Getting to Grips with the Shareholder Value Theory in Corporate Law

2010 ◽  
Vol 39 (4) ◽  
pp. 358-378 ◽  
Author(s):  
A. Keay
Keyword(s):  
Shareholder Value ◽  
Value Theory ◽  
Corporate Law

scholarly journals Contested Visions: The Value of Systems Theory for Corporate Law

2017 ◽  
Author(s):  
Tamara Belinfanti ◽  
Lynn Stout
Keyword(s):  
Systems Theory ◽  
Environmental Science ◽  
Dominant Role ◽  
Shareholder Value ◽  
Corporate Law ◽  
Quarter Century ◽  
Citizens United ◽  
And Performance ◽  
The Many

Despite the dominant role corporations play in our economy, culture, and politics, the nature and purpose of corporations remains hotly contested. This conflict was brought to the fore in the recent Supreme Court opinions in Citizens United and Hobby Lobby. Although the prevailing narrative for the past quarter-century has been that corporations “belong” to shareholders and should pursue “shareholder value,” support for this approach, which has been justified as essential for managerial accountability, is eroding. It persists today primarily in the form of the argument that corporations should seek “long-term” shareholder value. Yet, as this Article shows, when shareholder value is interpreted to mean “long-term” shareholder value, it no longer offers the sought-after managerial accountability.What can? This Article argues that systems theory offers an answer. Systems theory is a well-developed design and performance measuring methodology routinely applied in fields such as engineering, biology, computer science, and environmental science. It provides an approach to understanding the nature and purpose of corporate entities that is not only consistent with elements of the many otherwise-conflicting visions of the corporation that have been developed, but also with important and otherwise difficult-to-explain features of corporate law and practice. It offers proven methods for measuring corporate performance that recognize the possibility of multiple goals and the importance of sustainability. And it cautions that, by ignoring the lessons of systems theory, shareholder value thinking may have encouraged regulatory and policy interventions into corporate governance that are not only ineffective, but destructive.

scholarly journals Ten adverse outcomes when manager focus on creating shareholder value: a review

2020 ◽  
Vol 4 (2) ◽  
pp. 79-107
Author(s):  
Alexandre Di Miceli da Silveira
Keyword(s):  
Stock Prices ◽  
Multidisciplinary Approach ◽  
Shareholder Value ◽  
Adverse Outcomes ◽  
Corporate Law ◽  
Compelling Evidence ◽  
Negative Consequences ◽  
Sociology Of Organizations ◽  
Business Cases ◽  
Harmful Effects

This paper surveys the literature criticizing the view that managers should run companies aiming to create shareholder value by maximizing stock prices. Based on a multidisciplinary approach, I include empirical and theoretical papers from fields such as corporate law, management, finance, economics, business ethics, social psychology, and sociology of organizations. Ten main harmful effects from the adoption of the shareholder value paradigm stand out. I also add to the literature by presenting anecdotal evidence through short business cases illustrating these adverse outcomes. Together, this growing literature provides compelling evidence that governing companies in order to maximize current stock prices might lead to severe negative consequences for all corporate constituencies, including society and shareholders themselves.

scholarly journals Contested Visions: The Value of Systems Theory for Corporate Law

2018 ◽  
Author(s):  
Tamara Belinfanti ◽  
Lynn Stout
Keyword(s):  
Systems Theory ◽  
Environmental Science ◽  
Dominant Role ◽  
Shareholder Value ◽  
Corporate Law ◽  
University Of Pennsylvania ◽  
Quarter Century ◽  
And Performance ◽  
The Many

166 University of Pennsylvania Law Review 579 (2018)Despite the dominant role corporations play in our economy, culture, and politics, the nature and purpose of corporations remains hotly contested. This conflict was brought to the fore in the recent Supreme Court opinions in Citizens United and Hobby Lobby. Although the prevailing narrative for the past quarter-century has been that corporations “belong” to shareholders and should pursue “shareholder value,” support for this approach, which has been justified as essential for managerial accountability, is eroding. It persists today primarily in the form of the argument that corporations should seek “long-term” shareholder value. Yet, as this Article shows, when shareholder value is interpreted to mean “long-term” shareholder value, it no longer offers the sought-after managerial accountability.What can? This Article argues that systems theory offers an answer. Systems theory is a well-developed design and performance measuring methodology routinely applied in fields such as engineering, biology, computer science, and environmental science. It provides an approach to understanding the nature and purpose of corporate entities that is not only consistent with elements of the many otherwise-conflicting visions of the corporation that have been developed, but also with important and otherwise difficult-to-explain features of corporate law and practice. It offers proven methods for measuring corporate performance that recognize the possibility of multiple goals and the importance of sustainability. And it cautions that, by ignoring the lessons of systems theory, shareholder value thinking may have encouraged regulatory and policy interventions into corporate governance that are not only ineffective, but destructive.

Why maximizing shareholder value is a threat to U.S. business

2017 ◽  
Vol 45 (6) ◽  
pp. 3-10 ◽  
Author(s):  
Stephen Denning
Keyword(s):  
Stock Price ◽  
Customer Value ◽  
Shareholder Value ◽  
Value Theory ◽  
Business Success ◽  
Productive Capacity ◽  
Content Type ◽  
Guiding Principle ◽  
Public Corporations ◽  
Innovation Product

Purpose The article outlines the arguments by the proponents and opponents of maximizing shareholder value and identifies the true threat the concept poses to U.S. businesses. Design/methodology/approach The author quotes authorities on both side of the debate over the validity of maximizing shareholder value as a driving principle of management and points out the risks and the alternatives. He notes that many long-established public corporations in the U.S. have chosen to bow to the power of shareholders and reward them instead of attempting risky initiatives that might create new customers or enhance customer value. Findings Maximizing shareholder value is either the guiding principle of business success that provides a rightful reward for investors or a corrupting influence that thwarts investment in employee talent, sustaining innovation, product quality and customer loyalty. Practical implications Since the C-suite is hugely compensated for increases in the current stock price, decisions based on “shareholder value” tend to be decisions that boost the current stock price. Social implications As evidence the problem is being recognized, some CEOs have already spoken out against preferentially rewarding stockholders instead of investing to sustain the organization. Originality/value The author concludes that shareholder value theory has not only failed on its own narrow terms of making money for shareholders. It has been steadily destroying the productive capacity and dynamism of the entire economy.

scholarly journals Does the Concept of Enlightened Shareholder Value Succeed in Bridging the Gap between the Shareholders and Stakeholders Value Theories?

2018 ◽  
Vol 8 (2) ◽  
pp. 56
Author(s):  
Osama Mustafa Mudawi ◽  
Elfadil Timan
Keyword(s):  
Corporate Governance ◽  
Shareholder Value ◽  
Value Theory ◽  
Discretionary Power ◽  
Future Perspectives ◽  
Journal Articles ◽  
Advantages And Disadvantages ◽  
Shareholder Theory ◽  
The Uk

Purpose: The purpose of this article is to explore the main theories as to the corporate governance subject, and focus first on Shareholders and Stakeholders Value theories in order to identify their shortcomings. Next, the advantages and disadvantages of Enlightened Shareholder Value; including future perspectives on Enlightened Shareholder Value in light of the UK company Act 2006.Methodology /approach: This article describes and compares the main theories with regard to the corporate governance subject. The following materials were referenced as part of this article: books, journal articles, cases, reports, legislations.Findings: Based on the outcomes of the article there are advantages and disadvantages to Shareholders and Stakeholders Value theories. The former is considered a very narrow vision because its main aim is to gain profits for shareholders, it ignores stakeholders, there is a possible risk since managers and directors may abuse their delegations, and it costs more to monitor directors. Similarly, this article has been found that there are shortcomings to the Stakeholders Value theory; for example, there is no clear hierarchy of stakeholders’ interests, there is no one goal to achieve; it seems to demand less accountability from directors. Moreover, this article highlighted that the Enlightened Shareholder theory seems a better theory at present. Apparently, the success of this theory will depend on many factors: first, how the directors will apply the discretionary power with regard to section 172 (1) of CA 2006. Secondly, the interpretation of the courts about the duty of directors. Thirdly, the role of scholars improving this theory. Fourthly, how civil society will observe the application of this theory. Finally, recommended that further study should be done according to the recent practice.Originality/value: This article contributes to increase the understanding of the theories of corporate governance and discover the best one for the time being.

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