The Clash of the Cultures: Investment vs. Speculation

Chapter 2

The Double-Agency Society and the Happy Conspiracy

In the short run, the stock market is a voting machine; in the long run it is a weighing machine.

—Benjamin Graham, Security Analysis (1934)

I described the pervasive bullishness of the moment as the result of the “happy conspiracy” among corporate managers, CEOs and CFOs, directors, auditors, lawyers, Wall Street investment bankers, sell side security analysts, buy side portfolio managers, and indeed investors themselves—individual and institutional alike.

—John C. Bogle, The Battle for the Soul of Capitalism (2005)

The “double-agency society” is, I suspect, a phrase that most readers have not encountered before in this context. But it has become a critical factor in the corporate/financial structure of our nation. The first agency society developed in our business culture two centuries ago. Beginning with the Industrial Revolution, the ownership of corporations shifted from founding families and entrepreneurs to public shareholders. But corporate managers—agents, entrusted to place the interests of shareholders first—far too often took advantage of their agency, placing their own interests in the pre-eminent position over the interests of their principals.

The second agency society, unprecedented in history, began to develop with the rise of our financial corporations a half-century ago. Giant aggregations of capital began to be accumulated by pension funds, mutual funds, and other managers of investment capital. Today, ...