The Washington Post on "Maximizing Shareholder Value"

Steven Pearlstein writing for the Washington Post in "How the cult of shareholder value wrecked American business":

In the recent history of management ideas, few have had a more profound — or pernicious — effect than the one that says corporations should be run in a manner that “maximizes shareholder value.”

Indeed, you could argue that much of what Americans perceive to be wrong with the economy these days — the slow growth and rising inequality; the recurring scandals; the wild swings from boom to bust; the inadequate investment in R&D, worker training and public goods — has its roots in this ideology.

The funny thing is that this supposed imperative to “maximize” a company’s share price has no foundation in history or in law.

The focus on "shareholder value" effectively replaced long-term thinking with an obsession over short-term gains—and reconfigured the the structure of American business around that:

This infrastructure includes business schools that indoctrinate students with the shareholder-first ideology and equip them with tools to manipulate quarterly earnings and short-term share prices.

It includes corporate lawyers who reflexively advise against any action that might lower the share price and invite shareholder lawsuits, however frivolous.

It includes a Wall Street establishment that is thoroughly fixated on quarterly earnings, quarterly investment returns and short-term trading.

And most of all, it is reinforced by gluttonous pay packages for top executives that are tied to the short-term performance of the company stock.

A related article provides a case study: IBM, which through layoffs and outsourcing (among other things), has maximized shareholder value at the expense of the people and communities that once depended on it:

The main street, once swarming with International Business Machines employees in their signature white shirts and dark suits, is dotted with empty storefronts. During the 1980s, there were 10,000 IBM workers in Endicott. Now, after years of layoffs and jobs shipped overseas, about 700 employees are left.

Investors in IBM’s shares, by contrast, have fared much better. IBM makes up the biggest portion of the benchmark Dow Jones industrial average and has helped drive that index to record highs. Someone who spent about $16,000 buying 1,000 shares of IBM in 1980 would now be sitting on more than $400,000 worth of stock, a 25-fold return.

The software startup industry is deeply afflicted by this mindset: the shareholders whose value most startups are designed to maximize are known as venture capitalists.

As we've said before, we have no interest in maximizing shareholder value. We're in it to make life better for our customers, families, and employees.