Roosevelt Institute Issue Expert Outlines Ways Our Era of Shareholder-First Economics Is Bad for Companies, the Broader Economy
NEW YORK, NY – In a new report, the Roosevelt Institute takes aim at common misconceptions about shareholders and the role they play in our economy. Who Are the Shareholders? is written by Roosevelt Institute Fellow Susan R. Holmberg. It challenges conventional wisdom and provides a more accurate picture of which Americans actually comprise the shareholder class, what shareholders actually do and don’t do, and how their outsized power hurts the majority of Americans.
The report defines “shareholder primacy”—a trend driving today’s high-profit, low-wage economy—as the belief that public corporations should prioritize profits paid out to shareholders above all other corporation decisions. It describes this as a profoundly influential but toxic ideology that has shaped 21st century American capitalism. The incentive to maximize the value of a firm’s shares overrides concerns that are essential for the long-term health of corporations, including investments in worker pay and company growth.
Holmberg’s research identifies shareholders as an overwhelmingly wealthy, white contingent represented and dominated mainly by activist hedge funds and other institutional investors like mutual funds. She argues that their grip on the decision-making of corporate executives is felt throughout the economy and is manifested in soaring economic inequality, stagnant wage growth, precarious labor markets, and ultimately a long-term decline in American competitiveness on the global stage.
“The combination of the short-term motivations of institutional investors, particularly activist hedge funds, with the enormous power they hold over a company’s business decisions means that these investors tend to support the usual suite of self-serving, extractive strategies,” said Holmberg, Fellow at the Roosevelt Institute and the report’s author. “Policymakers have made choices that allow this excess power to mount and these counterproductive incentives to exist. We can choose to do better and rewrite the rules to bring about broader, stronger prosperity.”
The report also explains how, contrary to popular belief, shareholders are not the owners or funders of corporations, which has long been the justification for shareholder primacy. It concludes by outlining several policies—including placing workers on corporate boards and enacting a luxury tax on excessive CEO pay—that could help rein in the power of shareholders.
For years, the Roosevelt Institute has exposed the nature and consequences of corporate power and the harm caused by extractive, value-diminishing practices, most notably excessive stock buybacks. Last October, Holmberg released the report Fighting Short-termism with Worker Power, which examined the practice of including workers on corporate boards and was covered in Quartz. She has also written prolifically on distorted executive pay practices, including The Atlantic essay “Can CEO Pay Ever be Reeled in?” More recently, Roosevelt Senior Economist and Policy Counsel Lenore Palladino and Roosevelt Research Associate Adil Abdela released Making the Case: How Ending Walmart’s Stock Buyback Program Would Help Fix Our High-Profit, Low-Wage Economy. The report was covered at major news outlets, including Vox and Common Dreams.
About the Roosevelt Institute
Until the rules work for every American, they’re not working. The Roosevelt Institute asks: what does a better society look like? Armed with a bold vision for the future, we push the economic and social debate forward. We believe that those at the top hold too much power and wealth, and that our economy will be stronger when that changes. Ultimately, we want our work to move the country toward a new economic and political system: one built by many for the good of all.
It takes all of us to rewrite the rules. From emerging leaders to Nobel laureate economists, we’ve built a network of thousands. At Roosevelt, we make influencers more thoughtful and thinkers more influential. We also celebrate—and are inspired by—those whose work embodies the values of both Franklin and Eleanor Roosevelt and carries their vision forward today.