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The Shareholder Value Myth [pdf]

2 points by axiomdata316 6y ago

jschveibinz 6y ago
Shareholder value myth? From the author: < “ Investors in these early corporations were usually also customers. They structured their companies to make sure the business would provide good service at a reasonable price – not to maximize investment returns.” > I have to disagree. Investors in The Dutch East India Co. cared about nothing BUT returns. Both Dutch and Anglo traders helped to invent the concept of shareholder value and stock and trading. Shareholder value is not a myth. Here are some facts that help to make this argument: Stock still conveys ownership, so that is not a myth. Profits are still distributed via dividends to shareholders or reinvested (retained earnings) so that is not a myth. Workers are still free to choose their employment and they are paid for their work which is an expense against profits—-not a myth. Laws dictate how corporations are formed, taxed, owned, protected and managed. This is not a myth. Markets for corporate securities are well-governed by laws and oversight. While not perfect, this is not a myth. The value of ownership in a public corporation (stock) is determined by the free and open securities markets that act according to the will of investors. This is not a myth. With all of these facts or non-myths in place, how can “shareholder value” be a myth? Perhaps the only way it can be a myth is to ignore all of the facts and to redefine the word “value”—-as in “value” is not quantified in monetary terms, but is instead measured in social terms. We might call this “social value.” From the author: <“ [while profit] is necessary for the firm’s long-term survival, it is not the only corporate objective. Once profitability is achieved, the firm can focus on satisfying other goals, including future growth, controlling risk, and taking care of its investors, employees, customers, even society.”> Unfortunately, corporations are not formed, and are not incentivized by the free market, to be action/cost centers for social change. They are formed to create value for customers and to share some of that value with shareholders: “shareholder value”. We have other organizations and all of society’s individuals (“us”)—-many of whom are the beneficiaries of shareholder value—-that are charged with the responsibility of creating “social value.” We all need to contribute to society, help others, and make the world a better place. When corporations are bad for society, we should find a new place to work, sell our stock and stop buying their product or service.

2 points by axiomdata316 6y ago

Shareholder value myth? From the author: < “ Investors in these early corporations were usually also customers. They structured their companies to make sure the business would provide good service at a reasonable price – not to maximize investment returns.” > I have to disagree. Investors in The Dutch East India Co. cared about nothing BUT returns. Both Dutch and Anglo traders helped to invent the concept of shareholder value and stock and trading. Shareholder value is not a myth. Here are some facts that help to make this argument: Stock still conveys ownership, so that is not a myth. Profits are still distributed via dividends to shareholders or reinvested (retained earnings) so that is not a myth. Workers are still free to choose their employment and they are paid for their work which is an expense against profits—-not a myth. Laws dictate how corporations are formed, taxed, owned, protected and managed. This is not a myth. Markets for corporate securities are well-governed by laws and oversight. While not perfect, this is not a myth. The value of ownership in a public corporation (stock) is determined by the free and open securities markets that act according to the will of investors. This is not a myth. With all of these facts or non-myths in place, how can “shareholder value” be a myth? Perhaps the only way it can be a myth is to ignore all of the facts and to redefine the word “value”—-as in “value” is not quantified in monetary terms, but is instead measured in social terms. We might call this “social value.” From the author: <“ [while profit] is necessary for the firm’s long-term survival, it is not the only corporate objective. Once profitability is achieved, the firm can focus on satisfying other goals, including future growth, controlling risk, and taking care of its investors, employees, customers, even society.”> Unfortunately, corporations are not formed, and are not incentivized by the free market, to be action/cost centers for social change. They are formed to create value for customers and to share some of that value with shareholders: “shareholder value”. We have other organizations and all of society’s individuals (“us”)—-many of whom are the beneficiaries of shareholder value—-that are charged with the responsibility of creating “social value.” We all need to contribute to society, help others, and make the world a better place. When corporations are bad for society, we should find a new place to work, sell our stock and stop buying their product or service.