If you read "the business section" or invest in a "portfolio" or are a member of or have ever gotten into an argument with a member of "the Republican Party," you're probably familiar with the argument that corporations have a moral and legal duty to act solely to grow their value for their own shareholders. If you are not a corporation's shareholder, in other words, it has no duty to do shit for you. Now, this idea is being challenged. BUT: should it be?
Jesse Eisinger of ProPublica has written an overview of the debate surrounding The Shareholder Value Myth, a new book by Cornell professor Lynn Stout. In it, she argues that the idea that corporations are solely beholden to making money for shareholders is a harmful myth.
Instead, as Ms. Stout explains, what the law actually says is that shareholders are more like contractors, similar to debtholders, employees and suppliers. Directors are not obligated to give them any and all profits, but may allocate the money in the best way they see fit. They may want to pay employees more or invest in research. Courts allow boards leeway to use their own judgments.
Stout argues that the primacy of shareholders is really applicable only to bankruptcy cases, and has been wildly expanded past its intended boundaries. She favors giving more power to corporate managers, freeing them to make moves that may harm the stock price in the short run but will benefit the company in the long run. But others say that minimizing shareholder power will only lead to more abuse and self-dealing by corporate insiders.
THE QUESTION: Does today's "shareholder value first" paradigm make corporations worse citizens of the world? Or better? And will giving more power to corporate managers help the companies themselves, society at large, or neither? I am genuinely curious. If anyone has expertise in this area, please leave your thoughts below. Together, we'll solve this problem of "stupid asshole corporations."
[Dealbook. Photo: AP. DISCLAIMER: I usually hate this sort of "What do you think?" blog post. It's like, hey, you're the writer, why you don't you tell me, asshole? Right? But we have this new billion-dollar
comment post system down below, so let's use it—on something fiduciary.]