The Shareholder Value Myth: How putting shareholders first harms investors, corporations, and the public
by Lynn Stout
Business schools and law schools teach that the purpose of a corporation is to maximize shareholder wealth. “Shareholder wealth, in turn, is typically measured by share price—meaning share price today, not share price next year or next decade.” Lynn Stout (1957-2018), who was a business law professor at Cornell, makes the case that this is both untrue and harmful.
“United States corporate law does not, and never has, required directors of public corporations to maximize either share price or shareholder wealth… State statutes similarly refuse to mandate shareholder primacy… As long as boards do not use their power to enrich themselves, the [business judgment rule] gives them a wide range of discretion to run public corporations with other goals in mind, including growing the firm, creating quality products, protecting employees, and serving the public interest. Chasing shareholder value is a managerial choice, not a legal requirement.”
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