Uncommon Sense

July 2, 2019

The Absurdity of Maximizing Shareholder Value as a Business Goal

I have written about this before, but this post over at Naked Capitalism drives the nails home into the coffin of this very, very bad idea. (Being a Zombie idea will make this turkey very hard to kill.)

Rebel Economist Breaks Through to Washington on How Shareholder Value Theory Rewards the Undeserving

 

4 Comments »

  1. Is a sort of perpetual “improvement” model not the way mankind works? Aren’t we permanently on a quest for what seems to be more?

    Like

    Comment by The Pink Agendist — July 3, 2019 @ 3:47 am | Reply

    • The question always comes down to “an improvement for whom.” The recent US tax cuts resulted in massive stock buy backs by corporations and almost zero investment in the future. That’s what a primary focus on shareholder value creates. Those tax cuts came with promises of better wages, more jobs, etc. … all lies. All of that money went into the pockets of wealthy investors.

      So, we need to spend time in looking at this “quest for more” and specifically address “for whom” as well as the likely end for such a philosophy. were we on a quest for more happiness, well the environmental impact of happiness is a lot smaller than, say, automobiles. (Which is where I suspect you were headed, no?)

      Liked by 1 person

      Comment by Steve Ruis — July 3, 2019 @ 8:38 am | Reply

  2. I am afraid that the “maximizing shareholder value” paradigm is too entrenched, and will now be extremely difficult to root out, since the shareholders, now pampered by the shareholder-value-maximizing companies could well shun the companies that do not promise quick returns. As I may have made this argument here before, but a lower corporate tax rate provides a stronger incentive for the corporations to give out money to the shareholders – money invested in upgrades, research, training and retaining better employees, etc., doesn’t get taxed, and the shareholders potentially get rewarded by the rising stock price, but it’s not immediate and it’s not guaranteed. Money given out to the shareholders in the form of dividends and stock buybacks does get taxed, but a lower tax rate makes immediate (if taxed) rewards more preferable.
    So I see an opportunity to here – without changing the “maximizing shareholder value” paradigm, a higher corporate tax rate, and/or automatic tax on stock buybacks and dividends will incentivize corporations to maximize the shareholder value via investment and research, rather than by trying to squeeze every penny for the shareholders.

    Like

    Comment by List of X — July 11, 2019 @ 12:05 am | Reply

    • I do not see that the shareholders have much power. The board members and CEOs who get compensated through the stock price do. Bill Clinton’s idea that CEOs need to have something at stake was misdirected. They should have their jobs, severance packages, and retirement plans at stake, not their compensation through stock options.

      On Thu, Jul 11, 2019 at 12:05 AM Class Warfare Blog wrote:

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      Comment by Steve Ruis — July 11, 2019 @ 10:07 am | Reply


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