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Last year, Jeff Fairburn became something of a poster child for the perceived excesses of contemporary capitalism. Fairburn had worked for nearly thirty years at the publicly listed UK housebuilder Persimmon, ultimately making his way to the very top of the management heap. But the beginning of the end of his tenure came in late 2017 when the company announced that its chief executive was entitled to a performance-related, share-based bonus of £110 million, triggering intense public criticism. Less than a year later, Fairburn was gone. He didn’t really help himself. Despite agreeing to a reduction in the bonus to a more modest £75 million and pledging to give some of the money to charity, Fairburn insisted that the original award had been deserved, the result of his working “very hard.” No one was persuaded, and the inevitable occurred in November when Persimmon, buffeted by relentless negative publicity, asked him to leave. To general dismay, Fairburn walked off with all £75 million. Much less noted was the fact that the man who replaced him, the company’s managing director, had himself received a bonus in excess of £40 million from the same scheme. There was also relatively little attention paid to the role of Persimmon’s shareholders in all of this. Inequality has been a buzzword for social and economic commentators of all stripes in the past half-decade, and jaw-dropping levels of executive pay have come to be seen as a particularly egregious manifestation of income and wealth gaps. At Persimmon, for instance, Fairburn’s spoils were thrown into sharper relief by the fact that the company didn’t even pay a living wage to employees at the other end of the income spectrum. What’s been especially notable about the rising chorus of disapproval of executive pay, though, is how much criticism has come from inside rather than outside capitalist ranks — that is, from shareholders. Numerous countries have in recent times introduced “say on pay” rules giving a firm’s shareholders the right to vote on executive remuneration, emboldening investors and making annual shareholder meetings increasingly nervy occasions for those in line for bumper windfalls. Will they or won’t they approve? In April 2018, at Persimmon’s annual meeting, they did, just about, but only because a third of shareholders abstained; of those who voted, only 51.5 percent were in favor. And the vote came after several heavyweight investors took the opportunity to express their ire. One, from Aberdeen Standard Investments, declared that the “long-term success of the company” was “being endangered by the reputational damage associated with grossly excessive pay.” This, as it happens, was arguably the least of the dangers.

The Age of Managerialism The nature of the relationship between corporate managers on the one hand and shareholders on the other has been of deep interest to observers of capitalism since the early decades of the twentieth century. Interest was piqued — eventually spawning a whole field of inquiry, “corporate governance” — because the relationship was changing, especially in the United States, where much of the early thinking on the subject originated. The great turn-of-the-century “trusts” such as Standard Oil and US Steel, closely controlled by leading industrialists like John Rockefeller or financiers like J.P. Morgan (or by alliances between them), were being supplanted by modern corporations. These were different beasts, no longer fusing ownership and management. Typically listed on the stock market, they sucked up vast quantities of investor capital and in the process began to escape the control of their original dominant shareholders, whose influence declined in lockstep with their equity dilution. Ownership became dispersed among an incipient class of small shareholders, the forerunners of Thomas Piketty’s “petits rentiers,” who were unable and unwilling to monitor or discipline the corporate managers they supposedly employed. What were the implications of this severing of ownership and control for governance of the corporation? This was the question that a new generation of theorists began to grapple with. Some observers, as the sociologist Mark Mizruchi has noted, were relatively sanguine. For the likes of Ralf Dahrendorf and David Riesman, the dispersion of ownership affected the dissolution of what in reality had represented a concentrated and autocratic ruling class. And this was all to the good. Morgan, Rockefeller, and their ilk could no longer dictate the rhythms and routines of American capitalism — its politics as well as its economics — in the manner that had been their custom during the Gilded Age. Capitalism, rather, had been democratized, devolved to “the people.” In fact, Dahrendorf conjectured that it was no longer even capitalism, characterizing as “post-capitalist” this embryonic society in which owners and managers were largely separate constituencies. Margaret Thatcher would have scoffed at the post-capitalist bit, but she would certainly have recognized the principle of distributed ownership and shared Dahrendorf and Riesman’s enthusiasm; for what was this alleged new constellation, if not the famous “share-owning democracy” that, through privatization of the United Kingdom’s nationalized industries, the Iron Lady tried (but ultimately failed) in the 1980s to create? Yet not everyone shared this rosy view of the separation of control and ownership and the dispersal of the latter. Indeed, the darker view became the predominant one. It was articulated most notably by two scholars, Adolf Berle and Gardiner Means, whose The Modern Corporation and Private Property , published in 1932, is credited by many with effectively founding the field of corporate governance. Berle and Means painted a very different picture than Dahrendorf and Riesman. They conceded that the relationship between managers and shareholders could be harmonious. But they didn’t believe it often was. Instead, they offered an almost dystopian vision of a world riven by contradiction between the antagonistic interests of the two camps. The “interests of owner and of ultimate manager,” they wrote, “may, and often do, diverge.” The cynicism is palpable in the observation that only “supposedly” do a corporation’s managers wield their power over the business “for the benefit of the security holders.” Shareholders, moreover, could do little to bring self-interested managers to heel, since “the checks which formerly operated to limit the use of power” had disappeared and the managerial class could use “the proxy machinery to become a self-perpetuating body.” And at the root of the problem, Berle and Means insisted, was the fact that owners no longer managed businesses and managers no longer owned them — the latter typically holding “so insignificant a fraction of the company’s stock that the returns from running the corporation profitably accrue to them in only a very minor degree.” Demotivated to maximize shareholder returns, managers had other priorities. Might one be to line their own pockets?

Ruling on Capital’s Behalf Marxism is the body of thought most concerned with conflict and contradiction within capitalism. For Marx himself, of course, the main axis of conflict was not between owners and managers but rather between capitalists — generally assumed in Marx to take the form of owner-managers, hence avoiding the conflict highlighted by Berle and Means — and workers. “Capitalism” was nothing less than a mode of production constituted and defined by this particular adversarial relation. But Marx also periodically commented on a relation that he saw as potentially no less contradictory, and one that, as we will see, bears decisively on the role of shareholders in capitalism. This is the relation between individual capitalists on the one hand and the capitalist class as a whole — the bourgeoisie — on the other. This relation has received more sustained attention from subsequent generations of Marxist theorists. Prominent among them is the geographer David Harvey, whose approach to Marxism is notable for its probing of all manner of contradictory tendencies within capitalism, and the propensity for these tendencies to foment crisis. Harvey’s key point about individual versus collective capitals (firms) is simply this: what is in the interest of the individual firm is frequently not in the interest of capital as a class, and vice versa. One example Harvey often likes to give concerns social infrastructure and the built environment. Seeking to maximize short-term profits, individual capitalists generally pay little heed to conditions in the wider physical and socioeconomic landscape — everything from worker education to transportation and communications infrastructure, from consumer purchasing power to housing — within which the production of goods and services for sale on the market occurs. As such, they tend to operate in ways that make sense to them, but which very often make no sense from the standpoint of the bourgeoisie’s overall requirements for orderly long-term accumulation. Decent worker accommodation? Disposable income? Affordable transport? Not my problem, says Marx’s Mr. Moneybags. How is this contradiction between the interests of capital and the interests of the individual capitalist to be resolved? The answer, for Marxists, lies principally with the state. It is the state that steps in and effectively acts on behalf of the capitalist class at large. Interestingly, the economist who first hinted at this role was not Marx but Adam Smith. Though often considered the father of laissez-faire economics, Smith nonetheless saw a critical need for an interventionist state in certain vital areas of social and economic life. (So much so, in fact, that Murray Rothbard would later dismiss him as no less than “a necessary precursor of Karl Marx.”) If a service was in the public interest and if, despite the celebrated “invisible hand,” the butcher, brewer, and baker failed to provide it, then, in Smith’s view, it was the state’s job to do it. Defense, justice, education, and “public works” (infrastructure) were his main examples. Later theorists working in a Marxian tradition have added important texture and understanding to Smith’s broad brush strokes. Most significantly, they have shown that the state’s provision of such services in the event of market failure is not only in the public’s interest but in capital’s interest; a vibrant and growing economy yielding healthy corporate profits is reliant upon educated workers, up-to-date infrastructure, national security, and so forth. Individual capitalists may not recognize the state’s beneficence; in fact, sometimes the state’s intervention may impact a particular company’s profitability negatively — think of the private transport operator undercut by the introduction of subsidized public transport. No matter. The interests succored by the state are not the individual capitalist’s; they are those of capital in toto. The state, it should be noted, does not serve capital’s interests directly. As Nicos Poulantzas argued, its role is better understood as protecting a social order that by its very nature advantages one class over another. Nor does the state act instrumentally. The common charge that Marxists regard the state as an instrument of class rule is fallacious, at least where the Marxism of a Poulantzas or a Göran Therborn — arguably the most sophisticated and influential modern exponents of Marxian state theory — is concerned. To imagine that the state is a crude instrument of capital is to presume that the capitalist class is sufficiently organized and unified in its interests to act politically and strategically as a class, which, in view of individual capitalists’ self-interest and the factional struggles it gives rise to, both Poulantzas and Therborn deny. Insofar as the state acts “for” capital, then, it acts for a class that, in the assessment of such theorists, is intrinsically incapable of acting for itself.

Trust in Capitalism On September 27, 2001, just sixteen days after the attack on the World Trade Center, President George W. Bush gave a rousing speech in Chicago. Although the speech was delivered to airline employees at O’Hare International Airport, it was above all addressed to the broader American public. At its core was a striking message. The best way of standing against terror, he said, was to fly; more generally, it was to spend. “Get on board,” he rallied the nation. “Do your business around the country. Fly and enjoy America’s great destination spots. Get down to Disney World in Florida.” Two weeks on from the horrors of 9/11, Bush realized, the greatest threat to the American “way of life” — he used the term twice — was not further terrorist attacks but rather fragile consumer confidence. Without robust consumer spending, which accounted in that period for approximately 70 percent of US GDP, the economy, and the American way of life it sustained, would grind to a halt. A decade after Bill Clinton’s strategist James Carville coined the phrase “It’s the economy, stupid” during his campaign against Bush Sr, Bush Jr was savvy enough to recognise the gravity of the situation. One of the key ways in which the state supports capital — and capitalism — is by maintaining consumer confidence, and in September 2001, the need for this support was acute. Modern capitalism, in fact, exists on confidence. It cannot do without it. Generalized belief in capitalism is indispensable to its successful reproduction; this is what Antonio Gramsci referred to as capitalism’s cultural hegemony, its success in persuading even those it most exploits of its nominal merits. There can and always will be doubters, needless to say, who see through the veil, but capitalism undoubtedly thrives in proportion to the confidence in which it is held by the population at large, the majority of whom ordinarily have no direct stake in the system (aside, perhaps, from some pension holdings). It is particularly important, for instance, that people feel capitalism makes them “free” (whatever that means exactly): that they consider capitalism fair, meritocratic; that they believe that by working hard, they, too, can become rich, and maybe even capitalists themselves. (The extraordinary, perhaps unique, vice-like grip of capitalist faith on the popular mind specifically in the United States is best evidenced by the fact that 39 percent of Americans believe that they are either in the wealthiest 1 percent or will be there “soon.”) And it is important, last but definitely not least, that ordinary people do not feel that capitalists are taking them for fools.

The Big Three If theorists working in the Marxian tradition have been alive to the role of the state in buttressing the interests of the bourgeoisie — including by upholding public trust in capitalism — they have tended to overlook the fact that the state does not necessarily perform this role in isolation. In fact, most thinkers have underplayed or simply ignored the significance of another powerful constituency that is no less invested in the fortunes of capital as a whole and which, as such, may be no less willing to call out individual capitalists on perceived breaches of public trust. What is that constituency? It is the institutional investment community: the modern shareholding industry. To understand why this is the case, it is essential to understand what the modern investment industry looks like, and how little it resembles the dispersed population of small securities holders that Berle and Means pictured in the 1930s. To be sure, there are small shareholders today, too. But few hold their shares directly. And where holdings are indirect, the intermediaries today are generally not the small, often local, fund managers of yesteryear. The fund management industry globally has, in recent decades, massively consolidated, with the result that a vast pool of corporate equity is now held by a relatively small number of transnational asset management behemoths — the BlackRocks, the Vanguards and the Fidelitys of the world. Consolidation, then, is one crucial development. But more important still, and closely connected, is the phenomenon of cross shareholding. In the contemporary investment landscape, the leading fund managers are not selectively invested, as they typically were in Berle and Means’s day, holding an oil stock here, a consumer product stock there. Given the colossal scale of assets under management — BlackRock alone manages more than $6 trillion at latest count — this clearly wouldn’t be possible. Instead, today’s leading asset managers are substantially invested more or less across the board. In 2013, for example, BlackRock was the single largest shareholder in no less than a fifth of all publicly listed US companies, and was the number two or three in many more. The combined holdings of BlackRock, Vanguard, and State Street, meanwhile, make them collectively the largest equity investor in around 90 percent of all firms in the S&P 500. This is an entirely different ownership architecture. It may be an exaggeration to say that, today, the biggest asset managers do not own a selection of shares so much as a share of capital in its entirety — but the exaggeration is only a minor one. The potential implications of this transformed ownership milieu are not difficult to divine. Major institutional shareholders in the early twenty-first century have good reason to be more concerned with the fortunes of capital across the board than with the fortunes of any of the individual companies in which they happen to be invested, since it is the fortunes of capital across the board that drive their overall investment returns. If the positive financial performance of one company owned by BlackRock adversely impacts the wider economy and hence total corporate profits, the negative impact on the aggregate market — which is BlackRock’s benchmark — will, for BlackRock, vastly outweigh any positive movement in the share price of the company in question. Better, by far, that Capital does well than any individual capitalist firm does. Accordingly, what serves the interests of the modern institutional investment community is not so much seeing this or that company perform well, but maintaining confidence in capitalism as a mode of social and economic production and reproduction. Get down to Disney World in Florida! In this novel context, acts of apparent or actual excess on the part of corporate executives increasingly will not do — any affront to public trust in capitalism could risk shareholder retaliation. This was the crux of the shareholder umbrage enunciated at Persimmon’s 2018 annual meeting in connection with Jeff Fairburn’s “grossly excessive pay.” To be sure, concerns about reputational damage to capitalism are not the only reason for shareholder criticism of executive remuneration; sometimes when a company is making losses while executives are making hay regardless, there are quibbles about bonuses not being earned. But these are trifles in the scheme of things. The fact that criticism of executive remuneration is sometimes leveled even when companies are earning their shareholders spectacular returns is proof. The investment industry critique of executive pay is overwhelmingly about optics. At all costs, capitalism mustn’t be made to look bad; the public cannot think it is being taken for a ride. And as with the state in Marxist theory, this is a scenario in which an influential constituency speaks and acts for a class — the managerial class — that cannot act for itself. Major shareholders know full well that individual capitalists are not going to exercise the requisite restraint. Managers will always put their own interests before those of capital as a whole. Indeed, it is unlikely that many of them recognize the potential conflict between the two interests. Few will have read their Marx or their Harvey. The asset management industry, however, can step into that breach and do for Capital what capitalists — individually or collectively — do not. Endemically incapable of raising itself to the political level as a unified class, today the bourgeoisie exists as a more or less coherent political agent, not only in the form of the state but also, I am speculating, in the shape of the asset management industry. This is what I mean by “shareholder capitalism.” Not, as for the legion of writers on “shareholder value,” a capitalism recognizable for managers’ focus on maximizing shareholder value. But rather a capitalism partly held together — protected from the damages inflicted by individual capitalists – by the shareholding industry. Today, for the biggest shareholders, maximizing shareholder value may not be enough. In fact, if it goes against capitalism’s perceived integrity, it may even be detrimental.