https://hbr.org/2010/04/the-myth-of-shareholder-capitalism
[pdf] http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?artic...
It's as trite as saying "there is no historical basis for the idea that getting a higher salary is the primary concern of an employee." What would that add to a discussion about wages?
If you think corporations should do something differently, why not just say so, and say what?
The question of what a company "ought to do" is obviously a question of values, not fact.
It's just tiresome to rebut opinions with "you can't prove that!" or "does the law say so?" Of course there's no natural or human law that proves blue is my favorite color. So what?
My original comment is a rebutting of popular opinion with law, is it not?
Like arguing that "there's no law that says the main character in a movie should be relatable."
Technically, of course, you're right. Yet I suspect stressing that fact is a straw man argument.
Who really believes companies are legally obligated to maximize shareholder value?
Having investors dominate, as Apple does, is a good way of handling one principal-agent problem: getting managers to do right by their owners.
See:
>Consider first Friedman’s erroneous belief that shareholders “own” corporations. Although laymen sometimes have difficulty understanding the point, corporations are legal entities that own themselves, just as human entities own themselves. What shareholders own are shares, a type of contract between the shareholder and the legal entity that gives shareholders limited legal rights. In this regard, shareholders stand on equal footing with the corporation’s bondholders, suppliers, and employees, all of whom also enter contracts with the firm that give them limited legal rights.14
From the previous pdf. Basically these false ideas about the relationship between shareholders and corporation have almost totally permeated modern business discussions. Correcting that misunderstanding may lead to a political discussion (you bring me there later in this comment) but it isn't political in itself.
>It's as trite as saying "there is no historical basis for the idea that getting a higher salary is the primary concern of an employee." What would that add to a discussion about wages?
I think it would if you also linked some interesting articles about labor movements and how we became disconnected from this history. I understand if you don't find the information interesting [ :'( ] but I did and thought it might add some context to the debate between the two management styles in the article.
>If you think corporations should do something differently, why not just say so, and say what?
I wasn't sure if my opinion was relevant and was truly just trying to correct an extremely pervasive false belief. However if you want to know, I'd like to see management compensation become more seperated from share value. In my mind a CEO compensation package would involve a base salary and then components that reward the CEO when share prices increase relative to an industry benchmark, when median wage in the firm increases or when employees report more satisfaction or maybe the firms labor retention rate increases? Something that incorporates workers although I'd have to think harder about exactly what metric. And also maybe a component that incorporates some sort of consumer rating. Corporations have responsibilities to their workers, their customers and their shareholders, the idea that the individuals in a company get rewarded for helping only one of those groups in a big problem with our system today (imo).
One thing I would suggest you may want to add for clarification: certain agents of corporations have fiduciary responsibilities to act in the best interest of the shareholder, which generally means to not lose money. So while "maximizing" shareholder value has no legal basis, increasing shareholder value year over year is a legal responsibility, although this is definitely a gray area.
Offhand I think it's a combination of globalization (requiring businesses to be "tougher") of both capital and customers, the increasing financialization of the US economy, and the birth of modern PE firms and other activists capable of putting more pressure on admittedly pretty lazy and nest-feathering managers. (Have you watched Mad Men? Two martini lunches? I wouldn't want employees at my company doing that!)
Please folks, stop posting comments if you don't have the slightest concept of how businesses work.
OK, let me demonstrate how flawed this is by using a hypothetical scenario.
A friend of yours has an idea for a business. She goes to you and two other friends. She needs $300K to launch the business. All three of you are really bold and give her $100K each. In your case you sell your your home to come up with the money. You end-up bunking with one of the other investor/friends because, while you have some money left over, you don't have a place to live.
You are a shareholder.
Ten years later the business has gone nowhere. You don't have your money back and your investor friend just got married and you have to figure out where you are going to leave because he wants you out of the house.
And then you read a comment on HN about there being no basis for a corporation maximizing shareholder value.
There are more than two mutually exclusive options for how a company should prioritize its resources.
So, a business is there to solve a problem for it's customers while making money for shareholders. All ends of that equation derive the desired benefits. A company MUST focus on shareholder value. And the way to do that is to solve real problems and do so as well as possible and as efficiently as possible.
These things are interrelated. Based on the down-votes it is obvious some have missed the point of my prior comment's hypothetical about the three friends funding a business.
These three shareholders are jumping on the deal because they want to make money. Even our beloved YC jumps on deals to make money. That's what business is about. It isn't a bad word. And, yes, there's nothing wrong with shareholder value being a priority because the ONLY real and sustainable way to increase shareholder value is to ALSO increase CUSTOMER VALUE. One feeds the other.
Have a crappy product and there is no long terms sustainable way to increase shareholder value. Have an excellent product that solves a real problem as well as excellent customer support, marketing, pricing, etc. and shareholder value WILL increase.
You actually WANT a company you invest in to maximize shareholder value.
But in practice, "maximize shareholder value" means, whatever metrics are presented as part of quarterly or annual reports must always be larger than the metrics presented as part of the previous quarterly or annual report. That's where it turns into an antipattern, where it gets reduced to "the metrics from this report must have larger numbers than the metrics from the last report". That sort of reductivism is what I was referring to.
There reason, I propose, is the deviant behavior you describe isn't sustainable. If you do not produce real value for customers in the long run you are not going to produce value for shareholders. You can "cook the books" for a little while. Maybe. But not in the long term.
The title of the this thread names Apple and Google. Both of those companies have produced a huge amount of value for users and customers as well as shareholders.
Maybe I'm being repetitive. If someone invests their money in my business I am going to make it an absolute priority to do well by them. And the only way to do this is to do well by customers. One forces the other. And, BTW, I don't think this is a conscious decision. In other words, I don't think anyone says "Dammit, we need to make shareholder returns a priority...let's focus on customer value". A good company is aware of shareholder value being important yet their focus and driving force is and should be a passion to deliver best in class products and services (understanding that the one will take care of the other).
Are there companies out there who behave badly? Of course. Thankfully they are the exception rather than the rule.