Our Guest Speaker of the Year, Bengt Holmström, on Shareholder Responsibility in Decision Making

Nobel Laureate and professor of Economics at MIT, Bengt Holmström, spoke about the responsibilities of shareholders in a company and his voice-exit theory. According to Holmström, who spoke at the Annual Christmas Dinner held by the Finnish American Chamber of Commerce in New York, shareholders are much more tied into a company compared to its employees. Whereas employees can exit by leaving the company, shareholders do not have this same option. If there is demand for a stock, an individual stockholder can, theoretically, sell his/her stock. Shareholders, where they may lack an option to exit, can, however, or voice their opinion by either collectively filing a complaint or a request for a policy change. In this manner, shareholders hold great power within a company. According to Holmström, the Voice-Exit division is a great way to solve problems in general – participants can either leave a relationship (exit) or try to repair the relationship (voice). During his speech, Holmström also reminded the audience that climate change is a problem that we simply have no exit from, making it an issue that businesses need to tackle collectively. As consumers and shareholders increasingly expect companies to adopt policies that take into consideration issues such as climate change, their power within the companies increases as well. During a question and answer session at the end of his speech, Holmström was asked whether he supported a progressive income tax for the rich. Holmström replied that great income inequality is not of benefit to any country. Hellevi Mauno wrote about Holmström’s speech in the Finnish newspaper Arvopaperi on December 27th, 2019. This is a brief translated summary of the article.

FACCDecember 30, 2019