Chapter 8 — Companies as Algorithms
A firm is an optimisation function.
Objective: maximise shareholder value — specifically, the present value of expected future cash flows discounted at the cost of capital. That is not rhetoric. That is the legal and structural reality of a public corporation. Directors have a fiduciary duty to shareholders. Strategy, capital allocation, hiring, firing — all downstream of that objective function.
It is not evil. It is narrow.
And narrowness, at scale, is the problem.
A single company optimising shareholder value is rational and often productive. It allocates resources efficiently. It innovates where innovation is rewarded. It cuts waste. It responds to price signals. The machinery is extraordinary.
But thousands of isolated optimisation engines competing without system-level coordination produce emergent behaviour that no individual agent intended. The housing market financialises because each bank optimises its own mortgage book. The attention economy degrades because each platform optimises its own engagement metrics. The climate destabilises because each energy company optimises its own extraction economics.
Local optimisation scales. Global fragility accumulates.
The CEO who short-changes environmental compliance to hit quarterly targets is not corrupt. They are executing the objective function they were given. The fund manager who sells the coal company's stock and buys the gas company's stock is not saving the planet. They are locally optimising within a market that misprices externalities. The consumer who buys the cheaper product made with exploitative labour is not heartless. They are locally optimising within an information environment that hides the supply chain.
Every agent is rational. The system is not.