Shareholder Value: the Other Pandemic
Tags: startup, management, culture
Published: 2022-01-09 12:50:50

This post was inspired by Nvidia's recent announcement of the RTX 3090 TI. With its expected MSRP of $2000+, this graphics card comes at a time when many PC builders cannot find graphics cards at all. Most of them go into the hands of crypto miners or are flipped by scalpers at twice the MSRP. This is the latest example of Nvidia getting in on the scalping action too. By repackaging a lower-priced product line as a new SKU to inflate the price. Justifying it with a negligible performance increase. Then reducing or stopping production of the cheaper version. During these global hard times, Nvidia is shipping [12% more GPUs](https://www.tomshardware.com/news/jpr-q3-2021-desktop-discrete-gpu-shipments) while making [84% more net income](https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-third-quarter-fiscal-2022) year-over-year. By squeezing it out of customers.


## A Boring Dystopia

But none of this is new or surprising. (Or even among the [worst examples](https://en.wikipedia.org/wiki/Bausch_Health#2015_drug_price_inflation_controversy).) It's one of the most cliche things of our time: the corporate zeitgeist of maximizing shareholder value. This philosophy seems to be accepted at every level as the way business is supposed to work.

"Jack CEO, if you can increase profitability 2% next year, the board will give you a 2 million dollar bonus." The CEO slashes employee benefits, gouges customers, and eliminates "waste" such as R&D spending. Profits and stock prices go up, making the investors hundreds of millions. The financial sector calls Jack CEO a hero. He is in higher demand because of this "success". So he'll probably be long gone when the company's market position enters the nose dive he setup. Employee hiring/retention problems and customer dissatisfaction mount as toxicity increases. The company fails to stay relevant without innovation from R&D. If the board keeps trying to find a repeat of Jack CEO's "success" the company might even get its own documentary. Like Enron or USA banks.

The story may play out in different ways, but this one illustrates the logical conclusion of focusing on shareholder value. Investors and executives get richer by sacrificing the company's future. But the giving end of the sacrifice is done by employees and customers. It's no wonder the wealth gap keeps getting wider.


## Allow me to Translate

"Shareholder value" is just a dressed up word for greed. And it is enshrined in our global economic systems. Profit (or the potential thereof) is _the_ measure of company health in financial markets. CEOs are required to prioritize it above all. Failing to do so opens the door to lawsuits. For example...

> Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders.
> ...
> Thus, I cannot accept as valid ... a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders...
> - [eBay vs Craigslist](https://h2o.law.harvard.edu/cases/3472)

_This lawsuit was about a few different things. The excerpt is about Craigslist creating policies designed to prevent eBay from destroying the company's culture to chase profit. Here the judge's interpretation of the law considers this a breach of duty. As a non-lizard-person I find this horrifying._


## What Now?

I don't have any easy answers. My first reaction to hearing the Nvidia announcement was: I wish more product companies were non-profits. Only this would not be a direct solution. Investor money allows companies to expand and innovate at a more rapid pace. (Initially. Before it's ultimately enslaved to profit-seeking.) Whereas non-profits have to grow very carefully. There's no extra profit to reinvest. And no investor help for expansion shortfalls. A non-profit Amazon would have failed immediately instead of "almost" being a long-term Ponzi scheme.

Many jurisdictions have legal frameworks for [Benefit](https://en.wikipedia.org/wiki/Benefit_corporation) or Social Purpose corporations. These enable other goals (in addition to profit) to be recognized by civil law. So the company could take investors but (maybe) still win a lawsuit for refusing to treat employees like test subjects.

The main challenge with these alternatives is that they are likely to struggle to be successful in the market. It is way more effort to achieve responsibility in multiple dimensions at once. Effort that increases the bigger the company gets. Most consumers will appreciate your company's approach but actually buy the cheaper or sooner-to-market option. Or in today's world, the in-stock option.

----

I waited in line 5 hours for my local Best Buy to open. Unfortunately most people waited at least 9 in their tents and RVs. By the time it was my turn to pick a graphics card, the only choices left were:

* an EVGA-price-gouged 3060 TI
  * only about 60% faster than my 7-year old 980 TI
* a lobotomy-required EVGA 3080 TI for almost $1500
* a white hot fury-inducing Nvidia 3080 TI at $1200

I decided to leave without buying anything. I began a lifetime boycott of Nvidia products. I waited 3 years for shortages to subside. Then bought a 9800 XT direct from AMD, because I had to boycott all their partner brands for price-gouging too.

Except that's not what happened. I spent money I didn't have to get the Nvidia 3080 TI.

I am part of the problem. But trying to find the path to change.