Mutualism: imagining a symbiotic relationship between shareholders and corporations

Paul Hodgson reflects on SEC Commissioner Stein’s latest speech

In her recent speech at Stanford University, ‘Mutualism: reimagining the role of the shareholders in modern corporate governance’, SEC Commissioner Kara Stein asks the question: “Are shareholders merely extras in the corporate movie? Or are they lead actors that need to be empowered so that they can successfully play their roles?” She uses the speech to introduce the concept of mutualism, describing it as a symbiotic relationship; when all the actors in the corporate universe work together, she says “companies tend to be more resilient and prosperous”. But she believes that companies are moving away from mutualism, and that this will harm companies, and shareholders.
Then the speech gets a little lost in discussions of cybersecurity and gender diversity on boards, tenuously linked into the problem of a lack of mutualism by this: “Boards can and should be a bridge to investors, but too often they are a wall”. While this is true, opting for regulations to force companies to properly disclose their cybersecurity risk management is not an encouragement of mutualism.
Stein does not draw the parallel herself, but the distinction here is between what the ancient Greeks thought of as democracy and what we have now. In ancient Greece, decisions were made by the people for the people, the demos. Now, we elect politicians to make those decisions for us, so we are one step removed from the process. That is also the case in the modern corpocracy.She does point to problems that exacerbate this situation, such as dual class share structures, that, she says “turn the mutualism underlying the corporation-shareholder relationship on its head”. And while engagement has increased, she admits, it is only with the largest shareholders. Companies seek to ignore other shareholders, even though they introduce ideas that benefit the bottom line well before management and board accept such concepts.
Stein offers some potential solutions to the shareholder management divide. Number one is for retail shareholders to be allowed to vote through social media or a mobile phone application, as in Estonia. She also suggests companies use blockchain technology to identify who their shareholders actually are, and communicate with them directly, rather than through mutual fund and bank intermediaries. And finally, she calls on the SEC to finalise the rules surrounding universal proxy cards. These seem week solutions to a huge problem, tinkering around the edges, rather than getting to the source of the problem and wrestling with it there. One question she asks, however, seems to me the most pertinent: “Is shareholder activism a symptom of an underlying problem or part of the cure?” She says we need to get back to a more mutualistic relationship to answer the question; but the answers to me seem obvious. Yes, to both questions.