Stupid and silly statements that are straight out of Shareholder Primacy LaLaLand.
When we hear the tenets and notions of Shareholder Primacy, they sound like crazy, odd ball ideas from LaLaLand. The rational and sane ideas of how business should function and work are turned up side down. . For example, when we ask “what do our Class 1 railroads do?” the answer we will get from Wall Street is “to work to increase shareholder value like any other company.” Since shareholders and investors are the only one who buy stock and invest, they are taking a risk to gain profits or suffer losses. Since the purpose of the railroad company is to benefit shareholders and investors, employees are an expense to be managed, just like the number of locomotives online. The statement below is the “Carriers'” (railroads’) loud and clear declaration in their belief in the Shareholder Primacy ideology:
“The Carriers maintain that capital investment and risk are the reasons for their profits, not
any contributions by labor. The Carriers further argue that there is no correlation historically
between high profits and higher compensation, either in the freight rail industry or more
generally. To the contrary, one of the Carriers’ experts maintained that the most profitable
companies are not those whose compensation is the highest. The Carriers assert that since
employees have been fairly and adequately paid for their efforts and do not share in the downside
risks if the operations are less profitable, then they have no claim to share in the upside either.”
Presidential Emergency Board No. 250 – Report and Recommendations. p. 32. August 16, 2022 (emphasis mine).
This awful statement above from the 2022 labor negotiations ignited a firestorm among decent Americans just about everywhere, both inside and outside the railroad industry. It was viewed as a statement by the “Carriers” of the railroad industry of the cheapening of the work of the various craft workers, many with years of acquired skills, by the American railroad industry. It is a horrible and mean spirited notion that the work of craft workers is is not valued and contributes nothing toward the revenue and earnings of the railroads. The long hours of overtime. The loss of time with families. No sick days. No time off to recover and have a balanced life. The sacrifice would be worth it if the “Carriers” of the railroad industry valued and respected the work of their railroaders, and the “Carriers” respect shareholders and activist hedge funds. The CEOs and Boards of the “Carriers” are beholding only to shareholders and investors.
Shareholder Primacy views Labor as a variable expense to be minimized. The first thing we need to understand is that it’s the shareholders and hedge funds who put up the capital investment and risk for the railroads. Shareholder Primacy doctrine sees workers as having NO legitimate stake in the railroad company, because the railroad company serves no other purpose but the creation of shareholder value and wealth. Shareholders and investors are “paying into” the railroad operation and and are “taking the risks” with their investments. From the view of Shareholder Primacy the losses are taken by the shareholders and investors, not the employees. Labor has no part in the railroad company other than being an expense that needs to be managed and reduced, like managing the number of railcars and locomotives that are online.
So, stock prices and profits go up when employees are furloughed and laid off. Shareholder Primacy is infamous for creating “free cash” profits through layoffs, getting rid of less profitable customers, and downsizing, like putting locomotives in storage, in a quick effort to create “free cash.” The layoffs and downsizing create a short-term increase in profits that are then shoveled to the shareholders and investors. Companies that have high compensation are seen giving too much money to employees, money that should be profits for shareholders. After all, the company exists for the benefit of shareholders, not high compensated employees. AND – the notion of sharing profits with employees is heresy in Shareholder Primacy ideology! When railroads that are governed by Shareholder Primacy “enjoy lots of profits” it’s a safe bet that the company, its employees and customers, including communities, are suffering under the weight of shareholder and investor greed and the rapacious insanity of Shareholder Primacy.
References for Reading.
Bahn, Kate and Carmen Sanchez Cumming. 2006. How corporate governance strategies hurt worker power in the United States. The Washington Center for Equitable Growth. September 6.
Brennan, Louis. 2018. How shareholder profits conquered capitalism – and how workers can win back its benefits for themselves. The Conservation. October 5.
Fligstein, Neil; Shin, Taek-Jin. 2006. Shareholder Value and the Transformation of American Industries, 1984-2001. Institute for Research on Labor and Employment. Working Paper Series Banner. September.
Karlsson Kristina and Lenore Palladino. 2018. Corporations should invest in workers – not just shareholders. Equal Times. November 29.
O’Callahan, Ted. Is the Era of Shareholder Primacy Over? Yale Program. September 11th
Palladino, Lenore. 2018. Why Workers On Corporate Boards Just Makes Sense. Roosevelt Institute. August 14.
Palladino, Lenore. 2025. To restore democracy, end shareholder primacy at U.S. corporations and on Wall Street. The Washington Center for Equitable Growth. September 11.
Samuelson, Judy. 2022. The Impact of Shareholder Primacy: What it Means to put the Stock Price First. Aspen Institute. March 16.
