The New Capitalists

Davis, Lukomnik, and Pitt-Watson

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THE NEW CAPITALISTS
How Citizen Investors Are Reshaping the Corporate Agenda
Stephen Davis, Jon Lukomnik, and David Pitt-Watson
320 pages (Boston: Harvard Business School Press, 2006)

Authors Stephen Davis, Jon Lukomnik, and David Pitt-Watson explain how shareholders have become – as they put it – shareowners. Working people, with their life savings stored in mutual funds and retirement plans, are the new owners of the corporate world, and unlike business tycoons and Wall Street traders, they are in it for the long haul. Citizen investors take an active interest in company management and work to solve problems as they arise rather than simply seek short-term profits. They also bring a new set of social values to the table, and they are exerting their power over enterprises from GE to Disney in unprecedented ways to ensure that their broad interests are protected and advanced.

This book is a coherent and well-researched account of grassroots ownership and how it works. The authors analyze the “circle of accountability” – in which citizen investors, executives, and company directors keep each other in check – as well as the “ecosystem” that enables the circle to operate efficiently through various monitoring and information-gathering activities. The ecosystem comprises four basic components: more robust disclosure as SEC and accounting standards are improved; independent analysts and bloggers who ferret out critical information; civil society groups, such as grassroots environmental and faith-based organizations, which identify the issues to be fought over; and governmental entities that through law or regulation can facilitate the ability of such groups to change a company’s policies even when management resists.

My studies with Brian Uzzi and others on the phenomenon of socially constructed information networks support the authors’ ecosystem theory. The information reporters, or as the authors call them, “information moguls,” provide citizen investors with a short pathway to data. This is an essential link because shareholders would otherwise have to rely on corporate management or oft-conflicted institutional investors for news. Because information networks provided by smaller, conflict-free credit-rating agencies and blogs involve relatively low barriers to entry, these information moguls can create vast decentralized systems with redundant pathways to accurate information. Empirical research demonstrates that this type of organizational structure is extremely strong, suggesting that the citizen investor will not be a temporary phenomenon, and that the various revolutions discussed in the book will spread and endure.

This appears to be good news for social change. The new breed of investor is not only considerably more socially aware than past generations, but it also has holdings that are far more diverse, reaching into more areas of the economy, here and abroad.

The authors argue that empirical research indicating that socially responsible businesses provide better financial returns will convince management to heed the concerns of their grassroots shareholders. But will this research be enough to win over skeptical management? If not, management will always be a weak link in the circle of accountability. The authors do not explain the finding in enough detail to instill confidence otherwise. This reservation aside, The New Capitalists describes a valuable engine for promoting socially conscious economic growth.


Jarrett Spiro is a Ph.D. candidate at the Stanford University Graduate School of Business in the organizational behavior department. His work on social networks, team assembly and innovation, and complexity theory has appeared in Science and the American Journal of Sociology.

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