Home > Uncategorized > Sheelah Kolhatkar Offers Concise Background on Impact of Shareholder Primacy on Employees

Sheelah Kolhatkar Offers Concise Background on Impact of Shareholder Primacy on Employees

June 25, 2017

In a recent New Yorker article titled No More Mr. Nice Guy”, Sheelah Kolhatkar opens contrasting the ethos of ride share start-up Uber with that of its competitor Juno, whose founders “…had adopted the language of a doing-well-by-doing-good philosophy that has spread in the business world in recent years.” In Uber’s world, shareholder’s come first and everything else takes a back seat. Juno’s world, on the other hand, is based on the concept of “socially responsible capitalism…business has multiple stakeholders—not just owners but employees, consumers, and also the community—and each of their interests should be taken into account.” Ms. Kolhatkar then offers a concise description of how the concept of shareholder primacy impacts the lives of working Americans:

In a new book, “The Golden Passport,” the journalist Duff McDonald lays much of the blame for that thinking at the feet of a Harvard Business School professor named Michael Jensen, whose “agency theory,” developed in the nineteen-eighties, sought to align the interests of managers with those of the company’s investors. (Gordon Gekko spoke eloquently on its behalf in the movie “Wall Street.”) This alignment led to huge stock-option pay packages for top corporate managers and, McDonald argues, provided an intellectual framework that justifies doing anything (within the law) to increase a company’s stock price, whether that be firing workers or polluting the environment.

In this philosophical tension, the investors-above-all doctrine seems to have triumphed over the more inclusive approach. “I think what’s recent is maybe being so completely blatant about it,” Peter Cappelli, a professor and labor economist at Wharton, said. When American Airlines agreed to give raises to its pilots and flight attendants in April, analysts at a handful of investment banks reacted bitterly. “This is frustrating,” a Citigroup analyst named Kevin Crissey wrote in a note that was sent to the bank’s clients. “Labor is being paid first again. Shareholders get leftovers.” Jamie Baker, of JPMorgan, also chimed in: “We are troubled by AAL’s wealth transfer of nearly $1 billion to its labor groups.”

Anyone looking for evidence that the investors-above-all doctrine has prevailed doesn’t need to look any further than Congress and the White House, where privatization of public services is the favored direction and the reduction of tax burdens on the wealthy and the elimination of benefits and safety nets for those born into poverty seem to be foremost on the legislative agenda. It seems that the GOP leaders are intent on creating the dysfunctional government they contended was “the problem” by cutting staff and programs and re-casting the role of government as facilitating the needs of one set of stakeholders— business— at the expense of everyone else. In effect, they are applying the principals of shareholder primacy to the the government and the business owners are thriving while everyone else suffers. in effect, an effort is underway to make public sector employees into Uber drivers while a small group of plutocrats rolls in ever larger amounts of money.

Later in her article, Ms. Kolhatkar reports that Juno’s high-minded executives recently sold their start-up to Gett, a new company whose ethos is more aligned to Uber. She concluded her article with this:

When I called a Juno driver named Salin Sarder to ask about the latest developments, he was surprised to learn that the Juno stock-grant program had been cancelled, and blamed his ignorance on the fact that he hadn’t checked his e-mail. (The company has not made a public statement and did not respond to my inquiries.) He was, on the other hand, pleased to learn that the new Juno-Gett would be honoring the favorable commission rate Juno had been offering, at least for a few months. He also had a few thoughts about the app-economy business model favored by Silicon Valley investors. “If you are a millionaire and all around you is poor, you have no safety,” Sarder, who comes from Bangladesh, said. “Happiness is there when everyone has happiness.” 

I hope that the leaders in Washington will listen to Mr. Sarder’s wisdom. There can be no happiness in a culture where a small number of millionaires are surrounded by poverty… and, as he implies, when those in poverty see how the game is rigged against them the safety of our democracy could be in peril.

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