The Shareholder Value Myth

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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Good to Great

good-to-great

Good to Great: Why Some Companies Make the Leap… and Others Don’t

by Jim Collins

Jim Collins previously co-authored Built to Last, which studied common attributes of enduringly great companies. Good to Great studies companies which made a transition to greatness: 15 years of lagging stock performance followed by 15 years of cumulative stock returns 3 times the overall market. Continue reading “Good to Great”

Break From the Pack: How to Compete in a Copycat Economy

break-from-the-pack

Break From the Pack: How to Compete in a Copycat Economy

by Oren Harari

Break-from-the-pack companies are analogous to the small cluster of runners at the front of a marathon. The Copycat Economy is analogous to the majority of runners who lag behind. In the words of former IBM CEO Sam Palmisano, “Either you innovate or you’re in commodity hell. If you do what everybody else does, you have a low-margin business.” Continue reading “Break From the Pack: How to Compete in a Copycat Economy”