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I understand and agree with the idea that companies should maximise shareholder value, but I've never understood the argument that shareholder value is exclusiv

I understand and agree with the idea that companies should maximise shareholder value, but I've never understood the argument that shareholder value is exclusively determined by profit. As I see it, the stock market consists of various firms saying "buy our stock, and we will try to achieve X with your investment", where X might be maximum ROI, but I don't understand why it has to be. If I want to found a company which has some goals other than making a profit, and so long as I am explicit about this then nobody is being cheated or defrauded, the investors are getting exactly what they signed up for. If Tim Cook widely announces what Apple's future philanthropic principles will be, he's giving everyone a chance to decide if they want to own stock in a company which follows those principles. The market will judge that via sales and purchases of Apple stock. What could possibly be more free-market than that?

nickff 13y ago
It is also possible that Apple might maximize profit and shareholder value by pursuing philanthropy, if customers see the charity as adding value to the products (, possibly in improved brand image).
mongol 13y ago
"Future philanthropic principles" are probably not for the CEO to decide. It sounds like something for the board. However I agree that a company should be able to define its mission and include things apart from maximum profit.
- bowlofpetunias 13y ago
  However, this is not necessarily "philantropic". It's marketing, and directly connected with ROI. If Apple had the social and environmental sense of responsibility of GoDaddy, I lot less of us would feel comfortable buying Apple products.
- eropple 13y ago
  It's only for the board to decide if the board isn't comfortable granting that responsibility to the CEO. They obviously are. If some climate change deniers want to get buttmad about it they'd better buy a lot more stock.
chalst 13y ago
The fiduciary duty of the directors of a company entails that they make no decisions that prejudice the general shareholders of a company. The classic case is making an issue of equity that benefits only a limited group who can buy it at the expense of diluting the value of the equity of other shareholders. The idea that (i) the entire value of a company is the NPV of future profits to the shareholders, and that (ii) this fiduciary duty is very broad and bears on all decisions made by the directors, so that any decision that might reduce return is prejudicial to the interest of shareholders, does pretty much entail what the NCPPR claim. And there have been efforts in places to expand fiduciary duty in some jurisdictions to this strong requirement. But I have the impression that lawyers generally think the idea is daft and undermines good corporate governance. IIRC, Steve Milloy of Junk Science operates a crank activist hedge fund that attempts to undermine environmental innitiatives in the kind of way described in the article. I believe they have produced dismal returns for their investors, which suggests that they do not eat their own dog food.
- jvvlimme 13y ago
  It's actually a myth that a company has to maximize shareholdervalue. There is no corporate law even remotely suggesting it and it is generally a horrible idea. http://www.washingtonpost.com/opinions/harold-meyerson-the-myth-of-maximizing-shareholder-value/2014/02/11/00cdfb14-9336-11e3-84e1-27626c5ef5fb_story.html http://www.washingtonpost.com/opinions/harold-meyerson-the-m...
  - MWil 13y ago
    I'm sorry but that article neglects any mention of court opinions (many of which I have read, as has any law student) which interpret the law and say otherwise.
    - jvvlimme 13y ago
      Lynn Stout, a Cornell Corporate Law Professor, seems to disagree with you: http://www.amazon.com/Shareholder-Value-Myth-Shareholders-Corporations/dp/1459638697/ref=sr_1_4?s=books&ie=UTF8&qid=1393680047&sr=1-4 http://www.amazon.com/Shareholder-Value-Myth-Shareholders-Co...
mathattack 13y ago
The complicated part is owners who try for higher ROI buy shares away from holders with lower expectations. This is a challenge for capitalism as it encourages Tragedy of the Commons.
smsm42 13y ago
If Tim Cook would actually say "yes, our green energy project has costed us N dollars so far, and it is a good thing because that's what we do and because government actually pays us back M dollars of it with that sweet taxpayer money" - that would be free market. Well, except for the taxpayer money part, but that's hardly Tim Cook's fault. Instead, no actual information was given, and people asking wrong questions were told to shut up or get out of the investment. I'm not an Apple shareholder (except as part of broad index funds) and probably never will be, but if I were, I'd like my executive to be more open and ready to answer hard questions than that. Of course, the swooning of people who had their cause supported would probably bring Cook much more in feel-good PR than actual transparency would bring him. So, the irony is he's probably doing what's good for the ROI, but not in the way his fanboys may think or like.
- keeshawn 13y ago
  These are climate change deniers... I don't think they are really interested in statements of fact.
  - paul_f 13y ago
    Can't decide if I want to respond to this by pointing out that it is argumentum ad populum or as an ad hominem (poisoning the well) argument. Hmmm, after much consideration, gonna go with ad hominem.
    - keeshawn 13y ago
      What's your point? Incidentally, what logical arguments would you recommend one use against people who have rejected science as a legitimate world view?
      - pdx 13y ago
        I think you have a couple of problems. 1) You're obviously a troll with a 20 hour old account, so you feel like you need to get trolling early today. 2) You assume that people who disagree with you on some topic have "rejected science as a legitimate world view". You should try to reexamine this assumption, as you may find out it's invalid.

nickff 13y ago

It is also possible that Apple might maximize profit and shareholder value by pursuing philanthropy, if customers see the charity as adding value to the products (, possibly in improved brand image).

mongol 13y ago

"Future philanthropic principles" are probably not for the CEO to decide. It sounds like something for the board. However I agree that a company should be able to define its mission and include things apart from maximum profit.

bowlofpetunias 13y ago
However, this is not necessarily "philantropic". It's marketing, and directly connected with ROI. If Apple had the social and environmental sense of responsibility of GoDaddy, I lot less of us would feel comfortable buying Apple products.
eropple 13y ago
It's only for the board to decide if the board isn't comfortable granting that responsibility to the CEO. They obviously are. If some climate change deniers want to get buttmad about it they'd better buy a lot more stock.

chalst 13y ago

The fiduciary duty of the directors of a company entails that they make no decisions that prejudice the general shareholders of a company. The classic case is making an issue of equity that benefits only a limited group who can buy it at the expense of diluting the value of the equity of other shareholders. The idea that (i) the entire value of a company is the NPV of future profits to the shareholders, and that (ii) this fiduciary duty is very broad and bears on all decisions made by the directors, so that any decision that might reduce return is prejudicial to the interest of shareholders, does pretty much entail what the NCPPR claim. And there have been efforts in places to expand fiduciary duty in some jurisdictions to this strong requirement. But I have the impression that lawyers generally think the idea is daft and undermines good corporate governance. IIRC, Steve Milloy of Junk Science operates a crank activist hedge fund that attempts to undermine environmental innitiatives in the kind of way described in the article. I believe they have produced dismal returns for their investors, which suggests that they do not eat their own dog food.

jvvlimme 13y ago
It's actually a myth that a company has to maximize shareholdervalue. There is no corporate law even remotely suggesting it and it is generally a horrible idea. http://www.washingtonpost.com/opinions/harold-meyerson-the-myth-of-maximizing-shareholder-value/2014/02/11/00cdfb14-9336-11e3-84e1-27626c5ef5fb_story.html http://www.washingtonpost.com/opinions/harold-meyerson-the-m...
- MWil 13y ago
  I'm sorry but that article neglects any mention of court opinions (many of which I have read, as has any law student) which interpret the law and say otherwise.
  - jvvlimme 13y ago
    Lynn Stout, a Cornell Corporate Law Professor, seems to disagree with you: http://www.amazon.com/Shareholder-Value-Myth-Shareholders-Corporations/dp/1459638697/ref=sr_1_4?s=books&ie=UTF8&qid=1393680047&sr=1-4 http://www.amazon.com/Shareholder-Value-Myth-Shareholders-Co...

mathattack 13y ago

The complicated part is owners who try for higher ROI buy shares away from holders with lower expectations. This is a challenge for capitalism as it encourages Tragedy of the Commons.

smsm42 13y ago

If Tim Cook would actually say "yes, our green energy project has costed us N dollars so far, and it is a good thing because that's what we do and because government actually pays us back M dollars of it with that sweet taxpayer money" - that would be free market. Well, except for the taxpayer money part, but that's hardly Tim Cook's fault. Instead, no actual information was given, and people asking wrong questions were told to shut up or get out of the investment. I'm not an Apple shareholder (except as part of broad index funds) and probably never will be, but if I were, I'd like my executive to be more open and ready to answer hard questions than that. Of course, the swooning of people who had their cause supported would probably bring Cook much more in feel-good PR than actual transparency would bring him. So, the irony is he's probably doing what's good for the ROI, but not in the way his fanboys may think or like.

keeshawn 13y ago
These are climate change deniers... I don't think they are really interested in statements of fact.
- paul_f 13y ago
  Can't decide if I want to respond to this by pointing out that it is argumentum ad populum or as an ad hominem (poisoning the well) argument. Hmmm, after much consideration, gonna go with ad hominem.
  - keeshawn 13y ago
    What's your point? Incidentally, what logical arguments would you recommend one use against people who have rejected science as a legitimate world view?
    - pdx 13y ago
      I think you have a couple of problems. 1) You're obviously a troll with a 20 hour old account, so you feel like you need to get trolling early today. 2) You assume that people who disagree with you on some topic have "rejected science as a legitimate world view". You should try to reexamine this assumption, as you may find out it's invalid.