Why Greed is Good

Some time back, I was set up on a blind date by some friends. It started on well as we exchanged details about who we were and what we did. When it was my turn, I mentioned that I work for a Fortune 500 company, to which she rolled her eyes. My date started complaining about how corporate America was evil and was only focused on making money off from the average Joe. “These companies only think about making money and not about society – why don’t they do anything for the environment or for the people”. She started attacking me with a whole list of leftist arguments, to which I kept listening to in a calm and composed way. It reached a point when I was getting really tired of hearing her plethora of Marxist comments, and I decided that I should just cut my losses, ask for the check and just leave and never see this person again, and disown my friend for setting me up on this meeting.

However, something inside me stopped me – I realized that I couldn’t go home without giving this air-head a reality check, and bringing her from darkness to light. I cut her off as she was rambling on through her communist manifesto and told her: “You do realize that by definition, the purpose of a company is to maximize profit for its shareholders…” – Silence. As I gathered my thoughts I realized that I would have to further dumb things down for this girl as she did not have the mental capacity to connect the dots between the purpose of a company and the benefits behind it for society.

I went on to explain to her that many the biggest companies in the world are publically listed. If we try to understand the ownership structure of those, and thus who stands to gain the most from their success, it is the average joe/jane. Data suggest that 19 of the biggest countries pension funds have assets under management of about 35.3 trillion dollars, of which 44% is invested in public equities (Willis Towers Watson, 2016). To complete the picture, it is important to know that the size of the global equity markets in 2015 was about 69 trillion dollars. (Witkowski, 2015). Doing the math, it means that 23% of global public companies are owned by a pension fund, to which we can roughly extrapolate that global pension funds should own roughly 30%-35% of global equities. What this means, is that about a third of every publicly traded company is owned by a Pension Fund or to put it simply, the average person’s retirement money.

By the end of the date, it was clear to me that despite all the evidence out there on the importance of driving shareholder return, a part of the population is just doomed to remain stupid.

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