13 June 2012

Owner Capitalism. The New Absentee Landlords

I’ve never quite subscribed to the fictitious idea that contemporary shareholders of public companies are truly “owners.” They may own the company’s stock, and by virtue of placing a bet on an arcane future outcome based on an alchemic expectation (and actual delivery) of future profits, relative degree of satisfaction or disappointment (irrespective of actual success), and what Apple or Google have recently announced (or perhaps literally, the price of tea in China), may be entitled to a financial reward from time to time. But that reward is more akin to a bet at the craps table in the casino called Bay Street, Wall Street, NASDAQ, or similar. The overwhelming majority of company stock purchases are simply about money making more money based solely on the movement of money. Aside from angel investors and venture capitalists investing in start-ups, long gone are the days when a so-called investor is authentically investing in the success of the enterprise, as opposed to the financial return of the supposed investment itself.

This premise is the basis of a new book by Yvan Allaire and Mihaela Firsirotu, A Capitalism of Owners, reviewed today in the Globe and Mail.
In an era where companies must be flexible and strive for change, the authors say corporate leaders face a stressful paradox. The more competitive the markets for goods and services, the more businesses need time to adapt, innovating and putting in place new strategies (as Ms. Nooyi was attempting) without speculators breathing down their necks.

“Yet, in these very times of a raging competitive battle, contemporary financial markets, the supposed ‘company owners,’ pile on widely held publicly listed companies, bullying them for short-term results and then exit the stock en masse, leaving the place to speculators, financial jackals, and buzzards,” the authors note.

Note the phrase “supposed” owners. Under capitalism, ownership belongs to the holders of shares. But the authors question whether today’s stockholders are share owners or share flippers, speculating on the market. They note that in the 1960s, a share was held, on average, for seven years by its owner. Today, on the New York Stock Exchange, shares are held for less than a year – roughly the level at the time of the 1929 market crash, the authors note. Other major exchanges have seen a similar transformation.
Exactly my point. Taking a more theoretically grounded approach to the analysis, I would argue that, according to Valence Theory, most shareholders are not even members of the organization; how on earth could they be considered “owners” qualified to participate in decision making? Indeed, the company’s customers have stronger, more pervasive ties to the organization and would theoretically be better qualified to contribute to good decision making on behalf of all constituencies.

We all know the problem with absentee landlords. Owner capitalism is equivalently problematic, and far more pernicious in its effects on society in general.

1 comment:

Mark Federman said...

A bit of explication about the comment above that most shareholders are not members of the organization, and therefore are not appropriately situated to participate in decision making.

According to Valence Theory, "Organization is that emergent entity resulting from two or more individuals, or two or more organizations, or both, that share multiple valence relationships at particular strengths, with particular pervasiveness, among its component elements at any point in time."

The key is the issue of multiple valence relationships. Shareholders, arguably, have only one valence relationship with the organization, namely, economic. Their connection is simply transactional; moreover, it is entirely about a relationship with one's own money presumably growing and producing more money that is to be returned to oneself. The organization is relatively incidental to the entire money-enhancing enterprise.

A single valence relationship does not a member create (in the same way that I am not a member of a hot dog vendor's organization simply by purchasing my veggie dog at lunchtime). So, if an investor is not even a member of the organization, how could s/he be considered an owner, let alone be permitted in good conscience to make decisions that affect other constituencies whose voices are marginalized or outright denied?