The Price of Wall Street’s Power

Source: Gautam Mukunda, Harvard Business Review, Vol. 92 no. 6, June 2014
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…Executives often explain their deference to Wall Street by saying they have a “fiduciary duty” to maximize shareholder returns. That’s been an article of faith since 1970, when Milton Friedman wrote in the New York Times that executives’ only responsibility was maximizing profits. The problem, however, is that it’s not true. Whatever your beliefs about the moral responsibilities of executives, a fiduciary duty is a specific legal obligation, and law professor Lynn Stout has shown that as a matter of law American executives simply do not face any such requirement. So why do managers make choices they know are wrong? Why do so many believe (or act as if they believe) something that simply isn’t right? I’m a political scientist. That means that, just as an economist thinks about money or a soldier about armies, I think about power. There are lots of situations in which people—and countries—act against their own interests. One of the most important—and most dangerous—is when a single sector or group is so powerful that it dominates how an entire society thinks about itself. Once you view research from a variety of fields through that lens, it becomes clear that we must do something to curb the enormous and disproportionate power of Wall Street….