The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

152 10 Disturbance of the Invisible Hand
employment contract alone obliges him to act in the interest of the firm and not in his
own interest. The employment contract “buys” the manager’s loyalty and fiduciary
duty to the firm, just as the consultancy contract buys the consultant’s loyalty and
fiduciary duty to his clients. The payment of a fee for a consultancy appointment
covers not just the time taken for the consultation but also the loyalty of the advisor
to the client.
The constricted logic of the shareholder-value principle persists to the point of
absurdity, because it calls upon the manager to act primarily in the interest of shareholders,
and not in the interest of the firm as his employment contract with the
firm requires of him. In the permanent latent conflict of interest that exists between
the interest of the firm and the interest of the shareholder, who holds the shares
for anything from a few hours to a few months, the principle of shareholder value
is constantly in danger of tipping the balance unfairly towards the shareholder,
although it is the manager’s task to withstand this conflict and to balance it rationally.
Furthermore, it is absolutely impossible for a manager to assess every step
of every decision he makes, e.g. in the course of product development, in sufficient
detail to determine the impact upon the firm’s shareholder value and to be sure that it
is maximized by that decision compared with any of the alternatives. If the manager
wants to do something well, he must first take his bearings from the matter at issue –
and then ask himself whether this matter will also yield returns for the shareholders.
The purpose of the firm is not primarily to generate profits but to make good
products. From Daimler to Siemens to Microsoft, the same holds true: these firms
have always been far more than a loose association of people maximizing their own
utility, as the financial theory of the firm would have us believe. All major corporations
are centered around a product. To that extent, shareholder value is only a
constraint upon their purpose. A firm does not exist purely to produce returns on
investment for shareholders – even if the latter are within their rights to see things
that way. The purpose of the firm, its finis operis, is to create an optimal product
for the consumer – under the double restriction that, in the process, the purpose of
the acting persons, their finis operantis, is also fulfilled. To the shareholders, that is
the purpose of getting a good return on their investment, and for the employees it is
the purpose of earning good rewards while achieving their own aims as well. A firm
must generate profits, it need not maximize them. The shareholder-value principle
is justified as a control function, as a means whereby shareholders can make their
interests clear to management. What is wrong is shareholder value as an end in itself.
Even the head of Deutsche Bank, Josef Ackermann, explained the emphasis on
shareholder-value mainly in terms of the pressure of competition in his industry.
It was competition from other major banks, he said, that forced him to seek higher
returns. After the financial crisis this argument no longer holds water, since the competitors
of the major banks have largely gone bankrupt, despite or indeed because of
the shareholder-value principle, and that itself did the very opposite of maximizing
shareholder value.
From this we can conclude that it is obviously wrong to seek returns of 20%
per annum over a period of three years instead of 5–10% per annum over a period
of 30 years. Banks are not allowed to adopt a drug addict’s outlook on life: “I’ll
take heroin for three years, have a great time, spend half my life getting high –