Late Stage Capitalism is a Zombie Apocalypse

“Cash Flowwww…I mean….Brains…..”

There’s No Cabal of Elites Destroying Our Lives and Our Democracy: Only Zombie Corporations

One of the least discussed aspects of capitalism is that there is no one running the joint. Most people imagine CEOs with near-infinite power, the buck stopping with them. Even though CEOs today have far more control than they have historically ever had (Monks and Minnow, 2011), they are still ultimately beholden to their shareholders. What do their shareholders want? Like zombies only want brains, shareholders only want cash. The vast majority of stocks are held anonymously, which is to say, as part of a mutual fund or balanced portfolio or indexed fund. With very, very few exceptions (mostly institutional investors and investment bankers), no one knows what companies are in their investment portfolios, nor do most people care. They just want to see a significant positive number at the end of the year.

To the Republican free-market fundamentalists that have been carefully nurtured by well-funded and well-organized think-tanks (e.g., Cato Institute, Heritage Foundation, Olin Foundation (Mayer & Potter)), there is a magical belief in the power of markets. We’ll discuss the philosophical and economic background of the free market fundamentalism another time. Still, a close look at their views suggests that if we do nothing but what we want to do, and let everyone act in her or his self-interest, voila! The greatest good for the greatest number. Given the economic disasters that have visited us since the dawn of the industrial revolution, they must believe one of two things:

1) That God is the invisible hand, and therefore anything that happens as a result of that system must be just, by definition. Given the explicit Calvinist overtones of today’s Republican party, this is actually consistent; The losers at the game of capitalism are just living out God’s plan for them (as are the winners).

2) Economics is the only social science where a complex set of problems is solved by a single principle (they hold this in common with Marxists).

As an ex-Libertarian myself, I know the lengths to which free-market fundamentalists will go to protect their ideology from obvious examples of market failures. Their favorite retort, when faced with the Panic of 1873 or the Great Depression, is “but laissez-faire capitalism has never really been tried before! It’s the regulations that caused the market failures!” If you consider the full spectrum of income redistribution to the rich since 1980, this is a hard argument to make. Still, you will find young, clean-cut students claiming that if only FDR had left the market alone, we’d be living in a capitalist utopia.

Which, in a sense, we are. Due to the combination of decreased power in boardrooms, anonymous investors, regulatory and legislative capture, we live in a world where CEOs enrich themselves and drive decisions toward the bottom line alone. They are acting exactly the way the system incentivizes them to. The instability we are currently facing both individually and as firms is built into the system. Corporations are disincentivized from carrying rainy day funds; shareholders will insist that the money be invested in the business or returned to the shareholders.

So when jobs were taken from the middle class and shipped off to become part of “labor arbitrage,” that CEO was maximizing the only thing her shareholders cared about: cash flow. When the big box company comes into your town and forces all the mom and pop stores out of business and offers you $13/hour and no health insurance, the CEO was only doing what his shareholders expected: cash flow growth. And when, in cahoots with the most regulatorily captured administration in history, the oil company drills off the coast and spoils the ocean and kills the fish and destroys the ecosystem, everyone was acting the way the system incentivizes them to. At the center of capitalism is a zombie that forces those in it to bring more brains to feast on: cash flow.

Citizens United has made the problem exponentially worse. Now, the zombies have the right to lobby the government and spend unlimited money on pro-zombie candidates. The Trump administration, among its many crimes, is the pro-zombie administration, cutting zombie taxes and rolling back regulations on the zombies.

There is no cabal of elites stealing people’s future on purpose. Oh, there is an economic elite, and they are taking away the future of the middle class, but they are acting as the market insists they must. There’s just no cabal — just a bunch of individual zombie corporations. The only way to stop the elites is to re-imagine how we organize our economic institutions. We need to enshrine human values in the market. The most enlightened, best-intentioned CEO is still just a cog in the zombie cash-flow generating machine that all C corporations are. When push comes to shove, the zombies are going to get what the zombies want. If we want to stop them, we need to look at the “B” corporation movement and make corporations (that we’ve given most of the rights of humans) less like zombies and more like humans.


Mayer, J., & Potter, K. (2016). Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right. New York: Doubleday.

Monks, R. A. G., & Minnow, N. (2011). Corporate Governance. Chichester, UK: Wiley.

Corporate Governance and Behavioural Ethics

There are two ideas that underlie most theories about corporate governance, and those reflect the assumptions of the classical economic theory of homo economicus, or economic man (or, more politically correctly, economic person). Economic man encapsulates two assumptions about human behaviour, i.e., that human beings always act in ways that are both rational and self-interested. While these assumptions are the bedrock of most classical and liberal economics, they have only recently begun to be tested empirically in the fields of behavioral economics and behavioral ethics. As I wrote in my 2011 article in Compliance and Ethics Professional, the empirical examination of rational self-interest has exposed some substantial faults in these assumptions. What has not yet happened, as far as I can see, is for these insights about human behaviour to be propogated to the study of corporate governance.

There are two primary theories of corporate governance, the shareholder/agency theory and the stakeholder theory. Each makes different moral assumptions about the purpose of the corporation and the ethical and practical responsibilities of the senior-most decision makers in the corporate structure, the board of directors. The agency theory is more representative of the Friedmanite view that the sole responsibility of the corporation is to maximise legal returns to shareholders. Stakeholder theory holds that society gives the corporation its license to operate and therefore there are other groups, or stakeholders, to whom are owed consideration in addition to shareholders. Examples of these stakeholders are customers, workers, suppliers, communities, and society at large as representative of common/societal goods, such as the environment.

What both both these theories have in common, however, is that they both view the actors within the corporate system as self-interested and rational. In fact, agency theory is a direct expression of the assumption of selfishness. It suggests that because management and ownership are separated, the agent (the manager) will be motivated to behave in his or her best interest, not in the best interest of the principle (the shareholders/owners). Without the assumption of selfishness, the principle/agent problem disappears (or is at least diluted). This in turn calls into question many of the incentives used to align shareholder interests with those of the management (stock options, restricted stock, and contingent bonus plans). Much of the research done into employee motivation suggests that, beyond a certain minimal level, compensation is one of the least effective motivators of employee performance. This thus provides an ex post facto indictment of the belief in the centrality of selfishness for corporate governance.

While stakeholder theory demotes the importance of self-consideration, it places a greater emphasis on rationality. In fact, it requires an assumption quite the reverse of selfishness, in that assumes that managers and/or corporate boards can place their own self-interest in abeyance and, without bias, consider the interest of other actors. Prominent researchers (Kahneman, Tenbrunesel, Messick) have empirically demonstrated several varieties of self-interested decision-making bias. Perhaps even more consequentially, these biases are usually unconscious and/or self-deceptive, so the decision-maker doesn’t know he or she acting in a self-interested way, even when the entire project of stakeholder consideration is to combat narrow self-interest.

The practical implication of the outdated assumptions of both agency and stakeholder theories is that there can be a substantial mismatch between the intentions of corporate board, the decisions that boards make, and subsequent behaviour of management. At the very least, new systems of remuneration and incentives need to be developed to align corporate direction with management activity. Additionally, when incorporating a stakeholder approach to corporate governance, it is important to verify the interests of other stakeholders with those stakeholders themselves as self-interest biases can yield incorrect assessments in this regard. There are considerable opportunities in both academic and practitioner realms for the development of new, comprehensive theories of corporate governance and practical frameworks to control for bias and diverse motivations.

Bullying and the Case for Horizontal Governance

This morning’s New York Times featured a fascinating article on a number of yet unpublished studies on high school bullying called “Web of Popularity, Achieved by Bullying“. Whereas most studies of bullying have previously focused on out-group members, social outliers, and pathological bullies, these studies have tried to determine the extent of bullying within the primary social groups of high school. So, instead of looking at the nerds, geeks, and dweebs, (and the badly adjusted kids who are assumed to victimise them) these studies look at everyone, including popular and moderately popular kids.

What they found seemed to surprise the researchers but shouldn’t really come as a surprise to anyone with a vivid memory of high school (or parents of teenagers, for that matter).  Instead of bullying being focused on out-group members, it seemed to be used primarily as a means gaining and solidifying status in the social hierarchy.  Interactions between rivals, kids who were close to each other on the social ladder and who were jockeying for position, were most likely to be aggressive or bullying. When students reached the “top” of the social ladder, they stopped aggressive behaviour not because they were nice people, the researchers hypothesise, but instead because they no longer needed to be agressive to gain position.

While there are a lot of questions still to be answered in the final version of the research, I think there are some substantial implications for the business world. A plurality of the comments under the Times article reflected my first thought: high school actually mirrors much of the business world.  Although I’ve had the privilege to work in some very enlightened, very non-aggressive environments, that has by no means been the case everywhere I’ve worked.  What’s most interesting in the high school study is the motivation for such aggression and it’s less obvious manifestations (sarcasm, unconstructive criticism, gossip): movement up the social hierarchy.  In my experience, that motivation extends into the business world, as well.  Workers use these negative tools as ways of climbing or solidifying their places in the often very hierarchical world of business.  In a world where your title is a proxy for your value to the company, it’s natural that people would use whatever tools at their disposal to claim those titles, even if the net effect is less trust, less productivity, and less value to the company.

Recent research and case studies suggest that by taking away multiple layers of management and flattening the hierarchy, the incentives for agressive and near-aggressive behaviour are eliminated.  Horizontal governance structures, while counter to the corporate tradition of command and control governance, seem to enable trust, productivity, and value creation. While I’m afraid (especially given my own kids’ social struggles in middle school) that there’s not much we can do to eliminate the social hierarchy that kids seem to create all on their own (though I could be/hope I am wrong about that), corporate governance structures are something that are within a firm’s control.  More than that, by developing  the sort of work environments which foster trust, collaboration, and the development of powerful networks by the elimination of unproductive (or, indeed, counterproductive) hierarchies, firms can become more effective competitors in a world where these are the very qualities that will determine the winners.