Summary.Reprint: R1406D
Over and over again, executives make decisions that aren’t in their companies’ best interests, in response to pressure from Wall Street. Though many believe this happens because firms have a “fiduciary duty” to maximize shareholder returns, U.S. executives do not, as a matter of law, have any such obligation. Yet it’s hard for them to resist demands from a quarter that has amassed such a huge and disproportionate share of power. In the past few decades, as legislation that put controls on Wall Street was largely undone, the size and profits of the financial sector grew enormously. That increased its influence, particularly its ability to sway the government by spending billions of dollars on lobbyists and political contributions. Even after the financial crisis, Wall Street was able to slow down and weaken new regulations meant to rein in its risky practices.
This “financialization” of the economy has serious downsides: It increases volatility, inhibits growth, and misallocates resources, such as talent and capital, away from wealth creation and toward wealth distribution. It distorts thinking. Restoring the balance of power is critical to the competitiveness and the health of the rest of the economy. Limits on the size and leverage of banks and changes to the tax code could promote better equilibrium—but courage will be needed to put such reforms in place.
Boeing’s launch of the 787 was marred by massive cost overruns and battery fires. Any product can have technical problems, but the striking thing about the 787’s is that they stemmed from exactly the sort of decisions that Wall Street tells executives to make.
A version of this article appeared in the June 2014 issue of Harvard Business Review.
FAQs
The financial sector's influence on management has become so powerful that a recent survey of chief financial officers showed that 78% would “give up economic value” and 55% would cancel a project with a positive net present value—that is, willingly harm their companies—to meet Wall Street's targets and fulfill its ...
How powerful is Wall Street? ›
Wall Street consists of the largest stock exchanges, the largest financial firms, and employs thousands of people. As the trading hub of the world's biggest economy, Wall Street has an enduring impact not just on the American economy, but also on the global one.
What is Wall Street famous for? ›
The Wall Street area is home to the New York Stock Exchange, the world's largest stock exchange by total market capitalization, as well as the Federal Reserve Bank of New York, and several commercial banks and insurance companies.
Where is the Wall Street Exchange in which country? ›
New York City, U.S. The NYSE trading floor is located at the New York Stock Exchange Building on 11 Wall Street and 18 Broad Street and is a National Historic Landmark.
Who has the most market power? ›
Monopoly. A monopoly is a company that has complete control of the market for a particular product or service. As a result, the company can charge any price it wants and there is no competition. A monopoly has a high level of market power because it can make large profits by charging higher prices than necessary.
How much money goes through Wall Street everyday? ›
The New York Stock Exchange closing auction is the single largest liquidity event of the day – trading $18.9 billion per day, on average, and is the primary liquidity event for institutional and retail investors.
Who is the owner of Wall Street? ›
What did Wall Street do that was illegal? ›
Illegal naked shorting and stock manipulation are two of Wall Street's deep, dark secrets. These practices have been around for decades and have resulted in trillions of dollars being fleeced from the American public by Wall Street.
What is the Wall Street rule? ›
Wall Street rule is a rule that was passed to ensure that shareholders cannot control activities in corporate organizations. Further, the rule also states that the company's insurance does not protect individual investors and shareholders.
How many people work on Wall Street? ›
Three thousand people alone work on the trading floor of the New York Stock Exchange; in total, Wall Street's firms are estimated to employ 9% of the city's workforce, or roughly 180,000 workers.
Physically, Wall Street refers to a street in New York City in lower Manhattan. It is also referred to as “the Financial District” because it houses multiple financial institutions and big banks.
Who controls the stock market? ›
The stock market in India is regulated by the Securities and Exchange Board of India (SEBI). It was established under the SEBI Act, 1992.
Is Wall Street the largest stock exchange in the world? ›
Largest stock exchange operators worldwide 2024, by market capitalization. The New York Stock Exchange (NYSE) is the largest stock exchange in the world, with an equity market capitalization of over 28 trillion U.S. dollars as of March 2024.
How much electricity comes out of the wall? ›
If you use an oscilloscope and look at the power found at a normal wall-plate outlet in your house, what you will find is that the power at the wall plate looks like a sine wave, and that wave oscillates between -170 volts and 170 volts (the peaks are indeed at 170 volts; it is the effective (rms) voltage that is 120 ...
What is the standard wall power in the US? ›
For instance, in the United States, we use 110-120V (60 Hz), while in many other countries, 220-240V (50 Hz) is used.
Why is the US stock market so strong? ›
The S&P 500 Index and the Dow Jones Industrial Average have also notched records, with the Dow passing the 40,000-point milestone last week. Analysts say a strong economy, moderating inflation, robust corporate profits, and trust in the Federal Reserve are buoying investor confidence and helping stocks rise.
