Corporations don't have owners in the same way they used to.

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The most popular explanations for the unraveling relationship between conservatives and big business are political. Global corporations no longer recognize themselves as American or care about advancing the national interest. Executives oppose Donald Trump and donate to Democrats, while Republicans find their ranks filled increasingly by the working class. Capital has gone “woke,” advancing socially progressive causes at all costs.

All that likely plays a role. But beneath the political, and driving it, is a justified, if poorly articulated, panic among conservatives about a serious tear in the fabric of capitalism. Corporations no longer have owners.

Conservative respect for corporate decision-making assumes the existence of shareholders whose interests and incentives are decipherable, whose rights to control their property deserve deference, and whose pursuit of their self-interest is expected to produce results also in the public interest. In his canonical 1970 essay, “The Social Responsibility Of Business Is to Increase Its Profits,” Milton Friedman explained: “In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible.”

When Friedman wrote in 1970, 75 percent of U.S. corporate stock was held in the taxable accounts of American investors. Today, only 25 percent is still held the old-fashioned way; foreign ownership has risen from 5 percent to 40 percent, often by sovereign wealth funds, and the balance sits in a wide variety of pension systems, retirement accounts, and nonprofit endowments. Those accounts tend not to hold actual shares in actual firms. Their assets are often passive investments in mutual funds and ETFs or, for the largest investors, stakes in hedge funds that themselves hold equities, even if just for a few milliseconds. For many small investors, 401(k) retirement accounts offer only passive options.

Who owns Apple, and who hired Tim Cook as CEO? Vanguard is the company’s largest institutional “holder,” but that is not an owner. The investors on whose behalf Vanguard holds shares may be owners, but they often don’t know it and they certainly don’t act like it. Say Vanguard holds shares for a teacher pension fund. Is that fund an owner, or are the teachers, or are the taxpayers, who must meet their commitments to teachers regardless of the fund’s value?

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Oren Cass
Oren Cass is the executive director at American Compass.
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