Consider these words - "asset owners", "activists", "shareholder spring", "shareholder rights", "shareholder advocates", "good governance", "shareholder funds", "democratic capitalism". Are these neutral descriptions or are they spin?
Over recent years, the shareholder primacy movement has developed a sophisticated PR language designed to maintain a positive public image despite the industry's sometimes ruinous business practices.
Here are some of their key linguistic strategies:
From Sinners to Saints
Carl Icahn is lauded as a hero of capitalism. But it wasn’t always this way. In the 1980’s he was better known as a “corporate raider” and a “green mailer”. Destroying companies like TWA in the process. But few call him that now. He’s now an activist investor, a defender of rights and an advocate for shareholders.
His business model is essentially the same as back then - target companies with savings and convince the board to put it into his pocket. But you’d never guess that from the words used to describe how he and his competitors approach making money. Words like “activism”, “advocacy”, “constructivism” or, my personal favorite, “suggestivism” don't capture the ruthless way in which they pursue their targets.
Icahn and his colleagues are engaged in a none-too-subtle exercise in positive stereotyping. Using words to convince everyone from journalists to SEC regulators that they’re the good guys protecting innocent shareholders from management, when they’re just out to take a buck and will say just about anything to get it.
You’ve been Framed
I first heard the expression “democratic capitalism” a few years back. Bob Monks was presenting his L’Appel or Call to the elite of the corporate governance industry in Paris:
"The first agenda item for rejuvenated owners is to recognize that the ultimate issue may be survival of what we call the system of democratic capitalism and all that this means for the strength and prosperity of the world"
Not long after, I was reading Professor Macey's response to Lynn Stout’s critique of shareholder primacy when I came across this passage: “shareholder primacy has an ideological component, just as other notions such as 'democracy' and 'freedom of religion' and even 'capitalism' do”.
What is going on? How can they be aligning or comparing what is essentially a business model with a foundational idea of western civil society?
According to Tamara Belinfanti, we may be being framed.
In her excellent paper, Forget Roger Rabbit—Is Corporate Purpose Being Framed?, the Associate Professor examines how shareholder primacy uses language to construct self-serving meaning:
"Proponents of shareholder primacy describe shareholders as 'owners'. This notion of ownership taps into a deeply held value in American society of the benefits of acquiring property, having a homestead, and the general ability and freedom to exercise dominion over something that one owns (within the confines of law). Similarly, shareholder proponents use terms such as 'shareholder rights' and 'shareholder democracy'. The values of 'rights' and 'democracy' are near universal truths and are held as ideals that should not be tampered with. Other linguistic choices of shareholder primacy proponents include calls for increased 'transparency', 'governance', 'independence', and 'accountability', all of which tap into most people’s desire to live in a stable and law-abiding environment, where people bear responsibility for their actions, and where those in charge do not exercise imperialistic or clandestine power".
Words do the heavy lifting for the shareholder primacy movement. Indeed, if corporate governance is power, as Monks himself admits, language is the key way the shareholder primacy movement has taken it for their own business objectives.
The appeal to transparency ensures the flow of information required to run their business model. The appeal to democracy, the right to require decisions that align with their business objectives. The appeal to independence creates an allegiance of the board. The appeal to rights and ownership obviates the need for commercial justification for corporate decisions in the shareholder's favor (this is also an example of exploiting the firmly held belief that conflates the ownership of a share with ownership of the company).
Again, like getting them young, and staying on message, identifying shareholder primacy with our belief systems is brilliant (and should be taught as a case study) and if you’re in the business of buying shares it just gets better:
“Once a frame has been successfully constructed, when people encounter facts that do not fit the adopted frame, they discard these facts and keep the frame intact”.
Not only does shareholder primacy leverage our strong emotional connection to core values for their personal profit, their linguistic rhetoric traps us into forever believing that any other way would be contrary to the values that our men and women fought and died for.
Good Governance Bad Governance
What does the anti-abortion movement and the shareholder primacy movement have in common? Both use what British journalist Steven Poole called “unspeak”.
Unspeak is a technique whereby words such as “pro life” and “good governance” neutralise argument. Those who disagree with their policies are instantly branded “anti life” or advocating “bad governance”.
Poole sums up the effectiveness of the technique as follows:
“it tries to unspeak – in the sense of erasing or silencing – any possible opposing view, by laying claim right at the start to only one way to looking at a problem.
At this week's Hawkamah conference on MENA corporate governance I lost count the number of times the representatives of the investment industry reminded the audience of the need for "good governance". But this was no neutral description. "Good governance" , in this context, has become a synonym for policies explicitly designed to (or have the effect of) enhance shareholder access to information and to ensure boards are structured in a way that is most advantageous to the investment industry.
Make no mistake, “good governance” is as important to the viability of investment as a business model as any investment analysis undertaken or relied upon. And, to the really big index investors like Vanguard and Black Rock, promoting good governance might just be their only leverage.
The power of the expression “good governance” can’t be understated. As Poole reminds us ”As an Unspeak phrase becomes a widely used term in public debate, it tends to saturate the mind with one viewpoint and to make an opposing view ever more difficult to enunciate.”
This insight is particularly salient to the development of corporate governance in the MENA region.
My hope for emerging economies in the Middle East and North Africa is that they will not be captured by "good governance" and instead embrace the opportunity to develop an alternative framework for their boards that gives these nations a competitive advantage.
When You think about it
French philosopher Jacques Ellul explains why expressions like "activist investor" or "shareholder democracy" are so useful to propagandists (and marketers alike). It is because it "helps [humans} to avoid thinking, to take a personal opinion, to form [their] own opinion". Until politicians, business leaders and the broader public start to think about what all these words really mean, the investment industry will continue to work the linguistic rhetoric all the way to the bank.
About the Marketing MSV Series. As a participant in this year's Annual Global Drucker Forum, November 13-14 in Vienna, I'm posting a series of unofficial perspectives on the way maximizing shareholder value has used marketing to turn capitalism into the personal business model of the finance industry.