Fiduciary (adj.) - Composed of Fiduxes

Honestly, I'm just creating blog titles that try to break the Blogger URL creator.  

If that title doesn't make any sense to you, don't worry, the phrase "fiduciary responsibility" doesn't make sense to most people.

I'm creeping back a few blog posts to dump on Big Capitalism again.  When last we left off, we were certain that a company's fiduciary duty begins and ends at "make as much money for stockholders as possible."  Or were we?

I can see why.  People often confuse their SAT words.  Fiduciary has roots in the Latin word "trust," similar to Semper Fidelis.  But I'm sure you get it confused with "pecuniary," deriving from the Latin word "pecan." Don't worry.  Happens to me all the time.  It's cromulent.

So fiduciary simply means trust.  In the realm of money, it's comparable to a trust fund - as in my grandfather set up a trust fund for my college, but my mom blew it all on Precious Moments irregular figurines.  See, there's no guarantee that I was going to be educated, only that I was going to receive a three-armed representation of a laughing child in a bonnet.

So, let's get back to companies and their fiduciary duty to stockholders.  Of course, there's an implicit expectation that the company will make money and reward stockholders with a percentage of those proceeds.  But there's no guarantee as to if, when, or how those proceeds will be distributed.

In today's market madness, you could be a consistently profitable company meeting its earnings expectations and still be stuck in neutral (or hell, reverse).  Now, tell me this makes sense.  If you were to play a slot machine that always paid out - even if it were a penny more than what you put in - why would you reasonably walk away from that?  

A few months ago I encountered a post (and blogged about it here) exclaiming you'll go broke if your company only makes 10% profit. Umm...

I don't think that word means what you think it means.  To recap, profit is everything left after all expenses are paid.  It's what allows you to save up for your 2nd superyacht.  Now, granted, after splurging on that 2nd superyacht, there are additional expenditures you'll need to account for that may reduce your profit, but those first few years when you're in the thick of yacht dreams and savin' up, you're still profiting.

So, assuming that you're typically profitable, let's look at a few ways that you can still contribute to your shareholders' well-being that don't necessarily require profit maximization: 

• You could look into being environmentally responsible.  Sure, it's not as much fun as someone shooting a money gun at you, but what fun is that money gun if you're going to die of black lung as an office worker before Elon Musk has a chance to finish colonizing Mars?
• You could look into helping smooth out historical societal inequalities.  I know.  I know.  This is the exact opposite of becoming Daddy Warbucks, but isn't it worthwhile to have a stable society where people can actually purchase your wares?  After all, don't you want to reward those workers who built your solid gold car (No?  Not even a little bit?)
• You could give historically disadvantaged groups opportunities to level the playing field.  Think about it!  You're creating new, vibrant markets that didn't exist before, because a greater group of people now has more disposable income.

Oh, shit.  These start to sound exactly like the ESG and DEI initiatives that are now in fashion as talking-point piñatas (am I even allowed to put the tielde on the n anymore?).  Oh well.  But if I'll take a page from the libertarian playbook, isn't this where issues like this are supposed to be addressed?  In the market?  

I don't believe that corporations have the best interests of humanity at heart, but shouldn't their outlook be more strategic than the next quarterly earnings call?  There's a bottom-line benefit to ensuring we're not going to be inhabiting a smoking husk (or even one that's still livable, but will cause massive displacement due to environmental changes), or residing in societies that don't push income inequality to the brink of class warfare.

I'll even wager you can do all of those things while still turning a tidy profit.  You just won't turn as great a profit.  And therein lies the problem?  What CEO worth his paycheck in superyachts would knowingly accept lower profits when longer-term gains can be sacrificed on someone else's watch? 

When I've made these types of arguments before, I'm often met with "Wall Street will never put up with that."  But isn't what Wall Street will put up with arbitrary and changing?  In the supposed halcyon decade of the 1950s (the idyllic decade was promised their own radioactive TV dinner to consume every night as long as they drank their milkshake first), CEO pay was about 21 times greater than the average worker.  Today it's 290!

Assuming that the "average" worker is making a minimum wage of $7.25 for 52 weeks and 40 hours per week, that 1950s rate is still around $300K.  Not too many people would call that chump change.  And, if you look at a more reasonable salary of $50K, CEO pay lands just north of a million.  Even that one dude who can't live on less than $450K per year, would be able to buy something other than gold-plated bologna at the supermarket he sends the help to.  So, norms, even among the green-eyed mustachioed McDonald's icons, can change.

Aha, you say, but what about market returns in those decades!?!?  Well, from 1950 to 1960, the total return was 353%.  From 2010 to 2020, the total return was 263% (Fine.  I'll show my work.  Just this once.)

Aha, you say, but the 50s were ripe for expansion after the Great Depression and WWII!!!!  Yes, but the 2000s housed the Great Recession and were just anemic for stock returns anyway.  The 2000s were second only to the 1930s in stock returns (and only by 6% across the entire decade) [trivia note: Guess who first entered the stock market in the early 2000s?  So, maybe, it's best not to take financial advice from me.  Or I should have convinced my mother to be born at a different time].

There are myriad exceptions you can point to that could serve as a counterpoint to my reasoning, but if you're looking for scientific repeatability in economics to prove your point, you're in the wrong dismal science.  It's the beauty of a field in which you can never be proven right or wrong.  But also, keep in mind that, in addition to the phenomenal returns, the highest earners in the 50s were paying 91% marginal tax rates vs. 37% now.  Do you still miss our collective segregationist, cold-war fear inducing, gee-that-looks-an-awful-lot-like-propoganda days when June Cleaver would smile warmly at us while rubbing away at her tooth enamel with her forked tongue.

When did we collectively decide to believe that letting Grover Norquist drown us in a bathtub is the only path forward even though it seems far from pre-determined, even when taking die-hard capitalists' favorite decade into account.

Maybe it's possible that being smaller and more innovative will lead not only to growth, but to sustainable, socially equitable growth that benefits an even larger segment of society.  Maybe the answer isn't acquisition after acquisition and hype cycles for dead-end technologies until all the suckers are bled dry and companies are so bloated and misalinged that they explode like Mr. Creosote from Monty Python.

Oh, yeah.  There's an interesting coda to this whole line of reasoning.  Recall the change to my life that kicked off this two-post rant - T-Mobile increasing their per-line cost for certain plans by $5.  Well, after taxes and accounting for my add-on Netflix the additional cost is...$2.20.

/shrug Still doesn't mean I was wrong.

Until next time, my human and robot friends.