The internet is filled with things. Here is one of them.
The Myth of Maximizing Shareholder Value2025 Jan 15
Of all the things I'm not, I'm an economist least of all. And neither is this author, Lynn Stout, who instead is a professor at Cornell Law School. Twelve years ago she published this article in The European Financial Review which sounds very prestigious. Republishing it here is a magazine called Evonomics because it's about evolving economics... get it? Anyway.
I add its link to the commentary because it presents a cogent-sounding argument that rings true with my personal observations: that the purpose of business is much more nuanced than simply maximizing shareholder value. Maybe there's an equally cogent-sounding argument in the opposite, but we'll save that for a different day while I instead quote this piece's core point at length:
Although many contemporary business experts take shareholder primacy as a given, the rise of shareholder primacy as dominant business philosophy is a relatively recent phenomenon. ... For most of the twentieth century ... directors viewed themselves not as shareholders’ servants, but as trustees for great institutions that should serve not only shareholders but other corporate stakeholders as well, including customers, creditors, employees, and the community. ...
Yet it is important to note that shareholder primacy theory was first advanced by economists, not lawyers. This may explain why the idea that corporations should be managed to maximize shareholder value is based on factually mistaken claims about the law.
Consider first [Nobel prize-winning economist Milton] Friedman’s erroneous belief that shareholders “own” corporations. Although laymen sometimes have difficulty understanding the point, corporations are legal entities that own themselves, just as human entities own themselves. What shareholders own are shares, a type of contact between the shareholder and the legal entity that gives shareholders limited legal rights. In this regard, shareholders stand on equal footing with the corporation’s bondholders, suppliers, and employees, all of whom also enter contracts with the firm that give them limited legal rights. ...
If shareholder primacy theory is correct, corporations that adopt such strategies should do better and produce higher investor returns than corporations that don’t. Does the evidence confirm this? Surprisingly, the answer to this question is “no.”
What's the goal of society? I've always assumed it's a means of working together to make life as least shitty as can be for all of us. Maybe someone disagrees with me, but if they do it's because they're wrong. And working towards anything other than the de-shittifying of life is therefore stupid and wrong. Wealth generation is largely an analogy for making things less shitty, but as always blindly pursuing short-term gains is gaming the system – a place where the analogy breaks down and not true wealth generation.
Will the investor class read articles like this and stop being short-sighted prisoners facing dilemmas? No. But it's good to have ideals.
Of all the things I'm not, I'm an economist least of all. And neither is this author, Lynn Stout, who instead is a professor at Cornell Law School. Twelve years ago she published this article in The European Financial Review which sounds very prestigious. Republishing it here is a magazine called Evonomics because it's about evolving economics... get it? Anyway.
I add its link to the commentary because it presents a cogent-sounding argument that rings true with my personal observations: that the purpose of business is much more nuanced than simply maximizing shareholder value. Maybe there's an equally cogent-sounding argument in the opposite, but we'll save that for a different day while I instead quote this piece's core point at length: What's the goal of society? I've always assumed it's a means of working together to make life as least shitty as can be for all of us. Maybe someone disagrees with me, but if they do it's because they're wrong. And working towards anything other than the de-shittifying of life is therefore stupid and wrong. Wealth generation is largely an analogy for making things less shitty, but as always blindly pursuing short-term gains is gaming the system – a place where the analogy breaks down and not true wealth generation.
Will the investor class read articles like this and stop being short-sighted prisoners facing dilemmas? No. But it's good to have ideals.