Shareholder Value Emphasis ‘Myth’


    A system where the ultimate goal is to increase shareholder value is a myth and needs to be abandoned, says Lynn Stout, professor of corporate and business law at Cornell Law School and author of ‘The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public.’ Speaking at the ‘Corporate Citizenship Experts Speaker Series @ Rotman,’, she said, executives, investors, and the business press routinely chant the mantra that corporations are “owned by shareholders” and that managers are obliged to “maximize shareholder value.” However, there is absolutely no legal obligation for corporations to maximize shareholder value and the results have been disastrous. Part of the problem is there is no one class of shareholders and the needs of one group may be at odds with those of another. For example, short-term investors, such as hedge funds, may take steps to drive up the value of a stock now at the expense of long-term investors. Undiversified investors may carry out actions that hurt other industries in the same sector at the expense of diversified investors. Stout said there is no evidence showing that companies that put share value first outperform companies that emphasize it less.