Streams

The Shareholder Value Myth

Friday, June 22, 2012

Executives, investors, and the business press routinely say that corporations are required to “maximize shareholder value,” but corporate expert Lynn Stout disagrees. She argues that overemphasizing shareholders leads to a focus on short-term earnings, discouraging investment and innovation. In The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public, Stout looks at new models of corporate purpose that better serve the needs of investors, corporations, and society.

Guests:

Lynn Stout

The Morning Brief

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Comments [22]

joyed from dhaka

Hi there, i read your blog occasionally and i own a similar one and i was just curious if you get a lot of spam comments? If so how do you reduce it, any plugin or anything you can suggest? I get so much lately
it’s driving me insane so any help is very much appreciated.

Jun. 30 2012 09:06 AM
Domby from The Catskill Park, N Y

Little mention is made that dividends, not share price were most important previously. Share price change has done little for other than hedge funds, not long term investors. I think this professor needs more background information as it seems superficial to me. I wouldn't read the book as what she prescribes is not going to have any effect in the current Wall Street follies which are definitely anti investor, not allowing ANY stock holder input to company governance--not unlike voting in national elections. CEOs like politicians hate those for whom they ostensibly work.

Jun. 22 2012 05:08 PM
sanych

@Jonh A.

You mean you like to listed to cheery music. Ostrich comes to mind...

Before solving a problem you have to identify it. There are plenty of examples - and she mentioned them - when a company is being run into a ground, but its management gets rewarded. Yet, she keeps talking about share prices... and writes books... and being interviewed ... and sheeple listen to this bs and LIKE IT!

Read James Burnham "Managerial Revolution", Vladimir Lenin "Imperialism, the Highest Stage of Capitalism", The Book of Ecclesiastes. They will help you understand that it will get worse before it will get better (if ever).

Jun. 22 2012 01:00 PM
Amy from Manhattan

Sherry from LES, I think that comes from the short-term thinking Ms. Stout was talking about. Refusing to cover preventive care saves money in the short term but leads to the development of more serious & expensive conditions in the long term. Of course, now they're cutting off people w/those serious conditions, & they have to go to emergency rooms, which cost more, but the cost is borne by the community, not the insurance co's.

Jun. 22 2012 12:49 PM
khadija boyd from brooklyn

for any or all who are interested in the nitty-gritty of companies, as well as compensation, check out:

http://www.sec.gov/

as well, perhaps thru NY Public Library:

http://www.morningstar.com/IntroPage.aspx

k

Jun. 22 2012 12:49 PM
jgarbuz from Queens

Corporations are like people, only more like spoiled children. They are born, and they die, and now are dying younger. They are often irresponsible and selfish and do things that can give them quick pleasure in the short term, but harm them in the long run.They have to be dealt with like spoiled children at times and spanked! Oops, I forgot we are not allowed to spank children anymore. Maybe that's one of the problems with both some corporations and some actual children.

Jun. 22 2012 12:41 PM
Bob Fm Bklyn from Brooklyn, NY

Maxing out shareholder value can be interpreted in may ways including paying out dividends to shareholders rather than overpaying corporate executives. I'd rather have a lower share price but receive 6-8-10+% dividend. There ought to be one class of shares and many shareholder derivative suits. For a company like Apple to hold onto shareholder money for decades is a kind of fraud. For GM and the US gov't to steal the equity from GM's bondholders is actual and actionable fraud.

Jun. 22 2012 12:41 PM
John A.

sanych, List your books towards a positive change, I'll look. Else....

Jun. 22 2012 12:41 PM
Amy from Manhattan

How is the decrease in corporate longevity distributed--is it mostly small, large, or medium corporations that are lasting for shorter times?

Jun. 22 2012 12:39 PM
khadija boyd from Brooklyn

I second Janet from Westchester's comment. As well, the greatest majority of assets in both Public & private Pension funds are passively held. Many of our greatest minds (Physics, Quants, Game Theory etc...) create proprietary algorythms for the Funds they oversee. The Trustees, Chairman/Woman, CIOs, Director Managers etc... set Benchmarks accordingly, say Russell 3000, S&P, etc.... The most point that your host could emphasize is the following: Vote your proxies. Tx. kay

Jun. 22 2012 12:37 PM
MichaelB from Morningside Heights

The over-compensation of corporate executives per se may not be a problem for corporations, as Ms. Stout points out, but it IS a problem in society, as it violates unwritten social contracts and tears at the social fabric.

Humans have an innate sense of fairness (as science has discovered) and we know when compensation is excessive, especially when the lower tier has been suffering for decades.

Jun. 22 2012 12:36 PM
sanych

She is out of touch... It is not how it works...

It is management stacking the deck with their own board members, re-writing the contracts to pay themselves. Often the compensation is not related to stock value at all.

Her heart is in the right place, but that's not enough...

Jun. 22 2012 12:36 PM
John A.

Just this morning read about Lynn's book "Cultivating Conscience: How Good Laws Make Good People" Lynn is my new good buddy in the struggle for the more (deeply) Moral USA.

Jun. 22 2012 12:28 PM
Sherry from LES

Can your guest speak about how the Healthcare system makes money by having more sick people, and how the prison system makes money by housing more prisoners. Seems counter intuitive.

Jun. 22 2012 12:24 PM
sanych

"Managerialism"!?

Interesting... "Good" managers and directors, taking care of employees, customers and society in general vs. "bad" shareholders - greedy hedge funds only caring for their short term profit.

Way too simple....

Jun. 22 2012 12:21 PM
Desiree from Brooklyn

The myth of shareholder value and the way it is deployed by hedge funds and private equity is especially harmful when they are investing in social goods--we have seen this with the leveraged buyout of NYC's rent-regulated housing by "predatory equity", running properties into the ground while tenants suffer, and creating a market in "distressed assets" (i.e. people's homes). Too bad tenants can't be shareholders!

Jun. 22 2012 12:19 PM
John A.

Easy to see that taking from the employees (pay) to give to the shareholders (stock value) deprives both the lower middle and middleclass economy and USA tax income.

Jun. 22 2012 12:18 PM

Lynn Stout is talking more sense than _all_ of the neo-classical economists. And let's not lump in neo-Keynesians like Krugman or Stiglitz or Galbraith with the crowd the Republicans and Clinton- or Obama-style Democrats love (Friedman, Mankiw, Hubbard, etc.)

Jun. 22 2012 12:17 PM
Shenna from UES

I've always felt that given a corporation's obligation to shareholders they have to put money into politics to maximize progress. Even companies like Google who aim to be "good" still have shareholders to answer to and their own interests to protect. Often times like in SOPA they have to support their side.

Jun. 22 2012 12:11 PM
Janet from Westchester

What is the difference between investors and shareholders? Aren't they the same?

Jun. 22 2012 12:10 PM
joe from nearby

Bain did not create value. It only mined the value of already established companies to enrich Romney and his partners.

Jun. 22 2012 11:36 AM
John A.

Very anxious to hear this. I was with GE when Welch became CEO. The middle management became pretty cutthroat at that time. I believe the "Greed is Good" revolution could have started here. At any rate there were fewer Jobs, still another modern problem.

Jun. 22 2012 10:14 AM

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