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It's worth mentioning on a post like this that there is no legal (or historical) basis for the idea that maximizing shareholder value is the primary concern of

It's worth mentioning on a post like this that there is no legal (or historical) basis for the idea that maximizing shareholder value is the primary concern of a corporation. See these two sources: https://hbr.org/2010/04/the-myth-of-shareholder-capitalism https://hbr.org/2010/04/the-myth-of-shareholder-capitalism [pdf] http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2311&context=facpub http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?artic...

eldavido 9y ago
This is a good point and I think it explains a sea change in US business. In the late 80s, business went from being pretty clubby and centrally planned (think big 4 auto companies, lots of union control, with big cross-industry labor bargains) to being a lot more competitive, with shareholders getting a lot more power. Offhand I think it's a combination of globalization (requiring businesses to be "tougher") of both capital and customers, the increasing financialization of the US economy, and the birth of modern PE firms and other activists capable of putting more pressure on admittedly pretty lazy and nest-feathering managers. (Have you watched Mad Men? Two martini lunches? I wouldn't want employees at my company doing that!)
ajc-sorin 9y ago
I came here to mention this, but thank you for doing so already - and providing sources! One thing I would suggest you may want to add for clarification: certain agents of corporations have fiduciary responsibilities to act in the best interest of the shareholder, which generally means to not lose money. So while "maximizing" shareholder value has no legal basis, increasing shareholder value year over year is a legal responsibility, although this is definitely a gray area.
jpttsn 9y ago
So what if there isn't? I see this trope thrown around a lot. I find it suspiciously vacuous: it seems like an attempt to dress up political opinions as "research." It's as trite as saying "there is no historical basis for the idea that getting a higher salary is the primary concern of an employee." What would that add to a discussion about wages? If you think corporations should do something differently, why not just say so, and say what?
- afthonos 9y ago
  Depending on context, it can be important. Too often, corporate behavior is explained by saying that the “only responsibility” of a corporation is to “maximize shareholder value”. The words “only responsibility” are not descriptive, but prescriptive, meant to end debate about the morality of an action. In those contexts, it's useful to know that this is a fiction and a debating trick, not a description of law, natural or human.
  - jpttsn 9y ago
    If I say the responsibility of a corporation is to replant the rainforest, or to expand human wisdom, or to entertain the public with a compelling narrative of underdogs beating titans, then I'm clearly just expressing my opinion. The question of what a company "ought to do" is obviously a question of values, not fact. It's just tiresome to rebut opinions with "you can't prove that!" or "does the law say so?" Of course there's no natural or human law that proves blue is my favorite color. So what?
    - frgtpsswrdlame 9y ago
      >It's just tiresome to rebut opinions with "you can't prove that!" or "does the law say so?" My original comment is a rebutting of popular opinion with law, is it not?
      - jpttsn 9y ago
        I don't think so; you're rebutting a popular opinion with the absence of law as your argument. Like arguing that "there's no law that says the main character in a movie should be relatable." Technically, of course, you're right. Yet I suspect stressing that fact is a straw man argument. Who really believes companies are legally obligated to maximize shareholder value?
    - s73ver 9y ago
      At the same time, it's also incredibly tiring to hear shitty behavior by companies excused by saying "shareholder value!" as if that excuses all of it. The people running those companies are still adults, who are still fully responsible for their actions. They should not be excused by something that doesn't actually exist.
bllguo 9y ago
I don't believe in shareholder primacy, but your first link has no substance at all. Not the best source. And this argument is rather disingenuous, it is codified in law that directors have a duty to act in good faith. This all seems somewhat pedantic.
rebootthesystem 9y ago
> there is no legal (or historical) basis for the idea that maximizing shareholder value is the primary concern of a corporation Please folks, stop posting comments if you don't have the slightest concept of how businesses work. OK, let me demonstrate how flawed this is by using a hypothetical scenario. A friend of yours has an idea for a business. She goes to you and two other friends. She needs $300K to launch the business. All three of you are really bold and give her $100K each. In your case you sell your your home to come up with the money. You end-up bunking with one of the other investor/friends because, while you have some money left over, you don't have a place to live. You are a shareholder. Ten years later the business has gone nowhere. You don't have your money back and your investor friend just got married and you have to figure out where you are going to leave because he wants you out of the house. And then you read a comment on HN about there being no basis for a corporation maximizing shareholder value.
- mwfunk 9y ago
  There's a pretty wide range of corporate behavior that lie in between "maximize shareholder value" taking priority over all other considerations, and shareholders getting ripped off by the company they invested in. There are more than two mutually exclusive options for how a company should prioritize its resources.
  - rebootthesystem 9y ago
    A company isn't a charity. It's a business. It's there to make money. It does this by delivering a product that solves a problem for someone (or another business) and, by means of the value it offers, it can generate revenue and a profit. If a company has investors, those investors are there because they want to make money with the business activity they funded. Plain and simple. So, a business is there to solve a problem for it's customers while making money for shareholders. All ends of that equation derive the desired benefits. A company MUST focus on shareholder value. And the way to do that is to solve real problems and do so as well as possible and as efficiently as possible. These things are interrelated. Based on the down-votes it is obvious some have missed the point of my prior comment's hypothetical about the three friends funding a business. These three shareholders are jumping on the deal because they want to make money. Even our beloved YC jumps on deals to make money. That's what business is about. It isn't a bad word. And, yes, there's nothing wrong with shareholder value being a priority because the ONLY real and sustainable way to increase shareholder value is to ALSO increase CUSTOMER VALUE. One feeds the other. Have a crappy product and there is no long terms sustainable way to increase shareholder value. Have an excellent product that solves a real problem as well as excellent customer support, marketing, pricing, etc. and shareholder value WILL increase. You actually WANT a company you invest in to maximize shareholder value.

eldavido 9y ago

This is a good point and I think it explains a sea change in US business. In the late 80s, business went from being pretty clubby and centrally planned (think big 4 auto companies, lots of union control, with big cross-industry labor bargains) to being a lot more competitive, with shareholders getting a lot more power. Offhand I think it's a combination of globalization (requiring businesses to be "tougher") of both capital and customers, the increasing financialization of the US economy, and the birth of modern PE firms and other activists capable of putting more pressure on admittedly pretty lazy and nest-feathering managers. (Have you watched Mad Men? Two martini lunches? I wouldn't want employees at my company doing that!)

ajc-sorin 9y ago

I came here to mention this, but thank you for doing so already - and providing sources! One thing I would suggest you may want to add for clarification: certain agents of corporations have fiduciary responsibilities to act in the best interest of the shareholder, which generally means to not lose money. So while "maximizing" shareholder value has no legal basis, increasing shareholder value year over year is a legal responsibility, although this is definitely a gray area.

jpttsn 9y ago

So what if there isn't? I see this trope thrown around a lot. I find it suspiciously vacuous: it seems like an attempt to dress up political opinions as "research." It's as trite as saying "there is no historical basis for the idea that getting a higher salary is the primary concern of an employee." What would that add to a discussion about wages? If you think corporations should do something differently, why not just say so, and say what?

afthonos 9y ago
Depending on context, it can be important. Too often, corporate behavior is explained by saying that the “only responsibility” of a corporation is to “maximize shareholder value”. The words “only responsibility” are not descriptive, but prescriptive, meant to end debate about the morality of an action. In those contexts, it's useful to know that this is a fiction and a debating trick, not a description of law, natural or human.
- jpttsn 9y ago
  If I say the responsibility of a corporation is to replant the rainforest, or to expand human wisdom, or to entertain the public with a compelling narrative of underdogs beating titans, then I'm clearly just expressing my opinion. The question of what a company "ought to do" is obviously a question of values, not fact. It's just tiresome to rebut opinions with "you can't prove that!" or "does the law say so?" Of course there's no natural or human law that proves blue is my favorite color. So what?
  - frgtpsswrdlame 9y ago
    >It's just tiresome to rebut opinions with "you can't prove that!" or "does the law say so?" My original comment is a rebutting of popular opinion with law, is it not?
    - jpttsn 9y ago
      I don't think so; you're rebutting a popular opinion with the absence of law as your argument. Like arguing that "there's no law that says the main character in a movie should be relatable." Technically, of course, you're right. Yet I suspect stressing that fact is a straw man argument. Who really believes companies are legally obligated to maximize shareholder value?
  - s73ver 9y ago
    At the same time, it's also incredibly tiring to hear shitty behavior by companies excused by saying "shareholder value!" as if that excuses all of it. The people running those companies are still adults, who are still fully responsible for their actions. They should not be excused by something that doesn't actually exist.

bllguo 9y ago

I don't believe in shareholder primacy, but your first link has no substance at all. Not the best source. And this argument is rather disingenuous, it is codified in law that directors have a duty to act in good faith. This all seems somewhat pedantic.

rebootthesystem 9y ago

> there is no legal (or historical) basis for the idea that maximizing shareholder value is the primary concern of a corporation Please folks, stop posting comments if you don't have the slightest concept of how businesses work. OK, let me demonstrate how flawed this is by using a hypothetical scenario. A friend of yours has an idea for a business. She goes to you and two other friends. She needs $300K to launch the business. All three of you are really bold and give her $100K each. In your case you sell your your home to come up with the money. You end-up bunking with one of the other investor/friends because, while you have some money left over, you don't have a place to live. You are a shareholder. Ten years later the business has gone nowhere. You don't have your money back and your investor friend just got married and you have to figure out where you are going to leave because he wants you out of the house. And then you read a comment on HN about there being no basis for a corporation maximizing shareholder value.

mwfunk 9y ago
There's a pretty wide range of corporate behavior that lie in between "maximize shareholder value" taking priority over all other considerations, and shareholders getting ripped off by the company they invested in. There are more than two mutually exclusive options for how a company should prioritize its resources.
- rebootthesystem 9y ago
  A company isn't a charity. It's a business. It's there to make money. It does this by delivering a product that solves a problem for someone (or another business) and, by means of the value it offers, it can generate revenue and a profit. If a company has investors, those investors are there because they want to make money with the business activity they funded. Plain and simple. So, a business is there to solve a problem for it's customers while making money for shareholders. All ends of that equation derive the desired benefits. A company MUST focus on shareholder value. And the way to do that is to solve real problems and do so as well as possible and as efficiently as possible. These things are interrelated. Based on the down-votes it is obvious some have missed the point of my prior comment's hypothetical about the three friends funding a business. These three shareholders are jumping on the deal because they want to make money. Even our beloved YC jumps on deals to make money. That's what business is about. It isn't a bad word. And, yes, there's nothing wrong with shareholder value being a priority because the ONLY real and sustainable way to increase shareholder value is to ALSO increase CUSTOMER VALUE. One feeds the other. Have a crappy product and there is no long terms sustainable way to increase shareholder value. Have an excellent product that solves a real problem as well as excellent customer support, marketing, pricing, etc. and shareholder value WILL increase. You actually WANT a company you invest in to maximize shareholder value.