Users are the best investors to have

Source: Blockworks Original Title: Users are the best investors to have Original Link: https://blockworks.co/news/users-are-the-best-investors-to-have

Corporate Governance and the Question of Ownership

“Corporations are legal entities that own themselves.”

— Lynn Stout

The idea that companies should be run for the benefit of shareholders is a relatively new one. For most of the 20th century, American corporations were instead operated according to the principle of managerial capitalism: “a form of capital accumulation and organizational control in which managers are the central agents of power.”

This was the era of the “Organization Man,” when control of a company was decoupled from ownership and professional administrators considered themselves stewards of a permanent institution, responsible for balancing the interests of a broad array of stakeholders rather than serving shareholders alone.

The Shift to Shareholder Primacy

The modern emphasis on shareholder value traces back to Milton Friedman’s 1970 New York Times op-ed, which argued that “in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation.” This philosophy was popularized in films like Wall Street, where Gordon Gekko told shareholders of Teldar Paper that they were being exploited by management focused on personal benefits rather than investor returns.

However, legal scholar Lynn Stout challenges this entire framework. She argues that “corporations own themselves, just as human entities own themselves.” What shareholders actually own are shares—“a type of contract between the shareholder and the legal entity that gives shareholders limited legal rights.” Nowhere in that contract does it stipulate that executives work for shareholders or should favor investors over other stakeholders like employees, customers, suppliers, or society at large.

The Cost of Short-Termism

Stout laments the short-termism that shareholder primacy has created, arguing that a cult of “shareholder primacy” has caused corporations to aim for near-term profits at the expense of long-term investing. She advocates instead for a return to managerial capitalism that successfully built infrastructure like railroads and canals with less regard for immediate profits and more regard for societal utility.

“Investors in these early corporations were usually also customers,” she reasoned. “They structured their companies to make sure the business would provide good service at a reasonable price – not to maximize investment returns.”

Implications for Crypto Protocols

The current debate in crypto centers on granting token holders formal ownership rights similar to shareholders in traditional finance. But if Stout is right, that may be the wrong goal.

Without formal ownership rights, tokens might attract investors less like Gordon Gekko and more like 19th-century shareholders who eagerly funded societally beneficial railroads and canals. Those early networks were built because investors were also users—they had incentives aligned with the utility of the network, not just maximum returns.

Protocols are networks, too. If crypto finance is meant to be participatory capital rather than purely profit-maximizing ventures, it might be more productive to grant token holders fewer formal rights, or perhaps none at all. Rather than offering legal protections that attract profit-maximizing investors, protocols could rely on their users to fund development.

This approach might allow crypto networks to evolve into something fundamentally different from profit-maximizing corporations. When the customer and the capitalist are one and the same, the only way to maximize value for both is to build something that actually works—making users the best investors to have.