Comment by teiferer

I highly recommend Incorruptible by Eric Reis - it makes it clear that shareholder primacy is a relatively recent phenomena, but capital and markets have been corrupting businesses for a long, long time.

He did an AMA here recently https://news.ycombinator.com/item?id=48477135

There are several business philosophies a person (or a culture) can pick from. The dominant philosophy in the US today is "shareholder primacy" where business leaders believe their only dictum is to maximize shareholder value. This is so pervasive that many Americans (businesspeople and non-) think that it's baked into what it means to be a profit-seeking business, but it is not.

Shareholder primacy took off after Milton Friedman advocated for it 1962. The philosophy that it supplanted (in the US) was "stakeholder capitalism" where businesses explicitly sought to be positive contributors to a much more comprehensive set of stakeholders: their shareholders, their managers, their employees, their customers, their suppliers, and their communities (non-exhaustive).

The central conceit of capitalism is that you can co-opt the individual's greed and, properly constrained by laws and guided by markets, you can reward them for doing things of value for their community.

The question then is what philosophy do you build around that central greed-of-the-individual. Do you temper it with expectations of taking care of people other than oneself? Or do you fan it and unbridle it by saying, "actually, greed isn't the evil that we must co-opt to pro-social ends, greed is actually the pro-social end itself?"

It turns out that if you do the latter, business managers, shareholders, and regulators can collude to create extremely positive outcomes for each other at the expense of other stakeholders. You can save money by dumping your waste product into rivers, you can arbitrage labor away to infinitely far away lands, you can buy politicians, etc. etc.

How might regulators behave differently in a world where people believe a corporation ought to take care of its entire community, versus a world where the literal only purpose of a corporation is to enrich its shareholders? Quite different, probably!

Then all of this stacks on top of the natural "capital flows to capital" dynamic in capitalism which I'd argue is insufficiently mitigated, and you just get this ridiculous feedback loop that piles more resources and positive outcomes into a narrower set of people, while offloading more negative outcomes onto everyone else.

Obviously opting into a different business philosophy doesn't preclude negative outcomes, but I think that more budding business leaders could, should, and would essentially have their careers strangled earlier on if they exhibited antisocial traits if we had a business culture that didn't pretend like this was literally an asset.

Re your second question:

Assuming that shareholder primacy is the only philosophy we could pick from, then yes a market with many public shareholders is better than the alternative. But 1) not everyone is invested in public markets, 2) not all companies are available to purchase in public markets, 3) public markets are demonstrably not good at solving certain types of problems – especially problems that occur over extended time horizons or are easy to externalize off the balance sheet, and most importantly 4) costs-benefits are not zero-sum. You can't generally undo the harms of Company A by investing in its competitor Company B. It would be best if both companies' management felt they had an obligation not to harm their communities even if it could further enrich their shareholders to do so. It would be even better if investors in general felt both companies should have an obligation to take care of their communities or employees, and so companies lived in fear of divestment if they chose to violate their communities.

But in a culture that has opted into shareholder primacy, all feedback signals in this direction are removed. Regulators, investors, shareholders, employees, and the general public all pretty much believe that maximally externalizing harms and maximally capturing benefits is actually literally the way it's supposed to be.