The coronavirus pandemic has changed American society in more ways than we can count. But at least one outcome was surprising, and it will also be enormously beneficial to many Americans’ financial futures. Despite a huge downtown in the global economy, the growth in individual investors ballooned. Trading in the market without the go-between of a bank, mutual fund, or financial advisors had huge opportunities this year. Individual investors made up 10% of the market in 2019, but skyrocketed in 2020, hitting 25% on some days. Erasing commission fees and reducing minimum investments helped crack the door at the end of last year, but the floodgates really opened in the market volatility of 2020. The rollercoaster ride, while spooking Wall Street gurus, gave casual traders the opportunity to make money quickly.
As we saw this year, a growing share of the market comprises middle-class, everyday people. So why are politicians and large corporations continuing to claim a “shareholder primacy” model only benefits the ultra-wealthy?
A “New” Economic Model
At the 2020 New Economic Forum, former presidential candidate Hillary Clinton commented that the “shareholder-centric approach… distorts the market.” She encouraged businesses to “shift the incentives and assumptions that have grown into the system.” Rather than dictating change in corporations’ business strategies, she suggests they “take a hard look” at their “assumptions.” She couches her entire monologue in how corporations can “better frame” their “market operations,” which peels back the curtain. Her recommendations align with a PR campaign, not a genuine shift in how they run their companies.
There’s little evidence that Ms. Clinton’s prescriptions would yield anything positive. Given her nebulous statement, she appears to know it. While Ms. Clinton’s statements were too vague to be discernible, a broader look at the context of her remarks makes her message clear: shareholder interests should not be the primary consideration for companies. Focusing on their returns is somehow bad for capitalism, though Ms. Clinton doesn’t say why.
But we can’t expect the conversation to stay in the PR realm for long. This path leads inevitably to an operational adjustment within corporate culture. That would be irrefutably harmful, not only to shareholders, but also to customers, employees and executives, and every other “stakeholder” too. That’s because the conflicting priorities between these groups means companies would never actually be accountable to any other group.
You Deserve a Voice in Your Shares.
Perhaps the most wrongheaded assumption that Ms. Clinton makes is that shareholders detract from responsible capitalism. While Ms. Clinton argued that focusing on the shareholder “distorts the market” only last month, her comments would have fit better in a pre-pandemic era (even last year), when the market was dominated by large institutional shareholders. In 2020, shareholders aren’t corporate gurus making backroom deals with the C suite. Shareholders are working moms, middle-class dads, retired government employees with a pension, or Generation Xers who’ve been saving in a 401k for the last 20 years. When Hillary Clinton says a “shareholder-centric approach… distorts the market,” she’s telling corporate leaders that despite years of successful growth and increasing individual investing, shareholders should not be top priority for their company. If you own a pension, a 401k, or even a single share in Apple or Exxon, she’s telling companies not to prioritize you.
It’s trendy for politicians and corporate figures to sacrifices shareholders on the altar of “stakeholder capitalism.” But now more than ever, shareholders are individual investors, also known as everyday people. Accumulating wealth is just one priority among many, including retirement and health savings. Now more than ever, focusing on shareholders is not a bad thing. In fact, it holds companies accountable to make financially sound decisions that grow the company and benefit customers. We ought to celebrate the entrance into the market of people who have never invested before; we ought to commend the financial opportunities that will be available to them. Now is not the time, when so many retail investors are entering the market, to move away from prioritizing shareholders. Now is the time to press in, and make sure their voices, new to the table, are heard even more loudly over the noise.