The Economist Promotes Shareholder Primacy: It Must Be Spring in the Northern Hemisphere

Around the same time for the past three years, the Economist has published an article that praises the virtues of shareholder value maximization.

While, the publication describes its goal to "take part in a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress.", it appears to take a spring break.

Last year, in Capitalism’s unlikely heroes: Why activist investors are good for the public company, management were described as "rotten", mutual and pension funds were "lazy" and bosses "clubbable".  The year before that, The Economist wrote a set-up piece called How activist shareholders turned from villains into heroes.   

But calling activists heroes was no joke to Yvan Allaire, Executive Chair at the Institute of Governance, who believed The Economist was running infomercials for activist hedge funds:

"On a topic requiring sober, balanced coverage, The Economist cuts logical corners, tramples contrary evidence, ignores a vast store of scholarship, and conjures up an empirical “study” to produce misleading data."

This year, The Economist is at again. 

If the 2014 article was journalism and 2015 was an infomercial, this quote from Analyse this: The enduring power of the biggest idea in business, suggests that in 2016, The Economist has a deliberate agenda:  

Today shareholder value rules business.....  The only boardrooms that shareholder value has not reached are those of China’s state-run firms, whose party-appointed bosses look baffled if asked about return on capital and buzz for more tea.

The article describes shareholder primacy in literally glowing terms "These ideas lit up corporate America first" before taking aim at those who would criticize the biggest idea in business at "This moment of ascendancy".       

Ironically, having mocked the communist failure to embrace shareholder primacy, The Economist has no trouble channeling the apparatchik's defense of its failed ideology:

The outbreaks of madness in markets tend to happen because people are breaking the rules of shareholder value, not enacting them.

In more familiar words, it's not the system that's the problem, its just that people aren't doing it right.  The second line of defense is equally naive, and can be summed up as its just too hard "the trouble is identifying a goal that could replace the pursuit of shareholder value."    Add these two arguments together, throw in Larry Page's re-organization of Google and The Economist concludes "For these reasons shareholder value - properly defined - will remain the governing principle of firms".  

Job done until next spring.

Jokes aside, The Economist's editorial calendar reminds us that words do the heavy lifting for the shareholder primacy movement.   Indeed, if corporate governance is power, as their leaders openly admit, language is the key way the shareholder primacy movement has taken it for their own business objectives over the past four decades.  If you have any doubt, I recommend reading The Economist alongside Tamara Belinfanti excellent paper, Forget Roger Rabbit—Is Corporate Purpose Being Framed?.