance. The boards of BR companies should advocate for a more affirmative duty to stakeholders and consider converting corporate structures to develop stakeholder capitalism. Future research should continue to investigate this corporate governance opportunity.

Japan’s Ambivalent Pursuit of Shareholder Capitalism

Could international financial capital impose shareholder sovereignty on Japan, the ultimate bastion of stakeholder capitalism? As the Japanese economy descended from boom to bust in the early 1990s, government and industry leaders called for a decisive move toward US-style shareholder capitalism, and increasing foreign share ownership exerted strong pressure to adapt corporate governance practices to Anglo-American norms. In practice, however, the government gave firms more options for restructuring but did not make them more beholden to shareholders. Firms on their part favored superficial adjustments to prop up share prices rather than fundamental changes, because they sought to preserve the strengths of their traditional business models. This article explains how marketplace developments, domestic political dynamics, and corporate strategies combined to produce the distinctive pattern of Japanese corporate governance reforms since the 1990s. It concludes with an assessment of the consequences of these reforms for managers, workers, shareholders, and the general public.