I love your work on this. This part is so close to getting at effective solutions. But I think you're underemphasizing that CEOs maximizing the next quarter's profits is not long-term profit maximizing, so it does not make as much money as possible for their shareholders. There can be found solutions to this problem, not replacing capitalism (isn't realistic), but in fixing that some execs are doing a crappy job of maximizing long-term shareholder value. 1/

Any company that is owned by stockholders and managed by a CEO and other top brass has a huge principal-agent problem, and yet, the limited liability, joint-stock company had produced untold riches, and was considered the ideal organization for "capital formation" by Friedman et al.

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In true economismist form, Friedman treated all the qualitative questions about the duty of a company as noise and edited them out of the equation, leaving behind a single, elegant formulation: "a manager is doing their job if they are trying to make as much money as possible for their shareholders."

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Friedman's formulation was a hit. The business community ran wild with it. Investors mistook an editorial in the *New York Times* for an SEC rulemaking and sued corporate managers on the theory that they had a "fiduciary duty" to "maximize shareholder value" - and what's more, the courts bought it. Slowly and piecemeal at first, but bit by bit, the idea that rapacious greed was a legal obligation turned into an edifice of legal precedent.

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Business schools taught it, movies were made about it, and even critics absorbed the message, insisting that we needed to "repeal the law" that said that corporations had to elevate profit over all other consideration (not realizing that no such law existed).

It's easy to see why shareholder supremacy was so attractive for investors and their C-suite Renfields: it created a kind of moral crumple-zone.

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Whenever people got angry at you for being a greedy asshole, just shrug and say, "My hands are tied: the law *requires* me to run things this way - if you don't believe me, just ask my critics, who insist that we must get rid of this law!"

In a feature for *The American Prospect*, Adam M Lowenstein tells the story of how shareholder supremacy eventually came into such wide disrepute that the business lobby felt that it had to do *something* about it:

https://prospect.org/power/2024-09-17-ponzi-scheme-of-promises/

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It starts in 2018, when Jamie Dimon and Warren Buffett decried the short-term, quarterly thinking in corporate management as bad for business's long-term health. When *Washington Post* columnist Steve Pearlstein wrote a column agreeing with them and arguing that even moreso, businesses should think about equities other than shareholder returns, Jamie Dimon lost his shit and called Pearlstein to call it "the stupidest fucking column I’ve ever read":

https://www.washingtonpost.com/news/wonk/wp/2018/06/07/will-ending-quarterly-earnings-guidance-free-ceos-to-think-long-term/

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But the dam had broken. In the months and years that followed, the Business Roundtable would adopt a series of statements that repudiated shareholder supremacy, though of course they didn't admit it. Rather, they insisted that they were clarifying that they'd *always* thought that sometimes *not* being a greedy asshole could be good for business, too.

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Though these statements were nonbinding, and though the CEOs who signed them did so in their personal capacity and not on behalf of their companies, capitalism's most rabid stans treated this as an existential crisis.

Lowenstein identifies this as the forerunner to today's panic over "woke corporations" and "DEI," and - just as with "woke capitalism" - the whole thing amounted to a a PR exercise.

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Lowenstein links to several studies that found that the CEOs who signed onto statements endorsing "stakeholder capitalism" were "more likely to lay off employees during COVID-19, were less inclined to contribute to pandemic relief efforts, had 'higher rates of environmental and labor-related compliance violations,”' emitted more carbon into the atmosphere, and spent more money on dividends and buybacks."

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One researcher concluded that "signing this statement had zero positive effect":

https://www.theatlantic.com/ideas/archive/2020/08/companies-stand-solidarity-are-licensing-themselves-discriminate/614947

So shareholder supremacy isn't a legal obligation, and statements repudiating shareholder supremacy don't make companies act any better.

But there's an even more fundamental flaw in the argument for the shareholder supremacy rule: *it's impossible to know if the rule has been broken.*

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The shareholder supremacy rule is an unfalsifiable proposition. A CEO can cut wages and lay off workers and claim that it's good for profits because the retained earnings can be paid as a dividend. A CEO can *raise* wages and hire *more* people and claim it's good for profits because it will stop important employees from defecting and attract the talent needed to win market share and spin up new products.

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A CEO can spend less on marketing and claim it's a cost-savings. A CEO can spend more on marketing and claim it's an investment. A CEO can eliminate products and call it a savings. A CEO can add products and claim they're expansions into new segments. A CEO can settle a lawsuit and claim they're saving money on court fees. A CEO can fight a lawsuit through to the final appeal and claim that they're doing it to scare vexatious litigants away by demonstrating their mettle.

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CEOs can use cheaper, inferior materials and claim it's a savings. They can use premium materials and claim it's a competitive advantage that will produce new profits. Everything a company does can be colorably claimed as an attempt to save or make money, from sponsoring the local little league softball team to treating effluent to handing ownership of corporate landholdings to perpetual trusts that designate them as wildlife sanctuaries.

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Bribes, campaign contributions, onshoring, offshoring, criminal conspiracies and conference sponsorships - there's a business case for *all* of these being in line with shareholder supremacy.

Take Boeing: when the company smashed its unions and relocated key production to scab plants in red states, when it forced out whistleblowers and senior engineers who cared about quality, when it outsourced design and production to shops around the world, it realized a savings.

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Today, between strikes, fines, lawsuits, and a moutnain of self-inflicted reputational harm, the company is on the brink of ruin. Was Boeing good to its shareholders? Well, sure - the shareholders who cashed out before all the shit hit the fan made out well. Shareholders with a buy-and-hold posture (like the index funds that *can't* sell their Boeing holdings so long as the company is in the S&P500) got screwed.

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Right wing economists criticize the left for caring too much about "how big a slice of the pie they're getting" rather than focusing on "growing the pie." But that's *exactly* what Boeing management did - while claiming to be slaves to Friedman's shareholder supremacy. They focused on getting a bigger slice of the pie, screwing workers, suppliers and customers in the process, and, in so doing, they made the pie so much smaller that it's in danger of disappearing altogether.

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Here's the principal-agent problem in action: Boeing management earned bonuses by engaging in corporate autophagia, devouring the company from within. Now, long-term shareholders are paying the price. Far from solving the principal-agent problem with a clean, bright-line rule about how managers should behave, shareholder supremacy is a charter for doing whatever the fuck a CEO feels like doing.

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It's the squishiest rule imaginable: if someone calls you cruel, you can blame the rule and say you had no choice. If someone calls you feckless, you can blame the rule and say you had no choice. It's an excuse for every season.

The idea that you can reduce complex political questions - like whether workers should get a raise or whether shareholders should get a dividend - to a mathematical rule is a cheap sleight of hand.

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The trick is an obvious one: the stuff *I* want to do is empirically justified, while the things *you* want are based in impossible-to-pin-down appeals to emotion and its handmaiden, ethics. Facts don't care about your feelings, man.

But it's feelings all the way down. Milton Friedman's idol-worshiping cult of shareholder supremacy was never about empiricism and objectivity. It's merely a gimmick to make greed seem scientifically optimal.

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