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To be fair, I still feel like it all depends on the company's definition of value. There is an interesting book on Financial Analysis by McKinsey, in which two

To be fair, I still feel like it all depends on the company's definition of value. There is an interesting book on Financial Analysis by McKinsey, in which two of the firm's partners write in the foreword that the maximisation of shareholder value should always take into account long term thinking, and as such has to consider the deeper effect of a company's action. In that argument, then, a company isn't truly maximising shareholder value when it depletes its workforce and creates a bad work environment for short term profits, because the long term consequences may be far more negative.

ComputerGuru 7y ago
Does a corporation’s own definition of value really matter if it’s publicly listed? It seems to me that if it is listed on the market then there is an implicit “exchange rate” between whatever definition the company chooses and the US dollar (or whatever currency the exchange uses), as anyone can buy into the company with the latter, regardless of how the company chooses to value itself.
- mandelbrotwurst 7y ago
  Yes. The argument is that even if executives are legally bound to maximize shareholder value and nothing else, that they are not in violation as long as they do that, and that this does not necessarily imply that they need maximize the dollar value of shares because there are other types of value that matter to shareholders (e.g. whether the corporation's outputs kill all humans, etc). That said, an executive taking this approach would be taking on some risk with this approach as it's, er, not exactly guaranteed that a court would see things this way. The fact that corporations happen to use dollars as a medium of exchange for shares of their ownership is a separate issue and not really relevant to the question of whether "shareholder value" can include non-monetary outputs. Illustrating this point, I can imagine an organization designed to maximize the amount of tacos sent to its shareholders, and that manages the sale of its shares in donuts.

ComputerGuru 7y ago

Does a corporation’s own definition of value really matter if it’s publicly listed? It seems to me that if it is listed on the market then there is an implicit “exchange rate” between whatever definition the company chooses and the US dollar (or whatever currency the exchange uses), as anyone can buy into the company with the latter, regardless of how the company chooses to value itself.

mandelbrotwurst 7y ago
Yes. The argument is that even if executives are legally bound to maximize shareholder value and nothing else, that they are not in violation as long as they do that, and that this does not necessarily imply that they need maximize the dollar value of shares because there are other types of value that matter to shareholders (e.g. whether the corporation's outputs kill all humans, etc). That said, an executive taking this approach would be taking on some risk with this approach as it's, er, not exactly guaranteed that a court would see things this way. The fact that corporations happen to use dollars as a medium of exchange for shares of their ownership is a separate issue and not really relevant to the question of whether "shareholder value" can include non-monetary outputs. Illustrating this point, I can imagine an organization designed to maximize the amount of tacos sent to its shareholders, and that manages the sale of its shares in donuts.