The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public
Lynn Stoutamazon.com
The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public
Long-term shareholders fear corporate myopia. Short-term shareholders embrace it—and many powerful shareholders today are short-term shareholders.
Lynn Stout • The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public
It has been said that intellectual progress in science is made one funeral at a time.
Lynn Stout • The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public
First, U.S. corporate law does not, and never has, required directors of public corporations to maximize shareholder value. Second, closer inspection of the economic structure of public corporations reveals that shareholders are neither owners, nor principals, nor residual claimants. Third, the empirical evidence does not provide clear support for
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Thomas Kuhn’s classic book The Structure of Scientific Revolutions,
Lynn Stout • The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public
Consider two of the most popular types of empirical tests, cross-sectional analyses that compare the performance of corporations with shareholder friendly governance structures against more manager-oriented companies, and event studies that look at what happens when firms adopt particular shareholder primacy “reforms.”
Lynn Stout • The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public
What about shareholders’ right to sue corporate officers and directors for breach of fiduciary duty if they fail to maximize shareholder wealth? As we saw in Chapter 2, here too, shareholders’ rights turn out to be illusory. Executives and directors owe a fiduciary duty of loyalty to the corporation that bars them from using their corporate positio
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Consider first shareholders’ voting rights. As a matter of law these are severely limited in scope, primarily to the right to elect and remove directors.
Lynn Stout • The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public
This does not mean that corporate law does not grant shareholders certain rights that can give them influence over boards. Indeed, shareholders have three—the right to vote, the right to sue, and the right to sell their shares. But all three rights have remarkably little practical value to shareholders seeking to make directors of public companies
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The corporation is its own residual claimant, and it is the board of directors that decides what to do with the corporation’s residual.