Whose Company Is It?

Russ Banham, CFO Magazine, 15th November 2012

A controversial new book has rekindled the debate over shareholder value and the purpose of the public corporation.

Is there value in running a public company purely for the benefit of shareholders? Of course there is, you say. But to Lynn Stout, distinguished professor of corporate and business law at the Clarke Business Law Institute of Cornell Law School, the answer is emphatically no.

Stout and several other academics have parted with conventional teachings that preach the doctrine of shareholder primacy, condemning management’s focus on shareholder value as misguided at best and dangerous at worst. As Stout puts it, “It compels myopic short-term earnings tactics, endangering companies, their investors, and even the American public. This reckless behavior often leads to investment disasters, leadership scandals, jaded executives, and bankruptcy.”

Stout recently published a book detailing her criticisms, called The Shareholder Value Myth(Berrett-Kohler Publishers), to some fanfare in the press. (“Down with Shareholder Value” was the headline of a positive notice in The New York Times by columnist Joe Nocera, who wrote, “. . . it feels as if we are at the dawn of a new movement — one aimed at overturning the hegemony of shareholder value.”) She believes that many of the problems that beset American business today — for example, disgraced corporate leaders living large despite their companies’ demise, executive-pay packages enriching those at the top while the rank-and-file slips further behind, the perceived decrease in business innovation — can be blamed on, well, the shareholder-value “myth.”… Continue reading


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