4 ms·

> 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 co

> 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.
  - mwfunk 9y ago
    In the abstract I agree, where it gets awkward is in what that actually means. In one sense, "maximize shareholder value" can be interpreted to mean simply, "run this company as well as possible". That's fine, that's basically nothing more than a statement that everyone involved will do the best job they can to support the business. But in practice, "maximize shareholder value" means, whatever metrics are presented as part of quarterly or annual reports must always be larger than the metrics presented as part of the previous quarterly or annual report. That's where it turns into an antipattern, where it gets reduced to "the metrics from this report must have larger numbers than the metrics from the last report". That sort of reductivism is what I was referring to.
    - rebootthesystem 9y ago
      Absolutely. There are plenty of companies out there that fit the profile you described. I guess my point is that this isn't representative of the majority at all. It isn't even representative of the top 500, 1,000 or maybe even 10,000 corporations in the word. There reason, I propose, is the deviant behavior you describe isn't sustainable. If you do not produce real value for customers in the long run you are not going to produce value for shareholders. You can "cook the books" for a little while. Maybe. But not in the long term. The title of the this thread names Apple and Google. Both of those companies have produced a huge amount of value for users and customers as well as shareholders. Maybe I'm being repetitive. If someone invests their money in my business I am going to make it an absolute priority to do well by them. And the only way to do this is to do well by customers. One forces the other. And, BTW, I don't think this is a conscious decision. In other words, I don't think anyone says "Dammit, we need to make shareholder returns a priority...let's focus on customer value". A good company is aware of shareholder value being important yet their focus and driving force is and should be a passion to deliver best in class products and services (understanding that the one will take care of the other). Are there companies out there who behave badly? Of course. Thankfully they are the exception rather than the rule.

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.
- mwfunk 9y ago
  In the abstract I agree, where it gets awkward is in what that actually means. In one sense, "maximize shareholder value" can be interpreted to mean simply, "run this company as well as possible". That's fine, that's basically nothing more than a statement that everyone involved will do the best job they can to support the business. But in practice, "maximize shareholder value" means, whatever metrics are presented as part of quarterly or annual reports must always be larger than the metrics presented as part of the previous quarterly or annual report. That's where it turns into an antipattern, where it gets reduced to "the metrics from this report must have larger numbers than the metrics from the last report". That sort of reductivism is what I was referring to.
  - rebootthesystem 9y ago
    Absolutely. There are plenty of companies out there that fit the profile you described. I guess my point is that this isn't representative of the majority at all. It isn't even representative of the top 500, 1,000 or maybe even 10,000 corporations in the word. There reason, I propose, is the deviant behavior you describe isn't sustainable. If you do not produce real value for customers in the long run you are not going to produce value for shareholders. You can "cook the books" for a little while. Maybe. But not in the long term. The title of the this thread names Apple and Google. Both of those companies have produced a huge amount of value for users and customers as well as shareholders. Maybe I'm being repetitive. If someone invests their money in my business I am going to make it an absolute priority to do well by them. And the only way to do this is to do well by customers. One forces the other. And, BTW, I don't think this is a conscious decision. In other words, I don't think anyone says "Dammit, we need to make shareholder returns a priority...let's focus on customer value". A good company is aware of shareholder value being important yet their focus and driving force is and should be a passion to deliver best in class products and services (understanding that the one will take care of the other). Are there companies out there who behave badly? Of course. Thankfully they are the exception rather than the rule.