Power to the People

Not sure if you’ve seen the kerfuffle over this Anti-Target ad.

If you haven’t seen the short video clip, it’s worth a watch. I got quite a chuckle out of it.

Now before I start a flame war on the internet, let me preface this by saying I am not a political blog. In fact, I try hard to keep politics out of 20 Prospect, not just because there’s a million and one other places you can go to get hyperbole, and wild accusations, but frankly, because it bores me. There, disclaimer complete.

What I will say is that I 100% whole heartedly agree with the sentiment that Corporations should not be given the same rights as people. The fact that they are is nothing new. It’s been a fact of life for over 100 years in America. And despite a century of populist rhetoric, political parties of all stripes have yet to turn down the gravy train of coorporate giving.

As bloggers go, I’m not a big technology guy. In fact, I’m a bit of a Luddite. Albeit the worlds laziest Luddite. Some cases in point. My calculator died about 2 and a half years ago. It wasn’t anything fancy, just a freebie Texas Instruments calculator that I got while attending a training class. Until last week though, I have not replaced it. Instead for the past year I have scrabbled by using long division & multiplication. Let me tell you, after 20+ years of relying on a calculator, it took me a while to remember how to do it. I didn’t do this out of any moral, or political stand, or to make a statement. I just couldn’t see spending money on a device that I use less than 2 – 3 times a week. Plus, with computer spreadsheets, who really needs one? What eventually changed? In shopping for school supplies with the kids, I saw a $1 calculator in a bin at the store. So after almost 3 years, I have finally replaced it.

Pretty pathetic huh?

Wait till I tell you that my watch battery ran out last month. So far, I have yet to miss it. Laziness can sometimes be wonderfully enlightening if you let it.

So, what does any of that have to do with the above clip? Well, no, I didn’t buy the calculator at Target. (Although we buy lot’s of other stuff there.) What I am getting at is the role of technology in our life. In this case, our political life.

There’s no shortage of overheated hyperbole about technology freeing us, and transforming the way we live. I tend to think it’s a bit overstated for the most part, as my experiences with watches and calculators have shown, life goes on even without the most basic of technical contrivances. However, one area that I am a little fascinated with is the use of info technology like flip camera’s, and youtube, to influence political debate.

Like the Target case, these sort of grass roots guerilla tactics can give regular schmoes the potential to have a voice in the political debate. Something sorely lacking in our oligarchy. Let’s face it, no matter what you think of Target contributing $ to the campaign of an anti-gay marriage candidate, you can’t deny that Target’s voice and influence in the election is far stronger than your own voice. So maybe, just maybe, these technologies can offer a way to steal a little power back in this supposed democracy in which we live.

Of course, as this other local kerfuffle highlights, political parties themselves have coopted these same technolgies for their own purposes. In this case constantly monitoring opposing candidates looking for “gotcha moments”. I wasn’t aware of the extent of this activity, but I can’t say it surprises me. Such is the life of the Borg, it assimilates everything to it’s own purposes.

Now, full disclosure, the Anti-Target ad is not the work of a group of concerned individuals but a highly orchestrated media campaign by Moveon.org. As political an organization as you can find. And one that doesn’t seem to have a problem with corporations contributing to the campaigns of candidates that they support. (I know, hypocrisy among political action organizations. Amazing. Who’da thunk?)

Anyway, those were my thoughts on the subject. I’d like to say I had some grandiose solution to our current oligarchy, but I don’t. Money = Power. Always has, and always will. I know, those are just the kind of shocking insights that keep you coming back to 20 Prospect. ;-)

Notes from SFO

I woke after nine hours of fitful, restless sleep, yawned, and smiled. A whole day with nothing to do but wander back to Minnesota both physically and mentally. I showered, grabbed the free copy of the Weekly Reader USA Today outside the hotel room door, and headed down to Powell to grab some breakfast. I am not sure there is a more relaxing activity in life than eating a leisurely breakfast and reading the newspaper. Even if it’s the newspaper without news.

There are days when I can bend my mind to the task, and force my thoughts to follow a disciplined progression from one step to the next, to accomplish a clearly defined goal. This is known as work. Then there are days like today where I have no obligations but to get my carcass back to Minnesota. This is the kind of day where I can let my mind wander in and out of coherence, chasing thoughts and daydreams at whatever ADHD induced whim I choose to follow.

Four cups of coffee later it was time to stroll back to the hotel and pack. Walking the streets of San Francisco, I began to notice just how ubiquitous the Starbucks paper coffee cup has become. I passed 3 Starbucks in the 2 blocks between the diner and the hotel, and nearly 30% of the people on the street were carrying a cup of Starbucks. I’m not sure why this should surprise me, but it does. I can think of no better icon for Globalization than the Starbucks Coffee cup. I have seen them in every corner of the world that I have travelled to. I’ve sat in the familiar modern furnishings of Starbucks in Taipei, Bangkok, London, Tokyo, Shanghai, Hong Kong, Brussels, Amsterdam, Vienna, and many other places. This makes me as complicit in cultural colonialism as anyone I guess. I’m not sure how I feel about it to be quite honest. I hate that no matter where I go I find pockets of American culture, and yet when I travel I find that I visit them for comfort’s sakes as much as for my coffee addiction. Life in the post modern “global village” (my favorite oxymoron) is complex and messy. No matter what target I choose to direct my angst at, (globalization, suburbanization, McDonaldization, corporatization, logo-ization, etc..) if I dig deep enough I find my own footprints. What is to be done? How does a single person change the world? Is there any point in trying?

Riding out to the airport on the BART train I looked upon the diversity of our age. Asian, Hispanic, African America, European, Dumpy Old White Guys (DOWG’s), we were all there swaying along in our own little cocoons, iPod’s plugged into our heads, pretending not to notice each other. Has it always been this way? Is the diversity of society connected in anyway to our alienation? Robert Putnam’s study revealed surprisingly, that the more diverse a neighborhood, the less “social capital” that existed in the community? Which is the cause, and which is the effect, and is there even any connection between the two? He’s devoted a book, and years of research to answering those questions. I’m afraid that the answers we find aren’t always the ones we want.
Technology brings us closer, and technology leads us further apart. This is the life I lead everyday. Because of technology, and my life in the corporation I have developed friendships with people from every continent except Antarctica, and yet, I feel more alone, more often, than I ever have before in my life. I can cut open a vein and spill my deepest fears and secrets on a blog available to anyone in the world, and still I find that it can never match the satisfaction of sitting down to a table and breaking bread with another person.

Technology and Globalization are post modern paradoxes. Riddles I will probably never solve, and could seriously drive myself mad trying to. Maybe it is better to plug in the headphones, and let my mind wander off into a labyrinth of its own. Sitting here in the crowded terminal, getting ready to squeeze like cattle into our veal pens seats on the plane, what else can I do? Talk to the people next to me? I think I’d either scare, or annoy them if I did, and to what end? Do I need more facebook friends? Hell no. I need one good one to sit with and share a pot of coffee on the front porch. That is the paradox. Globalization, corporatism, and technology, are just well paved paths that lead into a labyrinth. They don’t lead you home. The rocky dirt path that is overgrown with weeds is the only one that leads us home. Here’s to picking up a backpack, and heading off into that wilderness.

Peace.

Photo copyright Library of Congress

You know you have a problem when…

Chimay? Or, she may not?

your kids start asking you “Dad, why do you always take pictures of beer?”

More importantly, why are you taking a picture of a Belgian Beer in an Irish Bar in San Francisco. Well! I’m glad you asked! Because this is a post about globalization.

Not really, but that is the topic for this week’s lesson plan that I have been working on, so it sounded like a good excuse. Let me know if you buy it.

My other favorite beverage. See, I do take pictures of other things!

The fact is it was a long day. Started with breakfast at Lori’s Diner on Powell, which a good friend of this blog tipped me off to. It beat the line up at the Hilton Restaurant and Starbucks. Then I walked several miles of trade show booths, and sat in on some interminable keynote speeches by “very important people” in the industry (ie. – overpaid), and topped it off with a customer meeting. The fact is that by 4:30 pm I had earned that beer damnit!

Well, if you call this work. Which I don’t. Mostly I feel like I am stealing money from the shareholders, I mean really? Me, managing a business? WTF are they thinking? Should I feel guilty about this, or should I feel that the shame is on them for their oversight?

Enuf kidding around. I do have to admit that San Francisco would be a great place to live if I were 20 years younger. It’s got everything a kid of 22 could possibly want out of the world. Thankfully I am 42, so I have set my sights a little higher. That and the fact that there are more vagrants per capita here than in any other city in the world have kind of soured me on any idea of ever living here. I know, you could pick worse places to choose a life of homelessness and mental illness, but it gets a bit old. This trip I have followed the local custom of wearing my iPod when walking the streets so that I can pretend to drown out the pleas for assistance. It’s not as bad as I thought it would be. It’s kind of like starring in your own music video. And if you start singing, or moon-walking in public, well, then you just blend right in with the locals.

The Russian Empire in Living Color

Continuing on the theme of obscure, internet, ephemera, I present to you a collection of color photographs from the Library of Congress. These photographs have an un-earthly, ethereal quality to them that I cannot describe. The subjects seem to glow, or radiate light. The appearance of a world caught between the medieval and the industrial revolution, is amazing enough. To see that world in such vivid color is astounding. The pictures possess a dreamlike quality that makes them seem at once familiar, and entirely foreign to our eyes.

These photographs were taken between 1909 and 1915 in pre-Soviet Russia. They are the work of Sergei Mikhailovich Prokudin-Gorskii, a Russian photographer who developed a unique process for creating color photographs. The Prokudin-Gorskii process was an ingenious photographic technique that captured images in black and white on glass plate negatives, using red, green and blue filters. A single, narrow glass plate about 3 inches wide by 9 inches long was placed vertically into the camera by Prokudin-Gorskii. He then photographed the same scene three times in a fairly rapid sequence using a red filter, a green filter and a blue filter. The images were then presented in color in slide lectures using a light-projection system involving the same three filters.

In the early 1900s Prokudin-Gorskii presented an ambitious plan for a photographic survey of the Russian Empire to Tsar Nicholas II. His plan was to use the emerging technological advancements that had been made in color photography to systematically document the Russian Empire. Through such an ambitious project, his ultimate goal was to educate the schoolchildren of Russia with his “optical color projections” of the vast and diverse history, culture, and modernization of the empire. Winning the support of the Tsar, he was provided with a specially equipped railroad car darkroom, and two permits that granted him access to restricted areas and cooperation from the empire’s bureaucracy. Between 1909-1912, and again in 1915, he traveled through eleven different regions of the Russian Empire, recording daily life among the Empire’s diverse ethnic groups, Medieval Orthodox Monasteries, and the railroads and factories of an emerging Industrial society.

Prokudin-Gorski would leave Russia after the Bolshevik Revolution and eventually settled in Paris. His work remained with his family until the U.S. Government purchased his slides from his heirs in 1948. The Library of Congress recently undertook a program to digitize these slides and present them in an online exhibition. All of the following photographs are copyright the Library of Congress, and Sergei Mikhailovich Prokudin-Gorskii. I hope you find them as fascinating as I do. For more info visit the Library of Congress exhibit here: http://www.loc.gov/exhibits/empire/gorskii.html

This photographic collection preserves a past that no person alive today can recall witnessing with their own eyes. They are snapshots of a colonial Empire stretching from the wild edges of Eastern Europe all the way to the Pacific and the borderlands of China and Mongolia. They are a reminder of the astounding size, and diversity of the Russian, and Soviet Empires, and how pre-modern they truly were at the beginning of the 20th Century.

This amazing monastery looks like an Alien Spacecraft landed in the countryside

Who's afraid of the big bad wolf?

The Emir of Bukhara (present day Kyrgyzstan)

This one gives me goosebumps, and I'm not sure why

If these factories look jarring and out of place to our eyes, imagine how they appeared to the Russian peasants that saw them for the first time

How I would love to know the life stories of these three girls

The shining city on the hill from Revelations

Another haunting photo from the Brothers Grimm

The ferryman at the River Styx

This could have been taken in my backyard, and may be the the most achingly beautiful portrait ever taken of the untamed, wild beauty of lilacs

Into the Belgian wind…

Gert and Klaudie walking the dog

17 Degrees and foggy on the front porch this morning. Not your typical January weather around these parts. This damp cold reminds me of winter in Belgium. For the last 7 years fate had a habit of bringing me to Belgium in January. Winter in the low countries isn’t as bad as you’d expect. It’s mostly raw, damp, cold which only makes the inside of pubs and cafe’s all the more inviting. A nice plate of Witlof with Ham, swimming in a casserole of cheese, and a cold Belgian beer to wash it all down. That my friend is living.

But neither fate, nor my dark corporate overlords are bringing me to Belgium this winter. Which is fine by me. The fascination that I once had for the place has worn off. Sure, I still have fond memories of all my trips there, but I have been there so often that I now see the warts as well. And they tire me. Lord, how they tire me. But it wasn’t always like that. Once upon a time when I first started going there I couldn’t get enough of the place. The baroqueness of their culture, with all it’s Walloon and Flemish tension, full of small unwritten rules. The way that little gestures carried so much importance. It fascinated me, and seemed like a big riddle wanting to be solved. I liked the fact that few American’s even knew where the country was. (“Belgium, is that in Brussels?”)

My attraction to the place was the same as most posers, and wannabes. It was something different, that few people knew anything about. Even in Europe, other nations don’t bother wasting their time to figure out the petty, parochial issues that effect every facet of life in Belgium. I felt that this was one place that I could become an expert on. I could learn this culture, and it would set me apart as unique. I would bug my Flemish and Walloon colleagues for explanations about every little thing that caught my eye. At first they were puzzled by my interest, but they usually obliged by telling me the backstory. I augmented this new knowledge with reading about the place and it’s passions. I became a fan of cycling. And not just any kind of cycling, but of the spring classics. Races that have been contested on the farm roads of Belgium and Northern France every March and April for over a hundred years. I studied the history of the races, and learned the names and stories of the great cyclists of the past. Van Steenbergen, Van Looy, Brik Schotte, Frans “The Milkman” Verbeek, Roger De Vlaemick, and many more. I knew what towns they came from, and the cultural differences between East and West Flanders.

I studied their beer. The different types, and their histories. For a country the size of Maryland, Belgium has over 200 breweries, and over 100 distinct styles of beer. Belgian beer is so byzantine that I often found myself sitting in a bar explaining to Belgian’s things about their own beer that they didn’t even know.

But the thing that really turned their heads was when I came to Belgium in 1999 on my own, for vacation, to see Paris-Roubaix. This was unprecedented in our offices. They had never met an American that even knew about the race, much less wanted to come stand in a muddy ditch in Northern France to watch it pass. That got their attention, and I hoped, would endear me to them. And for a while, I thought it did.

My dark corporate overlord at the time saw the relationships that I was building there, and began to use me as a diplomat, to shuttle information and messages back and forth between our organizations and gauge the mood in their always moody office. I enjoyed the role, and it led to more trips. But after 4 years of this shuttle diplomacy, the more I learned about my Walloon and Flemish colleagues, the more I realized the walls that they hid behind. I made a few close friends, but most still viewed me with distrust. If anything my knowledge about them and their culture made them suspicious. Surely I had ulterior motives. Surely I was just a spy in their offices sent by their American Overlords to keep them under wraps.

It began to tire me. As I moved into management and took on more direct communication with them, and shared joint responsibility for parts of their organization, they really began to dislike me. Sure, I understood them and was open minded to considering their position on a subject, but I was still just another American carpetbagger. It was then that I began to realize I would never be accepted as “one of them”. I was naive to think I ever could be. The notion that people from different cultures, ethnicity, and religious beliefs can come together to form a cohesive whole is an American concept. It is not one that most cultures share.

It makes sense that American’s think this way, even if our actions don’t always bear it out. We are a nation of misfits. We accept that about each other, and are open to looking past the cultural differences. It is admirable, even if sometimes it is lacking in actual application. Yeah, we can be parochial too, as my experience in the deep South reminded me.

But to a Belgian this is a foreign concept. They cling to the things that divide them, because that is the only thing that defines them. A country “invented” in the aftermath of the Napoleonic Wars, they were never one homogeneous group. They were two ethnic groups, with two languages, and very distinct cultures forced into living together under one flag, and one foreign king. A German Duke from Saxe-Coburg, with ties to the British Royal family. A weak little nation, wedged between two larger, warring nations, Belgium has always been the battlefield of Northern Europe. They have seen their borders over run by French and German troops several times in their history. They have paid the price of oppression, and only been reborn as a country through the benevolence of the British who have always viewed them as a strategic neutral port wedged between two historic enemies.

To my colleagues in the office, their local, regional culture was the only thing they had which history had proved could not be taken away. Which is why they guard it jealously. They will never surrender their identity to that of some “Belgian Nation” which has never existed, nor will they surrender it now to a European Union. No, they learned long ago that all foreigners are carpet baggers, there to extract their wealth, and that the only thing they can do is cut alliances, and deals, to try to get a commission on the transaction, by playing one power off of another.

It’s a convoluted little place. A muddy patch of beet farms, and scruffy woods, with a stubborn, insular group of people living on it. I don’t fault them for it. If anything, I respect them all the more. They are products of their history. A brute, conflicted history. But it is their history and they cling to it with all their might. In the end I accepted the fact that I would forever be an outsider there. A student, and a lover of the place, but an outsider none the less.

O’ Little Town of Bethlehem

Bethlehem, PA - Photo by Walker Evans - Nov 1935 from the Library of Congress FSA collection

The pictures in this post were taken by the Farm Security Administration / Office of War Information, between 1935 and 1945. This landmark government program sent photographers out into rural America to document the lives of American’s and the effects of the Great Depression and increasing farm mechanization. In it’s later years the focus of the program turned to America’s industrial mobilization for the Second World War. I stumbled across this treasure trove of historical images via the Shorpy.com photo-blog. They are part of the digitized archives of the Library of Congress.

Bethlehem, PA - Photo by Walker Evans - Nov 1935 from the Library of Congress FSA collection

I find myself drawn to them for reasons that are hard to explain. Since I was a child, I have been fascinated by what came before. In the summer I would ride my bike to the Richmond library, and look through the century old maps of Batavia, and the historical sketches of the late Don Carmichael. (Another long time resident of Prospect Avenue, and the father of childhood friends). I would find places that intrigued me on the map, and then ride my bike to the location to see how they looked today, and if I could find any traces of the past. I guess I should have pursued industrial archeology instead of engineering, as it really was my passion.

Bethlehem, PA - Photo by Walker Evans - Nov 1935 from the Library of Congress FSA Collection

That explains much about my current fascination with these old photographs. I’m still a hopeless dreamer, endlessly fascinated by the look of the pre-suburban world. These photos document a certain turning point in American life. A zenith in 20th Century Industry. The final days of the Industrial Revolution that began after the Civil War. These snapshots document life as it was before the great post war boom of consumerism, suburbanization, de-industrialization, and the rise of the middle class.

Street Scene- Aliquippa, PA - Photo by Jack Delano - Jan 1941 from the Library of Congress

I find it hard to imagine this world, when refrigerators, and other modern appliances were still out of reach of most American’s. We love to eulogize this world, and project idyllic images of community and agrarian life onto the past, but looking closely at these pictures I am struck by the grittiness of the world at the time. If you look beyond the iconic migrant & dust bowl photographs of Dorothea Lange, and dig deep into the catalog you’ll find many portraits taken of Urban and Rural American’s of the day. Reading the captions and looking at the faces, and these people seem old beyond their years. Weather it’s the 14 year old mill workers, the 20 year old miner’s, or the industrial working women of the War years, the faces betray the ages. We can romanticize the past all we want, and complain about the present, but I feel safe saying that most of the folks in these photos would gladly trade places with us.

Woman and Child - Bridgewater, PA - Husband is a steelworker ; Photo by Jack Delano - Jan 1940 from the Library of Congress

I’m not naive enough to think that these photo’s did not carry a political agenda. The FSA photo program was enacted to show both the need, and the success of FDR’s New Deal initiatives. And if you only had these photos to go by, you’d think every American was a Miner, Migrant Farmer, or a Mill Worker. But I do believe that the pictures are honest depictions of the life of the subjects, and illustrate what their world looked like at the time.

Steelworkers in Aliquippa - Photo by Arthur Rothstein - July 1938; from the Library of Congress

For better, or worse, the world shown in these photographs would disappear within another 50 years. Think about that for a moment. Like the population statistics I showed yesterday, this world of Indsutrial America rose up in the valley’s of Pennsylvania in the 80 years before these photos were taken, and would disappear even faster. Now go to the window and look out at the world that surrounds us. The post war suburbs, the suburban office parks, the Strip Malls and box stores, the downtown Condiminium’s. What will it look like in another 50 years? Will the changes be as stark as they were in the 20th Century, or is this post-industrial age fundamentally different? These are the things that occupy my mind. Yes, I think too much.

The Paradox of Shareholder Value

Our Clandestine Corporate Lair

Today is our annual shareholder meeting, here at our clandestine corporate lair. The board of directors will be meeting in the morning, followed by a presentation to shareholders of our company stock. Typically, the crowd is made up of 30-40 elderly, former employees who live in the area and have nothing better to do in their retirement. It is essentially a rah, rah presentation by my Dark Corporate Overlords, for the handful of loyal retirees that choose to show up.

So, in honor of this annual event, I would like to take a few minutes to explain what it is that I think is wrong with the concept of the shareholder owned corporation. Please forgive the long, dry rant that follows…

In large public corporations such as our Sinister Cabal, the company is “owned” by thousands of different shareholders. As such, it would be impractical for each owner to participate in the decision making of the corporation. Therefore, the shareholders of our stock have an elected board of directors to oversee the management team, and the operation of the company on behalf of all owners (ie. shareholders). The ownership of one share of company stock entitles the shareholder to one vote in the election of the board of directors. Therefore, effective control over the board of directors rests with the majority shareholder, or groups of shareholders acting in concert.

In the case of our fine corporation, employees are given the opportunity to own shares in the company stock through their retirement funds, or through outright purchase of company stock using pretax dollars. In addition to the employee stock holders, wholesale institutional investors, like large mutual funds, will typically buy and sell shares of our company stock as part of their investment portfolios.

In theory, this seems like an excellent example of the principle of economic subsidiarity, whereby the workers share in ownership of the capital. The theory of economic subsidiarity, as described by Pope John Paul II in his encyclical Centisimus Annus, proposes that “Each person is fully entitled to consider himself a part owner of the workbench where he is working with everyone else”. By having the employees participate as shareholders of the corporation, the employees become part owners of the corporation’s capital, and also share in the profits of the business through the payment of stock dividends. Also, in theory, the corporate management team can be held responsible by a legal fiduciary responsibility to the employee shareholders. This is what is commonly known as principal-agent theory, where the management team acts as an agent in the interests of the principal, or shareholders.

However, somewhere between theory and practice there is a disconnect. While workers share in the ownership of company as stockholders, and retain the voting rights of all shareholders, they do not have a direct say in the management decision making. Their say in management decision making is via proxy through the elected board of directors. Shareholders have a percentage of votes equal to the percentage of shares they own, so if the majority of shareholders agree that the management are performing poorly they can elect a new board of directors, which can then hire a new management team. In practice, however, genuinely contested board elections are rare. Board candidates are usually nominated by insiders on the management team, and by the board of the directors themselves, and a considerable amount of stock is held and voted by both the board members and the management team. The employee shareholder’s voting rights often represent such a small percentage of the total that they can be considered negligible.

Ultimately, those who most influence the direction of a company are the management team, the board of directors, and the large institutional investors that hold and manage the employee shares in mutual funds. Each of these three constituencies have different motivations, and incentives.

The Management Team

The management team of any large corporation is tasked with both short term and long-term decision making to support the mission of the business and deliver the financial results demanded by the investors so that they may realize a financial return on their investment. Unlike a Democratically elected government, the management team is not a group elected by the vote of equals. In addition, unlike a family owned business, the management team is not selected based on class, or family connections. Instead, the management team is a group of leaders that have risen to positions of management through their promotion by higher-ranking managers within the organization. The focus of the professional manager as an agent for the shareholder is improving efficiency. The motivation is to maintain continued investment through the increase in share price. The management teams of most large corporations have a significant amount of their financial compensation in the form of stock option grants. Therefore, an increase in share price will directly affect the material wealth of the management team.

The Institutional Investor

In the United States at the end of 1992, institutional investors held at least 50 percent of the share capital of large corporations. I believe that figure has grown in the last 17 years. As the owner of the capital the institutional investor is free to purchase, hold, or sell the stock of any given publicly traded company in the interest of creating profit for the shareholders of the mutual fund. Institutional investment firms employ professional fund managers to manage the stock portfolios in line with the investment strategy (long-term growth, international growth, moderate growth, or securities).  While Institutional investors are legally the principal “owners” of the capital they invest, in reality the fund manager is acting as a trustee of the money belonging to the mutual fund shareholders. The mutual fund manager is not a principal, but merely an agent for the shareholders of the mutual fund corporation. Mutual fund companies earn their profit by selling individual shares in their funds, and charging fees to their customers for the management of the stock funds. The typical investor in mutual fund stocks, are individuals who purchase the stock either using their own money, or through company supported 401k and retirement pension funds. As the market value of a mutual fund stock is directly related to the performance of the fund, the institutional investor is highly incentivized to maximize his return on investment by buying stock in companies that show growth in earnings. To the institutional investor, the only thing that matters is the near term financial performance of the company in which he invests.

Our Board of Directors

The Board of Directors

The third constituency is the board of directors of the corporation. The boards of directors are professional managers from other organizations that have been elected to sit on the board, and protect the interests of all shareholders. Board members are elected by shareholders to represent their interests. In this role, the board members serve as the acting principals for the shareholders. In practice, most board members are chosen from among the peer group of the corporate management team, and boards are typically composed of either large shareholders, or professional managers from other corporations. The result is that the board of directors, and corporate management team become a self-perpetuating group of elite insiders. Both are financially compensated by the performance of the company stock, which is positively impacted by attracting the investment of large institutional investors. As described above, the best way to attract institutional investment is to deliver continuous growth in corporate financial earnings.

The irony in this ownership system is that the mutual fund stocks making up the largest percentage of a corporation’s shareholders are typically owned by many employee shareholders. These employee shareholders are employed by many different companies, and acquire their mutual fund stock through employee 401k retirement and pension funds. While financial returns are important to the individual shareholder, other concerns such as job security, working conditions, environmental impact, and long-term health benefits have an immediate impact on both their subjective and material well-being. The illusion is that making employees into shareholders through stock ownership & pension funds gives them a voice.

The rise of the mutual fund, and pension fund as the primary owner of financial capital has created demand for continuous growth and increasing profit to increase short term earnings per share.  The result is a paradox where the jobs held by employee stockholders in developed nations are eliminated in an effort to reduce operational costs related to salary and benefit expenses. By moving these skilled, and unskilled, jobs to developing countries the cost of producing goods is reduced, in pursuit of increasing the financial performance of the stock price, and creating profits for both the management team, the board of directors, and ultimately the retirement pension funds of the very employees whose jobs were eliminated. The new employees in the developing countries are not typically given access to employee stock ownership, or pension funds.

The result is a paradox where jobs are eliminated to secure the future retirement income of the employees holding them. This reminds me of the Vietnam era quote “We must destroy the village in order to save it”. Obviously, the current state of corporate governance under shareholder theory only holds management accountable for short term financial results. Clearly the gap between long term and short term incentives for corporate management teams do not serve the interests of all shareholders, particularly the employee shareholders.

Employee Shareholders hard at work in the Lair

Does this mean that all corporations are governed only for short term stock price gains? No, I am not cynical enough to suggest that. Yet. However, it is clear that the management team is only given short term incentives, and that any view to the long term stewardship of the corporation on their part is purely of a personal initiative and desire, and will not be rewarded by the corporate governance system. Is it any wonder we continue to see fraud, and ethical violations at publicly held corporations?

How can this system be changed? Well, currently the corporate governance laws are written such that unless a gross fraud is being committed on the part of management, or accounting laws are being violated, there is no recourse for shareholders to hold management accountable for the long term operation of a corporation. The only business models that I have seen have success in this, do not fall into the category of stockholder owned corporations. They are usually privately held, family owned business, or cooperatives owned solely by the coop members.

Until corporate governance laws are revisited in a meaningful way, the corporate overlords will continue their reign of darkness, and wage slaves like myself will continue to serve them in their nefarious deeds. Innocent people will continue to scratch, and claw out their living as a small part of a largely unjust machine, that seems to run on it’s own accord. Rare is the organization that is evil, or corrupt to the core. Such infamous folks as Madoff, Petters, Rigas, Skilling, and their ilk are thankfully rare.  When their pyramid shemes finally do collapse, their is always much hand wringing, and finger pointing, but seldom do we truly analyze the underlying structure of shareholder theory of the supposedly ethical corporations.

What is truly scandalous is the corporate governance system that we have created, which concentrates the power and wealth in elite circles. It is this system that encourages and rewards the self serving behavior of corporate management teams, and drains the wealth and capital from the communities in which we live. It is shareholder value which feeds the beast of globalization, and lines the pockets of the few, at the expense of the many. If only this kind of evil had a face, it would be so much easier to fight. Instead we are powerless against this faceless, formless, Leviathan of a corporate system. I fear that not even the power of government can control this transnational beast any longer. James Bond, where are you?

My Villianous Liege