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Is There More to Life Than Creating Shareholder Value?

Is There More to Life Than Creating Shareholder Value?

Yes. There is more to life than maximizing shareholder value.

This probably doesn’t come as news to many of the human people who form the bulk of Free Money’s listener base.

But corporations are people too, and the Business Roundtable recently convened about 180 CEOs from the world’s biggest ones to affirm something that really ought to be self-evident: customers, communities, employees, and suppliers matter. And while they do seek to create value for shareholders, they now intend to do it over the long term.

The full statement (this PDF) is roughly 300 words followed by 11 pages of signatures. And there’s plenty for a cynic to sink their teeth into.

For instance, a handful of individual statements were released on 19th August 2019, including this one from Alex Gorsky, who is Chairman of the Board and Chief Executive Officer of Johnson & Johnson and Chair of the Business Roundtable Corporate Governance Committee:

“This new statement better reflects the way corporations can and should operate today. It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”

Mr. Gorsky’s words are nice. But one week after issuing that statement, his company was ordered to pay a precedent-setting $572 million in penalties for intentionally misleading the public on the dangers of opioid painkillers and overselling their benefits.

Here’s a quote from the New York Times:

In his ruling, [Judge Thad Balkman] wrote that Johnson & Johnson had promulgated “false, misleading, and dangerous marketing campaigns” that had “caused exponentially increasing rates of addiction, overdose deaths” and babies born exposed to opioids.

Mr. Gorsky began his career as a sales representative at Janssen Pharmaceutical Companies, the Johnson & Johnson subsidiary which manufactured and marketed opioid painkillers. J&J also supplied 60% of the active ingredients which went into opioid medication sold in Oklahoma.

Since 1943, Johnson and Johnson’s corporate credo has begun “our first responsibility is to the patients, doctors and nurses, to mothers and fathers and all others who use our products and services.” These words (plus about 200 more) are engraved on the wall in the company’s corporate headquarters.

And like Mr. Gorsky’s more recent words, they are nice. It just doesn’t seem like they’ve been translated into practice. The company is a party to more than 2,000 lawsuits related to the opioid epidemic. They seem used to this. In the past few years, I found that Johnson & Johnson have paid penalties of:

  • $2.2 Billion (2013) - For misleading marketing of Risperdal, which Mr. Gorsky oversaw as chief executive of the associated division.

  • $4.7 Billion (2018) - For misleading marketing and failing to warn customers about risks caused by asbestos in their baby powder.

  • $775 Million (2019) - For misleading marketing and failing to warn customers about deadly bleeding episodes caused by a blood thinner.

And I haven’t even looked that hard.

Anyway, if you’ve read this far you should probably just listen to the podcast.

Here are a few of the essays we reference in the discussion:

  • Milton Friedman’s original essay on Creating Shareholder Value (Wayback Machine)

  • Shareholder Value is Under Valued (AQR)

  • Agenda Setting: A Wise Giver’s Guide to Influencing Public Policy (Philanthropy Roundtable)

And here are the listener questions we answered:

  • Has "fake news" affected the way people think about financial markets similarly to other media? Can extremist beliefs persist if markets are pushing the other direction?

  • The treasury department says there's no demand for 50 or 100 year treasury bonds. How can that be true? 

  • Literally nothing is changing. Why do we keep waiting for rich people to fix our economy?

Free Money
Free Money with Sloane and Ashby
Sloane Ortel and Ashby Monk explore what's holding the world back from investing in progress, answer the questions on the minds of people in the know, and deliver the Brooklyn-Bay Area consensus about institutional investing that you desperately crave.
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Sloane Ortel