Tuesday, May 22, 2012

Shareholder Value Is the Enemy

Following up on Steve's takedown of Brooks, I wanted to highlight another bit from that Mitt Romney clip. His complaint about the Obama ad includes this line (at about 1:35):
My effort at Bain capital as you know was in every case designed to try and make the enterprises we invested in more successful.
The thing is, I think he's entirely sincere when he says this. I think he really did try to make the companies he bought more successful, as he understands the term.

And the problem is that Mitt Romney understands the term the way the whole financial industry understands it (along with David Brooks): "more successful", "leaner, quicker, and more efficient", means more money for the shareholders.

See, for example, this criticism of the Bain ads:
Private-equity firms aren't supposed to create jobs; they're supposed to make money for their investors, which typically include pension funds and university endowments. The companies in which they invest are often on the brink of failure to begin with, and are likely to go bankrupt without outside help.

But in the little-understood world of private equity, Obama has seized upon a basic formula -- Romney and Bain plus companies equals some lost jobs and millions for Romney -- to argue that he's unfit for the Oval Office. [emphasis added]
Well, yeah: that's the problem. Maximizing what the shareholders get necessarily means limiting what other stakeholders get. And given that the top 10% own 81% of all stock1, maximizing "shareholder value" isn't some benign or neutral process that occasionally goes horribly wrong; it is inherently an upward redistribution of wealth.

So the argument against Romney isn't so much that he did bad, bad things that make him unfit for office. The argument, as the President articulated it yesterday, is that his expertise is in doing the exact opposite of what good governance does (i.e, promote the general welfare):
While Obama said he felt private equity was a “healthy part of the free market,” he said that firms’ first priority was not job creation, but “to maximize profit,” a goal that can be damaging when applied to public service....

“When you are president as opposed to the head of a private equity firm, then your job is not simply to maximize profits,” he said. “Your job is to figure out how everybody in the country has a fair shot. Your job is to think about those workers who get laid off and how are we paying for their retraining.”
We are where we are today because of the supremacy of "shareholder value", and the Republican nominee is the embodiment of that ethos. That's why it has to be at the center of the campaign, and that's why they're going to fight like hell to make the whole subject taboo.

1As of 2007; see Table 9 on page 52. It's probably worse today, but this is the most recent information I could find. And yes, that includes pension funds and IRAs and such (as "indirect ownership"); counting direct ownership only, it's worse.


Victor said...

Tom, I love that "shareholders" v. "stakeholders" distinction.

I think it highlights the difference between the 1% and 99%.

Almost all of the 1% are shareholders.

And some of the 99% might be stakeholders.

While almost all of the 99% are stakeholders where they work, or were, if they're retired.

But the only "stakes" the 1% hold in a company, is their "share" prices.

bluespapa said...

Just as critically, the Bain shareholders end up better off than the shareholders of the original company and the restructured company. Bain acts for the Bain shareholders, and have a competing interest that does not represent the shareholders they are nominally representing as the managers of the targeted corporation.

ploeg said...

There's also the matter that the reason why we're talking about Bain Capital in the first place is that we can't talk about the only job that Mitt Romney ever had that is even remotely comparable to the job of President of the United States (namely, the Governorship of Massachusetts), and we can't talk about that because Mitt sucked at it (h/t Balloon Juice).

Tom Hilton said...

@bluespapa: that appears to be true in at least some cases. My point is that even where Bain was "successful" from the point of view of the targeted corp's shareholders, it's redistributing wealth upwards (to shareholders at the expense of most employees).

@ploeg: well, because he sucked at it, and also because as MA gov he wasn't wingnutty enough for GOP primary voters.

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