15 Jul 2020 CEOs Need To Focus On Rebuilding Shareholder Value, Not Rebranding The Redskins
The CEOs of some of the biggest American corporations, including PepsiCo, FedEx and Bank of America, spent the recent Independence Day weekend trying to cancel the names of the Washington Redskinsand Cleveland Indians.
The qualifications of these CEOs to force other organizations to change the way they brand themselves are unclear, as is the relevance of soft drink production or package delivery to the central civic questions of the day. Their only standing in the discussion arises from the wealth and power of their corporations, and they should serve simply as managers of that wealth and power for the actual owners of these corporations, the shareholders.
Bank of America CEO Brian Moynihan is the epitome of a cancel culture CEO. Before this attempt to cancel the Redskins, he had fired some of his own bank’s clients, including certain gun manufacturersand companies that worked with immigration detention centers, because those outfits offended his personal sensibilities.
Now he and his pals are gunning for the Redskins, even though evidence suggests that changing the names of these teams is not what the majority of these companies’ shareholders want. A long string of polls has suggested that most Americans would prefer that the names not be changed, a position agreed to by the majority of Native Americans. The latter group’s most common response is to be “proud” of the Redskins name.
It does not appear that these CEOs delved into this sociological evidence, or considered the views of the people who actually own their stock. Instead, they succumbed to the demands of explicitly left-wing asset managers, including Trillium Asset Management, Boston Common Asset Management, Boston Trust Walden and Mercy Investment Services. These firms regularly agitate to push American corporations to the far left, making no objective effort to consider the path to maximum corporate profitability or return to investors. Rather, they follow their institutional policy preferences, and cherry-pick evidence that favors those preferences.
Still, corporate CEOs have no legal right – at least not yet – to place personal policy preferences above shareholder value maximization.
In other words, we are seeing beloved sports teams being forced to change their names against the will of Americans generally and Native Americans specifically, at the demand of parties who are ignoring their duty to run their businesses for the benefit of shareholders, at the behest (or with the connivance) of a relatively small cadre of activists.
This is a farce, and should properly be understood as a violation of fiduciary duty. But similar farces will become commonplace if the push by some of the country’s most influential CEOs toward a “stakeholder supremacy” model is successful. Adoption of stakeholder supremacy would allow those CEOs to substitute their own policy judgments for their duty to the investors who truly own their companies.
This change will result in increased civic discord, as corporate leaders push niche boutique demands upon publicly-traded companies using the shares held in mutual funds, pension funds, and other large pools by Americans who wouldn’t necessarily support these causes. If current trends continue, we can expect protection and fundingof all manner of left-wing activism, and simultaneous exclusion of anyone who dares to express the common sentiments of the broad middle of American civic thought – including a great many true stockholders.
To add insult to injury, one of the central effects of adopting stakeholder primacy would be – despite the egalitarian rhetoric of its supporters – the increase of national wealth inequality. This is because stakeholder primacy, if adopted, would replace shareholder primacy, under which corporate management has been obliged to make decisions only for the purpose of maximizing shareholder value, i.e., actually acting as managers for the benefit of the company’s owners, rather than as self-appointed petty potentates. The whole point of stakeholder primacy is to free CEOs from the boring old obligation to serve the interests of shareholders, and to allow them to indulge their personal interests on those shareholders’ dimes. The necessary effect of this change will be to reduce shareholder value.
Meanwhile, these CEOs all make enough money that they can invest through private-equity vehicles: pools of money collected from other very rich friends and then invested. These investments will not be subject to the new norm of putting social issues, i.e., “stakeholder concerns,” above questions of profit maximization. And thus private-equity investors – those who are already very rich – will have freedom to invest for maximum returns, while that opportunity will have been denied to ordinary investors.
In sum, stakeholder primacy will reduce the relative value of average Americans’ investments as CEOs and investment-firm leaders inflict their personal policy preferences nationwide, while leaving those CEOs and leaders free to invest for maximum value – thus increasing their relative wealth at the same time.
The best interest of the vast majority of Americans lies in reversing the trend toward stakeholder primacy, and anchoring corporate leaders once again to the firm bedrock of shareholder primacy.