Showing posts with label stockholders. Show all posts
Showing posts with label stockholders. Show all posts

Tuesday, May 12, 2026

Managerial Capitalism: Being and Becoming

At first glance, Friedrich Nietzsche’s pro-capitalist stance on private property and the process of accumulating profit (or wealth) may seem to extend a vote of confidence to the business manager as a type. After all, managers manage the private property of stockholders (which can include themselves) with a fiduciary duty to do so to increase shareholder value by maximizing profit. The notion of profit-seeking by maximizing revenue and minimizing cost is arguably too simplistic. Squeezing a workforce too much, for example, can backfire in the long term. Nietzsche was concerned about such a thing happening even though he claims that the vast majority of laborers must be kept to subsistence wages for culture to be possible. He castigates petty, short-sighted managers who do not look out for the spiritual and economic welfare of workers, and yet holds that those workers must be slavish in the sense of being exploited by employers so culture can emerge and be sustained by the rich. To be for such exploitation and yet against petty cost-cutting managers renders Nietzsche’s socioeconomic philosophy interesting as well as useful in terms of keeping a capitalist economy from being reduced to the mentality of its bottom-feeder producers. I first discuss the matter of exploitation and then turn to how Nietzsche addresses his wider socio-economic philosophy more specifically to human-resource management. Within the wider subject-heading of exploitation, very different approaches, or mentalities, to human resource management can be discerned. In dichotomous terms, there can be said to be a pathos of distance between enlightened self-interest and selfish, short-sighted greed.

Nietzsche claims that capital accumulation and economic inequality are necessary for adequate investment in culture, such that not everyone must be oriented to satisfying basic needs. Moreover, private property and accumulating money serve a more fundamental function in terms of human being and becoming, the latter being construed in terms of, growing. Nietzsche’s use of this term can be thought of in terms of Aristotle’s appropriation from the natural world for his philosophy.

It has seemed to me in life that some people may have a static orientation, whereas other people may be inherently oriented to change, as in self-development. The static orientation is based on being, whereas the default of dynamism can be said to be based on valuing becoming. It may be that people wetted to a static state of being feel threatened psychologically by change-oriented people because the latter typically want the former to work on themselves too. In a dysfunctional family in which most of the people value stasis, for example, the person who values development may ironically be scapegoated precisely because any change is rejected, even that which would make the family healthy. Translated into Nietzsche’s socioeconomic philosophy, possessing assets, or private property, applies to a person’s static nature, whereas accumulating wealth means that a person is dynamic—changing.

To Nietzsche, capital accumulations by titans, and those by wealthy people more generally, have permitted the advent of culture in terms of there being adequate investments in it—something that we moderns may take for granted even though much of human (pre) history our species was oriented to meeting survival needs. Regarding a society having some individuals rich enough to develop a cultural scene, Nietzsche insists that what Marx calls the surplus value of labor of the vast majority of workers must be transferred to the few—the capitalists—so they have enough money to invest in culture. A city benefits even though most laborers work for subsistence wages. Nietzsche relates capitalist enterprise to culture as follows:

“In order for there to be a broad, deep, fertile soil for the development of art, the overwhelming majority has to be slavishly subjected to life’s necessity in the service of the minority, beyond the measure that is necessary for the individual. At their expense, through their extra work, that privileged class is to be removed from the struggle for existence, in order to produce and satisfy a new world of necessities. Accordingly, we must learn to identify as a cruel-sounding truth the fact that slavery belongs to the essence of culture. . . . The misery of men living a life of toil has to be increased to make the production of the world of art possible for a small number of Olympic men.”[1]

Slavery here is in the sense that the laborers are held to such a minimum monetary compensation that they cannot free themselves from working so their basic survival needs are met. For the privileged class—the capitalists—to be removed from the struggle for existence is a late-arriving novelty for our species, and thus the advent of culture can be construed as a luxury rather than as an intrinsic aspect or manifestation of human existence. Put another way, even though the dominance of the capitalists over labor, which I submit is a better description than is the word slavery, “belongs to the essence of culture,” culture does not belong to the essence of our species. So even though culture raises the entire species from being oriented to satisfying subsistence needs, the scaffolding that is constructed to reach the rarified air can be viewed as artificial.

Neither is the exploitation that is necessary for culture natural. Landa argues that the relevance of Nietzsche for capitalism lies precisely in slavish exploitation. Even though Nietzsche claims to have “stood far above any strictly material concerns, the basic fact cannot be ignored that, if his ‘aesthetics’ necessitate slavery, . . . if the production of ‘culture’ means the ruthless material subjugation of the vast majority of people to the benefit of an elite, then a socioeconomic theory of exploitation is inscribed into the very core of his aesthetic theory of noble culture. And it precisely here, I argue, that Nietzsche’s pertinence for capitalism lies, in the dreary fact of exploitation . . .”[2] Although the economic elite undoubtedly benefit, however, it is the species that benefits from culture. Put in terms of socioeconomics, a city benefits by having some buildings devoted to culture rather than to the means of production. Although this point renders the exploitation somewhat better morally, Nietzsche’s criticism of modern morality means that he rejects the normative objection that economic exploitation is unethical. Considering that the benefits of accumulated wealth for culture benefit not just the rich and the exploitation (i.e., economic “slavery”) is spared a damning ethical verdict, it is not difficult to see why Nietzsche would be in favor of culture. Of course, apart from Nietzsche, the holding of the vast majority of a workforce to subsistence wages while an economic elite gets rich off the transferred surplus value of labor is ripe for ethical castigation. Even if we reject Nietzsche’s socioeconomic account of culture as a result, Nietzsche presents another rationale for being wealthy—one that is existential in nature.[3]

Private property and accumulating wealth correspond to being and becoming, respectively. As such, Private property and capital accumulation are “firmly established by Nietzsche as representing the rudiments of life itself.”[4] Nietzsche claims that “those who have possessions are of one mind on one article of faith: ‘one must possess something in order to be something.’”[5] Does this mean that the subsistence-limited worker bees do not exist? Surely not. Perhaps Nietzsche means to count as something rather than to be something. This interpretation is in line with the businessman’s value-set wherein to count as someone is a matter of how much one possesses (i.e., how wealthy one is).

The capitalists would perhaps be less familiar with Nietzsche’s rationale for the act of accumulating possessions, including money: “But this is the oldest and healthiest of all instincts: I should add, ‘one must want to have more than one has in order to become more.’ For this is the doctrine preached by life itself to all that has life: the morality of development. To have and to want to have more—growth, in one word—that is life itself.”[6] Here, becoming is put in terms of growth as a natural process of life.[7] The will to power is for Nietzsche the will to life, and strength is the self-confident embrace of the fullness of life in overcoming obstacles in order to feel the pleasure of power. According to Landa, Nietzsche claims that to “live truly and properly is therefore to Exploit, Possess and Accumulate . . . Under this light, the will to power reveals itself as the metaphysical extension of the will to money.”[8] But do counting as something in virtue of having material possessions and growing as a plant does count as metaphysical? Moreover, what use did Nietzsche have for speculative metaphysics? Rather than being grounded in existentialism, Nietzsche’s view of being and becoming may bear a family resemblance to Heidegger’s claim that a person as a dasein, or one that is, comes to realize oneself hammering in an open field; only in action does a person realize oneself as one is as a that (i.e., an entity). The action to which Nietzsche refers is only open to the capitalist, however, in accumulating wealth, for the worker bees are enslaved to meeting their subsistence needs and thus are cut off from becoming in the sense of growing.

Lest it be concluded that Nietzsche’s view favors business managers, including executives, rather than stockholders who are oriented to the long-term value of their stock, Nietzsche spanks down the typical managerial primacy of immediate profit: “No doubt, the wide-ranging, multi-faceted perspective of the philosopher, as compared with the narrow view of the standard market-apologist intent on immediate gains, endowed the former a much more flexible class position. . . . Since the preservation of the class hierarchy and the prevention of a comprehensive socialist alternative was the foundation of Nietzsche’s social vision, he was at times perfectly willing to criticize naked exploitation of labor when that meant dangerously exacerbating class enmity to the point of imperiling the overall stability of the system. As in the following example: ‘What we now refer to as justice, is from this point of view a highly refined usefulness, which does not take into consideration only the present moment and exploits the opportunity, but rather reflects with responsibility on the lasting consequences, therefore taking care of the well-being of the worker as well, of his physical and spiritual satisfaction, in order that he and his descendants will continue to work for our descendants, and will be available for a longer period of time than a single individual’s life. The exploitation of the worker was, as one now understands, a stupidity, a ruthless enterprise at the cost of the future, which endangered society. Now we have before us almost a war, and the price for achieving peace, for sealing contracts and wining trust, will at any rate be very high, since the foolishness of the exploiters was great and long-lasting.’”[9] A company’s management that can be characterized by the short-sighted, petty greed of its managers is sub-optimal from the standpoint of maximizing stockholder wealth in the long-term, and thus is not in line with being and becoming. Even in terms of the wealth of non-stockholder executives, cutting labor benefits that are already trivial so as to boost next quarter’s bonus detracts from being able to retain workers whose efficiency can “grow” the company, and whose sons and daughters may decide to work for the company. In short, to the extent that the manager as a type cannot master (i.e., overcome) the instinctual urge of greed manifesting as short-sighted, selfish pettiness, Nietzsche’s pro-capitalist philosophy is not in favor of managers of such a pathetic mentality of weakness. The philosopher’s (amoral) approbation is reserved for managers who apply enlightened self-interest to management of stockholder wealth concentrated as a company by looking after non-supervisory employees in order that they will (and their offspring, if hired) continue to produce such that stockholder wealth can grow like a tomato plant on a vine during a warm, wet summer.

It is ironic that it is a philosopher who “chides economic liberalism on strictly pragmatic grounds and promotes, against the irresponsible zeal to maximize profits at the immediate present, the contraceptive measure of a ‘highly refined usefulness’ whose purpose is to ensure that the very principle of profit will survive on an enduring basis. To the extent that the ruthless practices of economic liberalism, by over-exploiting the worker, become themselves a potentially destabilizing factor jeopardizing the future, Nietzsche is willing to show his teeth to the masters as well, and recommend what one commentator readily celebrated as ‘an enlightened labour policy.’”[10] Nietzsche’s esteem for the will to money as possessing and accumulating goes not include the greedy zeal to maximize profits without adequate attention being placed on resisting expedient measures that are oriented to temporarily boosting quarterly profits and the stock price.

Beyond taking away employee perks such as complimentary gym memberships even though exercise can elongate how long an experienced employee can work, managers can detract from the long-term monetary value of a company (and stockholder wealth) by being petty with customers. When grocery-store companies decided to charge customers for paper bags, customers rightly perceived the managers as petty. When petty managers of airlines figured out that they could boost revenue by charging customers for seats with extra leg-room and for checked luggage—even applying a weight-limit to each suitcase—the business judgment was that any business lost in the long-run from customers feeling “nickeled and dimed” by a greedy management would be made up for by the more immediate revenue gained from the fees. An example of a viable substitute in the long-term in North America could be high-speed trains.

In contradistinction to banal, incrementalist managers, Nietzsche’s esteem for self-confident strength, which says in terms of its natural rather than contrived, self-interested generosity, what are the parasites to me? A person having an overflowing surplus of power (and wealth) and is oriented to life can be contrasted with the new bird of prey—the weak who seek to dominate by petty cruelty. Whereas the self-confident, strong business titan is oriented to the pleasure that is obtainable from a large, successful business deal, the weak manager greedily clutches at cutting costs budget-item by budget-item. Whereas courageous titans can be likened to the Greco-Roman conquerors whose nature it was to gain land and captured slaves, petty, control-obsessed managers can be likened to ascetic priests whose weak nature it is to inflict “Thou Shalt Not!” as a weapon to beguile the self-confident strong.

Managers who market themselves as leaders rather than managers while actually micro-managing subordinates are nonetheless innately weak rather than strong. The “leadership versus management” dichotomy itself may be a guise wherein petty managers seek to rebrand banal management as something that is enlightened in terms of self-interest. To be sure, Nietzsche points to the possibility of such self-interest being adopted by managers in order to meet the spiritual and (basic) material needs of workers so the best of them do not leave. Indeed, such economic self-interest should extend to take into account generations of workers.

Therefore, even though Nietzsche’s philosophy can be regarded as pro-capitalist because private property and accumulating wealth enable a sense of being and becoming, respectively, it cannot be said that the philosophy lauds the business manager as a type. Rather, it depends on the underlying mentality of a particular manager and even of a company’s management. Organizational culture can play a large role in forming and maintaining managerial values, norms, and practices. The culture of Enron was dramatically different than that of Ben and Jerry’s, for example. Just because Nietzsche’s philosophy can be reckoned as pro-capitalist does not mean that he would support any management. In fact, capitalism itself need not be defined in praxis by its lowest common denominator. Nietzsche’s philosophy can be utilized to keep that from happening, or to raise an economy based on private property and the market-mechanism above the squalid mentality of its bottom-feeder producers.



1. Friedrich Nietzsche, “The Greek State,” in On the Genealogy of Morality, trans. Carol Diethe (Cambridge: Cambridge University Press, 1994), pp. 178-79.
2. Ishay Landa, The Overman in the Marketplace: Nietzschean Heroism in Popular Culture (Lanham, MD: Lexington Books, 2007), p. 28.
3. This is not to say that Nietzsche was an existentialist. The Leibniz scholar, Patrick Riley, once asked me whether I thought Nietzsche’s philosophy falls under existentialism; he didn’t think so either. Neither is the philosophy nihilist; Nietzsche asks, “what is nihilism today if it is not” being “weary of man.” Friedrich Nietzsche, On the Genealogy of Morals, in Basic Writings of Nietzsche, trans. Walter Kaufmann (New York: The Modern Library1968), p. 480.
4. Ishay Landa, The Overman in the Marketplace: Nietzschean Heroism in Popular Culture (Lanham, MD: Lexington Books, 2007), p. 28.
5. Friedrich Nietzsche, Beyond Good and Evil, trans. Marion Fabor (Oxford: Oxford University Press, 1998), p. 77.
6. Friedrich Nietzsche, The Will to Power, trans. Walter Kaufmann and R. J. Hollingdale (New York: Vintage Books, 1968), p.  77.
7. Here Nietzsche is in line with Aristotle.
8. Ishay Landa, The Overman in the Marketplace: Nietzschean Heroism in Popular Culture (Lanham, MD: Lexington Books, 2007), p. 29.
9. Ishay Landa, The Overman in the Marketplace: Nietzschean Heroism in Popular Culture (Lanham, MD: Lexington Books, 2007), p. 30. Translating from Friedrich Nietzsche, Samtliche Werke: Kritische Studienausgabe in 15 Einzelbanden (Herausgegeben von Giorgio Colli und Mazzino Montinari, Berlin/New York: Walter de Gruyter, 1988), Vol. 2, pp. 681-82.
10. Ishay Landa, The Overman in the Marketplace: Nietzschean Heroism in Popular Culture (Lanham, MD: Lexington Books, 2007), p. 31. Landa quotes from Keith Ansell-Pearson, An Introduction to Nietzsche as Political Thinker—The Perfect Nihilist (Cambridge: Cambridge University Press, 1994), p. 91.

Tuesday, July 8, 2025

Elon Musk’s Controversial Politics: Beyond the Financials

As U.S. President Trump signed his “Big Beautiful Bill” into law on July 4, 2025, Elon Musk, shareholder and CEO of Tesla, announced that he would create a new political party (or “group” in European-speak). Musk opposed the projected trillions of dollars that the bill would add to the debt held by the U.S. federal government, though, as CEO of SpaceX, he was fine with cutting a trillion dollars from Medicaid, which provides health coverage to the poorest of the poor, and from food assistance while the defense budget was augmented. Musk’s proposed “America” group would likely draw support from Trump’s “MAGA” base, rather than from moderate Republicans and any Democrats. Whether Musk was more motivated by breaking up the political duopoly of the two major parties, or groups, to increase the practical options for voters or to split Trump’s support and punish the Republican party, such controversial political involvement by a major shareholder CEO is without doubt risky business. This is not to say that CEO’s should not be active politically apart from business strategy, for even business managers are citizens and thus may feel compelled to become active politically. This is to be lauded especially if the motive is out of duty to repair or otherwise improve a political system.

On the next working day after Musk’s announcement that he would be forming a new political party, “Tesla shares plunged nearly 7 percent . . . as investors registered dismay” at Musk’s “plans to form a third party and his intensifying feud with President Trump.”[1] Even though 7% is not exacting “plunging” or “crushing” Testa shares, beyond the hyperbole of journalists is the point that not avoiding controversy politically has costed Tesla and Musk himself financially. To be sure, billionaires can afford to lose significant wealth and still be left standing comfortably, and even in the case of business practitioners, economic reductionism doesn’t always hold. Also, political involvement can raise stock prices, as, for example, “Musk’s involvement in politics and his financial support for the president’s campaign were once seen by investors as a benefit to Tesla, fueling a steep rise in company shares after the election” in November, 2024.[2] No one but the most cynical would deny, however, that Musk’s chief motivation that led to his involvement in “DOGE” in the White House was for his businesses to benefit even though they did, initially. So that they took a hit when Musk broke from President Trump and then formed the America Party cannot be assessed only as concerns the financial impact on Tesla or SpaceX.

In American history, the notion that wealthy people should devote some time to public service for the benefit of the Union or their respective member-states was once well-known. Both because such people could afford financially to take time off from business and because their experience could be useful in governing, the notion of public duty was beneficial to the public good. Men like Thomas Jefferson and George Washington did not make public service into a career and did not go into politics primarily for its positive financial benefit. As a frustrated General dependent on the sovereign states whose delegates met in the Second Continental Congress, Washington would not have endured such hardships as he did were his motivation simply to benefit himself and his landholdings in Virginia financially. Even though Musk is by no stretch another Washington, more has been involved in Musk’s political motivation than maximizing Tesla’s stock price or gaining government contracts for SpaceX, and even getting back at Donald Trump. Government, moreover, is not just the aggregate of business interests without remainder.

Other billionaires might look to Musk’s example not in terms of his political ideology necessarily, but in terms of having enough financial cushion to weather political-turned-financial pushback from going beyond business to engage in public service—to give back, as it were, so to improve the system of government and add to the public good. It is admittedly very easy to be guided by personal and business financial considerations in delving into politics, whereas being willing to hold those at bay out of a sense of public duty is more difficult, and, frankly, increasing rare as American history has proceeded but not necessarily evolved politically. The notion that duty pertains to citizenship has become increasingly recessive in public discourse and consciousness. This is to say that duty-bound CEO’s are saints; rather, it is to say that we shouldn’t be so surprised when a billionaire businessman jumps into politics not merely for financial reasons, and thus not turn back to shore after a financial hit. Even if motivated by political ideology rather than in saving the union from itself (e.g., public debt), personal and business financial benefit is not the whole story, and the public good can still be a beneficiary. 


Mozi says, "'worthy people [are] those who are well versed in virtuous conduct, discriminating in discussion, and broadly knowledgeable!’ . . . . When the wealthy and eminent in the state heard this they retired and thought to themselves, ‘At first, we could rely on our wealth and eminence, but now the king promotes the righteous and does not turn away the poor and the humble. This being the case, we too must be righteous.'"[3]



1. Jack Ewing, “Musk’s Idea of 3rd Party Is Crushing Testla Shares,” The New York Times, July 8, 2025.
2. Ibid.
3. Philip J. Ivanhoe and Bryan W. Van Norden, ed.s, Readings in Classical Chinese Philosophy (New York: Seen Bridges Press, 2001), 58.


Thursday, May 30, 2019

Facebook’s Mark Zuckerberg: Power beyond Corporate Governance

Facebook’s Mark Zuckerberg and Sheryl Sandberg did not attend a committee hearing at Canada’s Parliament on May 28, 2019 in spite of having received summons from Bob Zimmer MP, the committee’s chair. Instead, Facebook sent its director of public policy and its head of public policy for Facebook Canada. “Shame on Mark Zuckerberg and shame on Sheryl Sandberg for not showing up today,” Zimmer said toward the end of the hearing.[1] For sending two representatives rather than themselves, Zuckerberg and Sandberg faced the possibility of being held in contempt. They had testified before the U.S. Congress, so by sending two representatives the two leaders of Facebook may have acted rather dismissively concerning Canada’s federal legislature. At the time, Zuckerberg had virtually unchecked power at Facebook, including over the other stockholders. From his perch, the power may have been going to his head; even after two years of user-privacy scandals, Facebook’s CEO and Chairman of the Board may have determined that summons from legislatures where the company was operating were beneath him. Such a mentality is dangerous for a person with autocratic control of such a large company.
Corporate governance can pale up against a formidable CEO who also chairs the board whose raison d’etre is in part to hold the CEO accountable. Even that such a structural conflict of interest could be allowed persist at a company suggests that its corporate governance system is weak, with too much power going to the management at the expense of the non-management stockholders. In the case of Facebook, Zuckerberg founded it, and on this basis he doubtlessly believed he was justified in being the sole holder of class B stock, each share of which having 10 votes such that he was the majority stockholder. In a show of just how pathetic minority stockholder rights can be, Zuckerberg voted down stockholder proposals “to put checks on Zuckerberg’s ironclad grip on the company he founded.”[2] This took place just two days after Zuckerberg had failed to show up at the Canadian committee hearing.
Zuckerberg was doubtless awash in power, for he had refused a legislature’s summons and could easily control his company’s corporate governance. Lawmakers in Congress and even Facebook insiders were raising concerns not only about whether Zuckerberg had too much power, but also the company itself, given the scandals that had been going on for more than two years. Shareholders argued that Zuckerberg’s holding of the board chairmanship “contributed to Facebook missing, or mishandling, a number of severe controversies.”[3] Stockholders also believed that eliminating the Class B shares (i.e., 10 votes per share) would enable stockholders to limit Zuckerberg’s power and “hold management accountable.”[4] As scandals—even one at the time hinging on Zuckerberg’s refusal to take off a distorted video of Nancy Palosi, the Speaker of the U.S. House—came up, stockholders had no recourse to management, which could safely ignore the complaints even though stockholder value was being affected.
I submit that the business judgment rule accords corporate managements with too much power in corporate governance over non-management stockholders. At the broad policy-level in which boards of large corporations operate, business expertise, while relevant, should not push out the role of non-management stockholders being able to act as a check on a CEO’s power. Fundamentally, even beyond the value of business expertise, ownership of the corporate wealth supersedes its management. As stock options as “firm-aligned” compensation for executives becomes more popular, the role of non-management stockholders becomes more important if accountability, or a check, is to be part of the system of governance. In other words, boards of directors should not be controlled by their respective CEO’s. In the case of Facebook, its breaches of private information and its role in influencing political elections as well as politics suggest that the corporation’s system of governance should include accountability.
In such a case in which a company leaves a huge societal footprint, with a potentially dire downside, and yet the corporate governance is monopolized by one person, it is only natural to look to external accountability in the form of anti-trust enforcement. Sure enough, U.S. House Rep. David Cicilline the chairman of the Antitrust Subcommittee, had called for an antitrust investigation into Facebook, “with a focus on its acquisitions of Instagram and WhatsApp,” both of which had more than a billion users in May, 2019. Even Facebook’s cofounder, Chris Hughes, “called for Facebook to be broken up and raised concerns about Zuckerberg’s ‘unchecked power.’”[5] Alex Stamos, Facebook’s former chief security officer, said Zuckerberg should “give up” some of his power and hire a new CEO.[6] Awash with power, Zuckerberg could ignore such advice. As for the prospect of being broken up, Zuckerberg could use more of the company’s wealth to make political campaign contributions and help lawmakers in other ways. When the lack of accountability in a company senses no threat from corporate governance and the reach of governments, then the exercise of such power can become virtually unstoppable.


[1] Donie O’Sullivan and Paula Newton, “Zuckerberg and Sandberg Ignore Canadian Subpoena, Face Possible Contempt Vote,” CNN.com, May 28, 2019.
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] Ibid.

Monday, January 14, 2019

Protecting Minority Stockholder Rights: On a Conflict of Interest at Revlon

The principle of majority rule is a staple of democratic theory. Typically the victor of a close election is quick to proclaim that “the people” have spoken. That “the people” corresponds to 51% of those who voted is beside the point. What about the 49% who voted against the victor? What about the minority’s rights? In the U.S. Senate, the fact that it takes 60 out of 100 votes to end a filibuster means that a large minority can halt a majority’s bill. In the European Council, the qualified majority rule means that for a bill to pass, the states in the majority must be at least 55% of the total number of states and must have at least 55% of the E.U.’s population between them.  A large minority can therefore stop a small majority. In both of these “intergovernmental” bodies, the implication is that 51% of a vote is not as significant as the principle of majority rule suggests. What about the rights of a minority of shares of stock in corporate governance? When a majority stockholder has control of management, the interests of the minority stockholders can be shirked. This is particularly true when a majority stockholder proposes a going-private transaction with the aid of management.
“Going-private transactions create opportunities for shareholder abuse and can have coercive effects on minority shareholders,” Antonia Chion, a director in the S.E.C.’s enforcement division insists. A majority shareholder can propose a buy-out that is unfair to other stockholders, and a collusive management can keep those shareholders in the dark concerning independent assessments. This is not the case of a CEO who is controlling the board at stockholder expense; rather, the majority stockholder uses the management to circumvent the board and other stockholders at their expense and even that of the company.
On June 13, 2013, Revlon “agreed to pay an $850,000 penalty to settle accusations that it deceived shareholders and its independent directors in connection with” Ronald Perelman’s attempt to get the other stockholders to convert their common stock to preferred in what is called an exchange transaction.[1] As in the case of Perelman’s earlier attempt to take the company private, an independent assessment found that the other stockholders as well as the company would lose out in the deal. Perhaps because the other stockholders had had access to the information to reject the first proposal, Revlon, undoubtedly at Perelman’s urging, “went to great lengths to hide” the bad news of the assessment on the exchange transaction from the minority stockholders.[2] In fact among “other deceitful maneuvers,” Revlon “altered the agreement with the trustee to ensure that the trustee would not share the advisor’s opinion with” the minority stockholders.[3] In its filings with the S.E.C., the management lied that the board’s process had been “full, fair and complete.”[4] In actuality, the company’s board was “unable to fairly evaluate the adequacy of the exchange offer.”[5] The controlling stockholder, Ronald Perelman, had used the management of the company to go against the company’s own interest! That is, the company was acting against its own best interest simply because doing so was in the controlling stockholder’s interest. Surely this suggests that the majority stockholder had too much influence. Given the conflict of interest, having such influence at the expense of other stockholders and the board can be regarded as unethical.
Perhaps it could be argued that because Perelman’s investment firm, MacAndrews & Forbes, controlled about three-quarters of Revlon’s shares at the time, the company’s management had a fiduciary duty to act in Perelman’s interest even if it was not in the company’s interest. Stockholders are the owners, after all.
However, Perelman’s investment firm did not control all of the stock. It cannot be assumed that the interests of the other stockholders mirrored that of the stock Perelman owned or controlled. Furthermore, that the exchange transaction would have helped Revlon pay off a loan to Perelman’s investment firm only added to the majority stockholder’s conflict of interest. According to the New York Times, because “Perelman stood on both sides of the deal, there was a question about the transaction’s fairness.”[6] This is the reason the company asked its independent board members to assess the exchange transaction in the first place. For the company to turn around and require the independent assessor to hide the findings from the board is utterly contradictory, as well as unfair to the independent directors (as well as the other stockholders).
Therefore, even if the principle of majority rule applied to corporate governance supports Perelman’s influencing the management to the benefit of the stock that he controls, the conflict of interest suggests that the principle should not completely shut down the property rights of the other stockholders. Interestingly, not even the U.S. Senate’s 60 votes or the European Council’s qualified majority voting applied to corporate governance could have stopped the 75% of the shares that Perelman controlled at the time from directing the company’s management. Because the independent directors are designed to be free of pressure from management, they could be controlled by a majority stockholder in such a case.
Perhaps independent directors ought to be tasked with not only checking the corporation’s management, but also protecting the interests of the minority stockholders when those interests differ from that of the majority. At the very least, a majority stockholder should not be permitted to be situated in a conflict of interest with regard to the company. Merely being so situated can be argued to be unethical because even having the opportunity to exploit a conflict of interest causes harm (e.g., anxiety) to those who would be harmed financially. Additionally, the temptation is just too great, given the influence that the majority stockholder has over the company’s management. Even in terms of democracy, majority rule is not an absolute.

For more on conflicts of interest in business (and government), see Institutional Conflicts of Interest, available at Amazon.

1. Peter Lattman, “To Perelman’s Failed Revlon Deal, Add Rebuke From S.E.C.,” The New York Times, June 14, 2013.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.

Monday, June 26, 2017

Hedge Fund Set to Hack Nestlé Up: A Case of Sensationalistic Over-Kill

Does the fact that an earnings-per-share figure has not meaningfully improved over, say, five years justify an overhaul pushed by a hedge-fund activist investor?  Put another way, is a steady earnings-per-share tantamount to failure? Especially for an established company, steady numbers do not evince bad performance. An airline would only foolishly fire a pilot for not climbing once having attained a cruising altitude. Maintaining such an altitude during a flight is hardly a reason to turn a plane around or set it in a radically different direction.

With 40 million shares, which amounts to about $3.5 billion, in Nestlé, Third Point hedge fund urged the company’s management in June of 2017 to “sell its stake on L’Oréal and sell off nonessential operations as part of a broad shake-up.”[1] The conglomerate’s shares had appreciated nearly 15% over the preceding 12 months—behind Unilever but better than Mondelez and Kraft Heinz. So why a shake-up? 

Dan Loeb of Third Point.  Relax, Dan, Nestle is not on a nose-dive. 

To be sure, the conglomerate structure is itself arguably too much of a strain on the extant science of management, especially in the United States given the penchant for specialization over “big-picture” management. Selling L’Oréal thus may make sense so the management can concentrate on food. It was not as if such a focus would leave corporate managers with nothing to do.

In May, Nestlé announced a joint-operation with Amazon to offer a cooking companion with recipe instructions and other help for customers. At the same time, Nestlé set to work eliminating unpopular ingredients to its Maggi line. The company had been working to remove preservatives from its ice creams. Lastly, the company announced in June that it was the lead investor in a $77 million in Freshly, a subscription meal service. Such adaption to changing consumer tastes and changes in the industry is a solid means by which an established company improves its profitability. Slogans like “a bold strategy” and a “broad shake-up” make for good press, but they do not fit with a company that has achieved cruising altitude. In other words, severing arms and legs should only be attempted in the more dire of cases, rather than as business as usual.



[1] Michael Merced, “Third Point, a Hedge Fund, Sets Its Activist Sights on Nestlé,” The New York Times, June 26, 2017.

Sunday, June 18, 2017

Apparent Gains in Corporate Governance Accountability as the U.S. Economy Shifts

In 2016, Sacred Heart University purchased G.E.’s headquarters in Fairfield, Connecticut for $31.5 million. Gone were the Persian rugs and lavish artwork. The property acquired included the “Guest House,” the company’s 28-room hotel “to serve visiting executives and others, with no expense spared on the parquet floors, wood-burning fireplaces and a Steinway piano.”[1] Jack Welsh oversaw the ornate construction, leading to the obvious question of just what his sense of fiduciary duty to the company’s stockholders was. An artificial distinction between managers—only some being styled “executives”—was doubtless behind the luxuriant excess only for those certain employees “in the club.” From the standpoints of a board and its stockholders, “executives,” managers, and other employees are all employees. Why then should some of them be associated with luxury while they are at work? Historically, the aristocratic luxuriated precisely because those people didn’t have to work, and more importantly, they viewed work (and even their own money) as not worthy of much attention—there being finer things in life. “Executive” employees are not aristocratic, for they labor even when they could live off their accumulated wealth and pursue loftier aims, such as aiding humanity, furthering knowledge, or engaging in the arts with an eye toward advancing civilization. Bill Gates got this memo; Warren Buffett did not.

The presence of extremely rich people in the executive ranks of large corporations interferes, I submit, with the accountability that corporate governance is designed to deliver for stockholders. Lavish business expenses run counter to such governance and the very notion of a corporation as the stockholders’ combined wealth.  In the era of American industrialization, the huge profits in the industrial sector gave cover to managers such as Jack Welsh, who felt free to exploit the obvious conflict of interest in spending lavishly for the upper-echelon managers themselves, as if the company were their own country club rather than a business. Doubtless managers themselves assumed that paid country-club memberships were necessary to get and even retain (well qualified?) fellow “executives.” The underlying conflict of interest was somehow invisible to sycophantic boards and even large stockholders who looked the other way. In the succeeding high-tech era, the same obliviousness has surely existed in that sector in spite of the rise of activist stockholders.

To be sure, indications can be found that suggest more activist pressure. Even as stockholder activists’ assets were increasing from 1997 to 2015, the number of publically traded U.S. companies decreased from 7,507 to 3,766.[2] Meanwhile, the activists were getting more, well, active, and they were finding it easier to win board seats as fewer companies staggered their elections over three-year cycles. More than 300 U.S. companies were targeted in 2015, up from about 100 in 2010.[3] Boards were better positioned, at least formally, to hold C.E.O.s accountable as the percentage of joint C.E.O.-Chair positions decreased. “In 2001, more than half of new C.E.O.s also assumed the position of chairman when they took over. By 2016, only 10 percent occupied both roles.”[4]

Yet the actual impact from activist stockholders may have only been in decreasing the average tenure of the C.E.O’s. Boards were “still willing to dole out huge golden parachutes to C.E.O.’s, even if they fail.”[5] Furthermore, even though G.E.’s swanky executive suites went from 44,000 square feet in Fairfield to 7,800 square feet in Boston, C.E.O.s of high-tech companies were under less activist scrutiny in spending from soaring profits and stock prices.[6] A study looking at shareholder proposals from 2003 through 2015 concludes that “managers often seek to avoid the implementation of legitimate shareholder interests.”[7] In 2017, the U.S. House of Representatives passed the Financial Choice Act, a deregulatory bill that would require a shareholder to own at least 1% of a company’s shares for three years to get a proposal on a proxy ballot. At the time, a stockholder needed to own only $2,000 worth of stock for at least a year. Clearly, the power of activist stockholders was quite far away from Congress, whereas that of corporate managements was very close by.

Even the increased power of activists to pressure the firing of a C.E.O. of an underperforming blue chip company may actually be a manifestation of frustration over stagnant revenue and profits in the sagging industrial sector; the real question, still unanswered in 2017, is whether activist stockholders would ever go after the lavish spending of “executives” of profitable companies. Even those managements, such as of Amazon, Apple, Google, and Facebook were obliged even in their hay-day by the legal doctrine of fiduciary duty to not be profligate, and to authorize spending for legitimate business reasons because cost management is in the stockowners’ financial interest. This interest, rather than those of “executives,” is legally hegemonic, rather than to be dismissed or even rebuffed. Luxury, in other words, does not go with the work inside a corporation, but, rather, with the ownership of wealth, even if some of the employees are themselves extremely rich. Their independence and association of themselves with luxury does not fit with the corporate model, especially as concerned the ability of corporate governance to exert accountability in the interests of stockholders. As for the apparent strengthening of corporate governance in the industrial sector, the alleged improvement may actually have been a function of a major sectoral shift within the American economy. It is only natural that the old guard would be frustrated at the shift, so what looks like better accountability may only be infighting. To gauge real accountability, we would need to look at the newly hegemonic sector: Are the “executives” in it taking liberties at their stockholders’ expense?  


[1] Nelson D. Schwartz, “The Decline of the Baronial C.E.O.,” The New York Times, June 17, 2017.
[2] Ibid.
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] Ibid.
[7] Gretchen Morgenson, “Meet the Legislation Designed to Stifle Shareholders,” The New York Times, June 16, 2017.

Saturday, September 19, 2015

Bank of America Board Ignores a Binding Resolution: Fiduciaries Seizing Power from Shareholders

Corporate board directors have a fiduciary duty to act in the shareholders’ financial interest. What if a board’s directors think they know better that the stockholders as to their interest? In such a case, the directors would be acting like elected representatives who vote contrary to the wishes of their constituents for their own good. While valid from the standpoint of representative democracy, I’m not sure the principle has legitimacy in the corporate context, wherein property-rights are being represented. Simply put, an owner gets to decide how his or her wealth is used, within legal parameters of course. The case of Bank of America’s board may suggest that directors essentially work for their managements while being shamelessly dismissive of even binding directives from the stockholders as a group.

“At the bank’s 2009 annual meeting, shareholders passed a bylaw requiring that the board be overseen by an independent “chairman.” The bylaw passed by a whisker, but it was nonetheless binding.” In the fall of 2014, however, “the board abruptly overturned the bylaw” by electing Brian Moynihan, the bank’s CEO, as chairman of the board.[1] In other words, the directors shamelessly dismissed a binding shareholder directive. The directors claimed that the bank’s governance structure—that is, whether to have the same person occupy both the CEO and chair positions or not—should be allowed to vary “depending on the strategy and environment in which [the bank] operates.”[2] I’m not convinced, however, that this is a valid point.

Firstly, the duality of the chair and CEO (i.e., having the two positions held by two people) is not oriented to particular business strategies or environments; rather, the governance device is intended to prevent a CEO, whose supervisor is the board, from dominating it and thus impairing its overseeing role. Such a situation is like an employee coming to dominate his boss. It doesn’t matter what the business is, the structure itself is problematically both ethically and in terms of the performance of the board and its management. That the board brazenly contradicted the stockholders’ binding bylaw in appointing the sitting CEO as chairman of the board may suggest that the CEO already had too much power over the board responsible for holding him accountable.


The man of the hour. Brian Moynihan, Chair and CEO of Bank of America as of 2015. His power exceeded even that of the stockholders, whose concentrated wealth he managed. Lest it be maintained that a CEO with such power optimizes corporate earnings, consider that his predecessor, Ken Lewis, had the bank purchase Countrywide, whose fraudulent mortgages played a vital role in bringing about the financial crisis of 2008. Perhaps CEO/chair duality is of value simply in reducing a corporation's systemic risk. Hence, Congress may legitimately intervene.(Simon Dawson/Getty Images)


Were governance structure to be so malleable as to change according to strategy and environment, corporate governance would be more like a policy than something worthy of a corporate charter. By analogy, the argument that a corporation’s governance structure should depend on strategy and the business environment treats a constitutional clause as if it were a mere statute alterable by a legislature rather than a constitutional amendment. The structure, in other words, is too easily changed, and thus subject to the power-agenda a CEO or chair.

Lest it be objected that corporations are merely economic entities and thus subject only to the criteria of efficiency and effectiveness, I submit that power was alive and well among the directors, the CEO, and even the stockholders as the matter of the binding bylaw came to a head in 2015. “Power is the only issue here, Bob Monks, a governance expert at ValueEdge Advisors, a shareholder-activist firm. The board’s appointment of the CEO as chair “is simply saying power is with the C.E.O. and any structural arrangement that purports to dilute his power will be driven out.”[3] The question is whether the stockholders as a group would have and be able to exercise enough power to hold the board and CEO accountable.




[1] Gretchen Morgenson, “At Bank of America, a Vote to Give Shareholders Due Respect,” The New York Times, September 18, 2015.
[2] Ibid.
[3] Ibid.

Thursday, July 9, 2015

Property Rights in China: On the Separation of Ownership and Control in the Stock Market

It is too simplistic to say that economies around the world converged as capitalistic after the collapse of the Soviet command-and-control economy. Even the notion that China’s communist party has embraced capitalism does not do justice to the ways in which China’s capitalist system is unique. This became particularly apparent in early July 2015, when the bubble burst in the Chinese stock market.

Already down by more than 30% since early June 2015, the benchmark Shanghai Composite Index lost another 5.9% on July 8, 2015 and Hong Kong's Hang Seng index closed down 5.8 percent.[1] Hundreds of companies halted trading in their stock after emergency measures announced by the central government the previous weekend failed to stop the rout. The measures themselves are particularly noteworthy, for they illustrate the unique way in which capitalism under communism regards property rights.

The Chinese government directed “state companies and executives to buy shares, raised the amount of equities insurance companies can hold and promised more credit to finance trading.”[2] On July 8th, the Cabinet agency that oversaw China's biggest state-owned companies said it had told them to avoid selling shares and to buy more "in order to safeguard market stability."[3] Ordering companies and their senior managers to not only not to sell stock, but also buy more, runs against the assumed linkage between economic liberty and property rights. Because the managers of state enterprises are essentially state employees, the government’s encroachment on freedom to buy and sell assets is mitigated.

However, “(i)n a separate order, the securities regulator told directors, executives and senior managers of publicly traded companies who have sold shares in those companies within the past six months to buy them back and said they are barred from selling. It said they are required to buy more if the price falls by more than 30 percent in the next 10 days.”[4] Here, the government reaches individuals receiving money from private companies—albeit publically traded ones having charters granted by the government.

To force people to buy and sell assets does not mean that their respective markets are replaced by a Soviet-style command-and-control economy. Changes in supply and demand still affect pricing. The value of an asset of which some of its buyers and sellers have been forced to buy or sell is at an intersection of a supply and demand that does not reflect preferences and thus utility curves—not only for the given asset, but also, moreover, for economic liberty in being able to make and implement purchase-decisions. Put differently, the preference of the government, both regarding the asset-class and control, is also in the mix.

Because the individuals ordered to buy rather than sell stock in their respective companies owned the stock, private property is cleft from control pertaining to the buying and selling of the stock. Were the purchased an asset usable, such as a car, the owners could still control that sort of use, so economic liberty is not lacking; rather, it has been restricted. We can conclude, therefore, that private property and private markets can exist and function even when economic liberty is limited.

In 1932, Berle and Means wrote a book pointing to the separation of (stock) ownership and (managerial) control in American corporations.[5] The control here pertains to policy decision at the corporate level. In the Chinese case, the control at issue pertains to being able to buy and sell stock; such control remains intact in the American system of managerial capitalism.

The Chinese government’s order may seem counterintuitive  not because ownership is distanced from control, but, rather, because of the type of control—that over buying and selling rather than use per se. Moreover, the order calls into question earlier academic predictions that the fall of the U.S.S.R. and China’s adoption of capitalism would lead to a singularity or isomorphism of the world’s economic systems. Simply changing what is to be controlled separately from the ownership can make an economic system look quite different. Lastly, this case demonstrates just how interlinked political and economic variables are. The twentieth century witnessed empiricism take hold both in economic and political “science”—the reductionism itself distancing the two disciplines from each other.




1. Joe McDonald, “China Stock Market Plummets As Sell-Off Continues,” Associated Press, July 8, 2015.
2. Ibid.
3. Ibid.
4. Ibid.
5. Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (New York: Macmillan, 1933).  The book's theme is the separation of ownership from control of the modern corporation and its consequences. Berle and Means point out the divergent interests of directors and managers, and of each of these from the owners (i.e., stockholders) of the firm.

Monday, January 12, 2015

Stockholder Activism at DuPont: A Conflict of Interest for Management

In American corporate governance law, the business judgment rule gives management expertise the benefit of the doubt over stockholder proposals. Compared with executive skill, they look rather populist and thus potentially irrational in nature. Nevertheless, with the rule chaffing up against the property-rights foundation of corporate capitalism, the managerial prerogative can be said to be dubious. Indeed, a strict private-property basis justifies displacing the default profit-maximization mission for a given corporation. Alternatively, stockholders may want to use their concentrated, collective wealth for other purposes, such as to alleviate hunger. Once enough profit has been made for the business to be sustained for another year or two, any additional surplus would be spent on food pantries, for example, rather than going out as dividends or being retained by the corporation. Because managerial skill is premised on the profit-maximization goal and its associated strategies, corporate executives intrinsically resist alternatives proposed by stockholders. The managers face a conflict of interest in providing their recommendation for stockholders. Even when the proposal assumes profit-maximization but differs from a current strategy (i.e., adopted by management), a conflict of interest exists should the management seek to provide a recommendation for the stockholders.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.


Sunday, August 17, 2014

Mergers and Acquisitions: What about the Stockholders?

Why do companies merge and acquire other companies? Synergy is the textbook answer. Typically, the stockholders of the target company see an appreciation in the value of their stock, while stockholders in the initiating firm see a downtick. The reason why is simple: corporations typically overpay. The value-added of the anticipated synergy must be greater than not only any overpayment, but also the intangible costs in aligning the corporate cultures. Yet another factor—an opportunity cost, really—is frequently overlooked: that of whether the extra cash on hand should be returned to the stockholders as dividends.

During 2014 up to August 15th, merger activity around the world was $2.2 trillion, up from $1.29 trillion in the same period the previous year.[1] Comcast, for example, was buying Time Warner Cable for $5 billion, and Reynolds American was buying Lorillard for $27 billion.[2] The nonfinancial companies in the S&P 500 had a near-record $1.2 trillion in cash in an economic context of low interest rates and a bit of inflation.[3] Buying another company would thus be cheaper than not only expanding from within, but also investing the cash in interest-bearing or tied securities.

In fact, not buying a company under the circumstances could easily be thought of as doing nothing with the cash. As Chris Lee of Fidelity Select Financial Services Portfolio puts it, “Now, the risk of doing nothing seems greater than the risk of doing something.”[4] In spite of the fact that mergers can be very good in the long haul for the stockholders of both companies to a merger or acquisition, a board in touch with its fiduciary duty to the company’s owners would properly consider the alternative of returning the surplus cash to them. Lest too much attention be paid to appreciation in the price of a stock—admittedly of value to those owners who intend to sell—the dividend is a means by which all of a company’s current owners benefit.

To be sure, the decision is not merely a financial one. The return of capital to the providers of equity is an ideological matter as well. To own property, even if most of it is in the form of a concentration of capital, brings with it the right to a share in the profits. This goes beyond the impact of the successive surpluses on the stock’s price. The perspective in which not using extra cash to acquire or otherwise merge with another company is reckoned as doing nothing eclipses the alternative use altogether. Returning excess cash to the stockholders is decidedly not “doing nothing.” The implication that it is intimates a bias in the interest of management that is at odds with its fiduciary duty. 

Put another way, similar to what can easily happen in the political debate over whether to reduce taxes so the citizens will be able to hold onto more of their money or spend the additional revenue on governmental budget items, the tendency of corporate managements, and even boards, to spend excess money rather than return it to the owners may not always be in the best interests of the principals and the principle of property rights.



[1] John Waggoner, “When 2 Companies Love Each Other Very Much . . . “, USA Today, August 15, 2014.
[2] Ibid.
[3] Ibid.
[4] Ibid.