The contradictory corporation
Why our obsession with shareholder value near guarantees lower returns in the future
Many of you will be aware that corporations often contradict themself (using the term ‘self’ very loosely here…). For instance, 2020 research from Sull et al. suggested that there isn’t even a statistical correlation between the stated values and culture of quite a large group of said corporations.
This, by definition, shows a lack of integrity.
When it comes to corporate contradictions, there's a long laundry list we might work through. In the usual style of my condensed musings here, I won't be doing that. Rather, I'd like to call out one of the biggest contradictions of them all:
The fact that a corporations sole purpose is to maximise shareholder value, yet it's very actions attempting to maximise shareholder value are destroying its long term ability to maximise shareholder value.
Yes, you read that right.
Let's explore a little in the hope that a few folks might become a tad more enlightened through the process.
The basics
In order for a corporation to maximise shareholder value (simple summation, there are nuances. I get that. But folks, focus on the substance. Stick with me here. We got this!), it must engage in activities that increase the consumption of its products and services. To increase the consumption of its products and services, it must engage in / support activities that enable the efficient production of said products and services. And to engage in / support activities that enable the efficient production of said products and services, it must engage in / support the efficient extraction of various ‘resources’.
The overall picture, necessarily zooming out from any one corporation here, is precarious. We know this. It’s not new and it ought not be something we debate at this level. We massively over extract, over produce and over consume. The biophysical realities of this are pretty clear.
Even though we ‘take more from the world’ than the world can regenerate in the same time frame, we don’t distribute what we take very well. Some folks have a lot, many have far, far less.
In simple terms, this ‘model’ has us operating way beyond planetary boundaries, while at the same time failing to deliver on social foundations.
But here’s the kicker, most of the popular (in big money circles) proposals for how we get out of this are based on a macro economic proposal we might loosely call ‘green growth’. The basic premise here is that we can decouple economic growth from resource extraction, production and consumption to such an extent that we can bring life back within planetary boundaries, while at the same time growing our economies (then all that good quality trickling down can occur…).
The problem is, this is not happening. At least nowhere near as rapidly as it has to in order to make a real difference to our future prospects.
And this gets us to the heart of this specific problem we’re covering today. Corporations (perhaps more aptly, ‘corporatism’) are obsessed with growth. But, unless some magic happens that we’re not yet attuned to (possible, but lets say unlikely enough we probs shouldn’t rely on it), the extraction, production and consumption will basically run out. So the corporations are basically eating their future for lunch.
Their obsession with growth, profit and shareholder value means that they close to guarantee they won’t be able to have the same obsession in the future (we are amidst the sixth mass extinction event here people). Resources are scarce. It’s getting worse quickly. Profits will decline. The desired growth just won’t occur. The entire premise of the modern corporation seems to be well and truly under threat.
What to do?
Let’s say you’re a board member of some corporation. You read this. You already know this (hopefully…?). But today’s post is framed simply enough that it jogs your memory. You decide to have a few chats with folks around you.
What do you open with? How might your colleague respond? Do either of you believe you have any capacity to influence a more preferable direction?
A lot of folks feel pretty hopeless right now. But, and as strange as this sounds to some folks I know, plenty of board members (read: ‘higher’ profile peeps in society) might be amongst this group. If you are in the position, and you take the courageous leap to deeply interface with the more nuanced information backing up my very brief musing, you might justifiably feel pretty shit. Not because you’re a ‘bad person’ per se, but because you wished things played out differently. Or you wished there was something you and others could do to help.
Please don’t give up. Please don’t double down. Please don’t turn a blind eye.
You can help. We can all help.
But, some of what’s required will be uncomfortable. We will have to stare intently into the mirror. We might not like what we see. We will have to question some of our deepest beliefs, especially those that remain below the surface. We will have to reorient the direction, magnitude and speed of transformation we exist in relation to.
I’ve gone through such questioning sooooooo many times. Now I am actively hopeful. I believe we have the capacity to shift course. I believe humanity’s best years can absolutely be ahead of us. And I’m here to offer a hand to the organisations willing to change. So, if you want to get into the nuanced causal analysis, then proceed towards something like wise and deeply caring custodial action, let us begin.
Well articulated, and thought provoking. It is something that is frequently on my mind, and something I will definitely be looking to engage with. I think Boards and Board Members should start to turn their attention to how they can empower and embolden their Executives to achieve change, and growth, but in the manner you suggest.