The Shareholder Value Myth

CHAPTER 5Short-Term Speculators versus Long-Term Investors

Of all the possible problems posed when corporations adopt “maximize shareholder value” as their goal, one in particular has captured the attention of the business community almost from the beginning of the standard model’s ascendance. This is the fear that companies whose directors focus on stock price will run firms in ways that raise that price in the short term, but harm firms’ long-term prospects. For example, a company might seek to raise accounting profits by eliminating research and development expenses, or cutting back on customer relations and support in ways that eventually erode consumer trust and brand loyalty. The result is a kind of corporate myopia that reduces long-term ...