3106 West End Avenue Nashville
The Pinnacle of Capitalism
Speaker: Bill Spitz, Founder, Diversified Trust
December 4, 2019
Beginning in the early 1970’s, there was an evolutionary change in the prevailing view as to the role of corporations in our economy and society. The new ethic was captured in a statement by the Nobel Prize winning economist Milton Friedman who wrote: “The social responsibility of business is to increase its profits.” Building on that view, economist Michael Jensen argued in a series of articles that management compensation should be more closely tied to the return earned by a company’s shareholders leading to the widespread use of stock options and other forms of equity based incentive plans. And, this focus on stock performance contributed to the proliferation of stock buybacks, activist investors, compensation consultants, proxy voting advisory firms, and many other features of contemporary capital markets. The net result of all of this is what some call the “financialization” of our economy in which everything seems to revolve around trading pieces of paper. To be fair, I believe corporate performance has improved by virtue of increased focus and accountability on the part of managements and boards of directors. And, most executives would vigorously dispute the notion that they are focused on the return on their stock to the detriment of other objectives.
Program Sponsor: Diversified Trust
