To critics of shareholder primacy not only does it get the law wrong, it gets both the economics and evidence wrong too.
But none of that matters.
The industry of decapitalists that promotes the virtues of maximising shareholder value gets the most important thing right - the marketing.
Despite increasing recognition that the idea of putting the investment industry first is bad for listed businesses, shareholder entitlement remains entrenched in the consciousness of business leaders, politicians and business schools.
The almost universal acceptance of shareholder primacy is no accident. With global equity markets capitalised to 64 trillion dollars, it is naive to believe the investment industry leaves its growth and profitability to chance.
The challenge for these businesses is that shareholding is a modest business model.
Typically, an industry relies on its value proposition for growth. But, outside funding an ever diminishing number of listed corporations (and providing unsolicited advice), what value do the increasing number of shareholding businesses offer listed businesses to sustain their existence let alone profitability?
The solution to the shareholder's dilemma was a once-in-a-century market-capturing innovation.
Using a variety of marketing techniques that would make the tobacco industry blush, equity investment has risen from an important but small part of the economy, to the apex of capitalism. With the unwitting help of academics, journalists, governments and company directors, a once-unassuming business model now exercises a level of influence over the world economy completely and utterly disproportionate to its inherent value proposition.
At the 2014 Annual Global Drucker Forum - November, 13-14 in Vienna - a number of leading management thinkers took a stand against "the dumbest idea in the world".
Richard Straub in the conference description entitled “The Great Transformation: Managing our way to prosperity” says “We have arrived at a turning point...
Either the world will embark on a route towards long-term growth and prosperity, or we will manage our way to economic decline… the very coherence of our societies is at stake. Incremental changes won’t suffice… What does it take to reshape management as an effective social technology… for transforming our institutions and organisations?”
In dedication to the 6th Global Drucker Forum I'll be posting my own unofficial posts that expose the techniques that transformed capitalism from an ideology designed to grow the wealth of nations to nothing more than a business model designed to grow the wealth of Wall Street.
The Marketing MSV Series is not an assault on shareholding. It is an attempt to confront the ways shareholder value is artificially increased.
Key to increasing shareholder value are these twelve techniques designed to assure greater returns to the investment industry:
Twelve Ways To Maximize Shareholder Value
Teach business students that the goal of business is to maximise shareholder value
Mould public opinion by repeating the message of shareholder value consistently across all platforms
Associate shareholder value with broader societal values - democracy, property rights and accountability
Use psychological techniques to promote the goal of maximizing shareholder value and suppress discussion of alternatives
Have sympathetic friends in universities who act as if under a duty to maximise shareholder value
Exploit a Little Truth
Imply that, because some shareholders have provided capital directly to companies, this is true for all shareholders
Make it Personal
Create the impression that shareholders are people and not businesses
Change the Law
Change the law to give the investment industry a competitive advantage over other industry segments
Re-frame the Problem
Appear on the side of long-term value creation
Divide and Conquer
Pit managers and directors against each other
Open New Markets
Encourage self serving "good governance" in new markets
Use Fear as a Last Resort
Create fear that without shareholder primacy capitalism will collapse
Over the coming months I'll be writing about each tactic and goal in greater detail. Some are obvious. That MBA students are almost exclusively taught that the goal of business is to increase shareholder value is easily tested. Others require disciplined imagination with only the faintest of clues. Why is there no word to describe the board and management working collaboratively as a team?
These twelve tactics have rendered shareholder primacy largely immune to academic criticism. Like big tobacco, the investment industry doesn't fear the science.
The medical profession knew the dangers of smoking decades before public policy turned on the tobacco industry. The game changed when their sophisticated PR tactics were exposed.
The investment industry is equally vulnerable.
Exposing the public relations tricks of the tobacco lobby worked for public health. I can't see why the same strategy won't work for the public's economic health and ultimately for the long-term health of shareholding businesses that have come to rely on entitlement over value.
* Reworking of an original post titled Hitting Shareholder Value Where it Hurts - In The Marketing.
Read more about the twelve ways to increase shareholder value