Pitchfork Economics with Nick Hanauer

Good Company: Ending the Era of Shareholder Supremacy

Guest: Lenore Palladino
Date: May 27, 2025
Host: Nick Hanauer & Goldie | Civic Ventures

Episode Overview

In this episode, Nick Hanauer and Goldie sit down with economist and author Lenore Palladino to dissect the harmful dominance of shareholder primacy in corporate America. They explore how this focus on maximizing shareholder value—enshrined in law and culture—has contributed to rising inequality, stifled innovation, and damaged the public good. Palladino discusses her new book, "Good Company: Economic Policy After Shareholder Primacy," outlining concrete policy ideas for re-centering corporations around broader stakeholder and societal well-being rather than just investors. The conversation blends academic insight, historical context, and personal stories to illuminate the path to a fairer corporate future.

Key Discussion Points and Insights

The Problem with Shareholder Primacy

• Shareholder Primacy Defined

  • Lenore Palladino [05:29]: "Shareholder primacy is this idea that the purpose of the corporation is to make as much money as possible for shareholders. … Profits should flow as much as possible to shareholders and that shareholders should be in charge."
  • Enshrined in Delaware law, which governs most large US corporates.
  • Gained momentum in the late 1970s and '80s with legal, financial, and ideological shifts (e.g., Milton Friedman’s infamous NYT article).

• Consequences

  • Drives economic inequality and declining innovation.
  • Ignores the value created inside firms by workers, customers, and communities.
  • Results in distorted market priorities like stock buybacks and executive compensation over long-term production and innovation.

• Corporate Law Context

  • State-level governance allows companies to "shop" jurisdictions (usually Delaware) for the most shareholder-friendly rules.

The Myth of Shareholders as Unique Risk-Takers

• Critical Rethinking

  • Nick Hanauer [10:03]: "It's just a setup designed to benefit owners of capital."
  • Most risk is not borne solely by shareholders—especially those trading fluidly in public markets.
  • Public shareholders can cash out instantly; workers (and sometimes even customers) face real, less liquid risks.

• Contrast with Real Investment

  • “Risk capital” is different for founders or early investors (“real risk,” not speculative trading later on).
  • Everyday stock purchases are speculation, not genuine investment in company operations.
  • Goldie [11:00]: "If I buy a share of Amazon, they're not getting that money. It means nothing to them. I'm not investing, I'm speculating that the price will go up."

• Cultural and Legal Confusion

  • Language calling all stockholders “investors” entrenches misleading myths.
  • SEC and law bolster this view (“Investment Company act,” etc.), masking the reality of speculation.

What Makes a “Good Company”?

• Palladino’s Definition

  • Lenore Palladino [13:43]: "A good company… produces goods and services and reduces its negative impact on the world. It innovates through respecting its workforce and its customers. And it doesn't fight regulation, doesn't fight to have a sort of decent democratic political system."
  • Some societal needs (healthcare, education) aren't best served by large private corps; public options are preferable.

• Origins and Purpose

  • Corporations don’t have natural rights; they are state (or federal) creations intended to serve the public good.
  • The Business Roundtable’s shift to "stakeholder" language is a start, but mainstream frameworks still overlook the internal, productive process at the heart of corporate value.

• The Black Box in Economics

  • Mainstream econ treats the production process as a “black box”—inputs go in, outputs come out—ignoring the human cooperation and innovation inside firms.
  • Goldie [17:06]: "It's like trying to understand biology … without ever looking inside the cell."

Historical and Personal Perspective: The Case of General Electric

• Decline through Shareholder Primacy
  • Palladino reflects on her grandfather’s time as a GE factory worker: a path to the middle class via stable employment.
  • With Jack Welch’s leadership, GE pivoted from innovation to maximizing share price, mainly via buybacks—leading to workforce harm and fragmentation.
  • Lenore Palladino [21:10]: "…Jack Welch … trained a whole generation of corporate executives to stop paying attention to innovation and really put their attention … towards maximizing that share price at all expenses. And we saw what happened."

Stock Buybacks: Capital Extraction, Not Investment

• Most public companies spend more on buying back their own shares than they raise issuing new equity—meaning they’re net destroyers of investment capital.
  • Buybacks manipulate stock prices to benefit executives/shareholders, diverting funds from R&D and worker investment.
  • Lack of regulatory oversight compared to manipulative practices in other markets.
  • Rapid, opaque growth of "private credit" markets presents future systemic risks, reminiscent of the pre-2008 scenario.

Policy Solutions for a Stakeholder Era

• Federal Corporate Chartering

  • Move away from the patchwork of state law to national standards (e.g., Senator Elizabeth Warren’s Accountable Capitalism Act).
  • Prevents regulatory arbitrage and sets uniform expectations for labor, environment, and governance.

• Board Reform and Expanded Fiduciary Duties

  • Boards should be accountable to the broader corporation and society, not just shareholders.
  • Worker board representation, whole-company compensation oversight, refocus boards’ responsibilities.

• Curb Extractive Practices

  • Limit—if not ban—stock buybacks; reform tax policy; strengthen unions and enforcement of labor/environmental laws.

• Norm Change

  • Shifts require not just policy but new cultural narratives—re-examining what corporations are for.

  • Lenore Palladino [29:37]: "Norms shift through, over the long term, through people understanding the harms that shareholder primacy has created … and it’ll take some brave political leaders to make this an area where they want to plant, you know, plant a flag."

Notable Quotes & Memorable Moments

• Nick Hanauer [00:44]: "I just don't think that there's any change we could make in the structure of the economy that would reverberate more than moving from this shareholder value primacy definition that we have today to something else..."
• Goldie [03:13]: "It's like viewing farming as selling vegetables in a farmer's market, when in fact, most of your year is spent growing and harvesting vegetables."
• Lenore Palladino [17:50]: "I get jealous sometimes of people in business and management schools because they're actually studying the guts of what's happening. … But it's just been totally lost in the last 50 years."
• Goldie [35:10]: "Any person who's worked in the real world knows that [shareholders as unique risk-takers] is not true."
• Nick Hanauer [35:10]: "It's so easy to sell stock in a public company. It's so hard to quit a job and find a new one, right? The difference is so profound."

Important Timestamps

• [00:44] The central leverage point: redefining the purpose of corporations
• [05:29] Palladino defines shareholder primacy; sets up Delaware law context
• [08:51] Debunking the "shareholders take all the risk" myth
• [11:00] Difference between investing and speculating in company shares
• [13:43] "Good company"—Palladino’s alternative vision
• [17:06] Economics’ “black box” problem; what happens inside the firm
• [19:14] General Electric case study—personal and national implications
• [22:00] Companies as net destroyers of capital: the buyback cycle
• [25:05] Policy levers: federal chartering, board reforms, limiting buybacks
• [29:04] The daunting task of resetting cultural and business norms
• [31:08] Palladino’s personal motivation as a labor organizer and academic

Takeaways

• Economics and corporate structure are choices—choices that can be, and should be, re-examined.
  • Goldie [32:05]: "Economics is a choice. … It's a choice we've made both legally, morally, politically, socially, that it's okay and in fact, preferable for corporations to just focus on maximizing shareholder value, the public good be damned."
• Myths about shareholder risk and the natural purpose of the corporation have skewed our economy toward inequality and short-termism.
  • Workers, customers, and communities often bear greater risks, with less recourse.
• Reforming corporate governance is an avenue for achieving broader economic and societal progress, not a niche concern.
  • Tools exist: from federal charters to board representation and limitations on financial engineering.
• Cultural narratives and norms are as important as legal reforms—progress requires both.

For more information, further reading, and a link to Lenore Palladino’s book, see the episode’s show notes.