Shareholder primacy theory is suffering a crisis of confidence. In The Shareholder Value Myth: How Putting Shareholders First Harms Investors. The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and. The Public by Lynn Stout. Published by Berrett-Koehler. fruchbabefonbei.tk: The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public (): Lynn Stout.
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Shareholder primacy theory is suffering a crisis of confidence. In The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and. Download This Paper Open PDF in Browser. Add Paper to My Library. Share. Shareholder-value thinking dominates the business world today. Professors, policymakers, and business leaders routinely chant the mantras. The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public, by Lynn A. Stout (San Francisco.
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Top Reviews Most recent Top Reviews. There was a problem filtering reviews right now. Please try again later. One Cornell law professor argues that over-reliance on share price can lead to pro.
Paperback Verified download. Enhancing shareholder value has become THE indispensable corporate sound bite: Shareholders and, by extension, management, employees, regulators, vendors and other constituents pretty much anyone without a short position ought to be happy.
Thankfully, even when it comes to Gospel-esque axioms like shareholder value, the financial world still has fearless and eloquent contrarians. From the first page to the last, it becomes easier and easier to understand how and why Ms. As Ms. In reality, she argues, it can lead to disaster. Think Enron. Think Lehman Brothers. Stout begins with a robust inquiry into the various legal bromides used to support the notion that public company boards are legally bound to put shareholders first in all conditions.
Toward that end, she carefully dissects some of the truly game-changing cases in the history of American corporate law e. Ford, Airgas, Unocal, MacAndrews, etc.
Corporations are legal entities in their own right. Shareholders own stock in corporations. Stock is a contract between a shareholder and a corporation that sets out a limited set of rights in a limited set of circumstances MYTH: The fact is that outside an actual Chapter 11 proceeding the board of directors makes the decision on what to do with excess revenue or profits.
These profits do not automatically belong to the shareholder. They may not even be desirable! The board can certainly pay dividends to shareholders, but they can also decide to use excess revenue for other important efforts like retaining employees, investing in new technologies, gaining additional market share, reserving funds for losses and plenty of other functions as long as the board is not deemed to be wasting assets.
These myths and realities are certainly no laughing matter. Moreover, there are few things more helpful for would-be fraudsters than internal misunderstandings and miscommunication. For example, Stout cites the stunningly poor decision-making within the banking sector that did so much damage during the financial crisis.
Or should that have been the task of shareholders? The PE firm may also make the acquired company take on additional debt in order to pay dividends. Or it may sell off assets of the company in order to take dividends out. The PE firm doesn't get hurt if one of their looted companies goes bust, so there's no incentive to keep the acquired company healthy and viable. PE firms are like parasitic wasp larvae eating their prey from inside. Just this year this sort of thing drove Toys R Us out of business, and iHeartMedia into chapter 11 bankruptcy.
Of course bankrupting a company you own is a bad thing. I think what you really mean to imply is that someone downloads the company later from an LBO shop maybe even the public in an IPO and then it goes bust. Does this happen? Of course.
You may not morally approve of the industry, but if there was no value, who would download a company from the likes of KKR? The company's creditors and employees take the loss, not you.
They are not going around and taking out healthy companies. Accelerating the demise of struggling companies could be argued as a good thing. Talking about Toys R Us specifically, yes a PE firm came in and finished them off, but they had plenty of problems before then. Video games used to be a huge revenue driver for TRU, but the move to digital downloads cut TRU out of the stream a lot like Gamestop, and what happened to Blockbuster with movies.
Then you have site which is assaulting every large retailer. Who has less time to visit a store than parents?
The last thing a parent wants to do is make extra trips to stores when they do not have to. First she asserts that "universal shareholders" don't really exist, but then excoriates activist hedge funds for pursuing their own interest at the expense of universal shareholders. She claims that people don't want to invest on a purely rational basis -- they want to be socially responsible. But then she wonders why people actually don't invest that way.
She explains that shareholders are virtually powerless, but then rails against them for pressuring corporations to make short-sighted decisions. The author does a decent job of tearing down the idea that maximizing shareholder value should be the only goal of a corporation's directors and executives, but in her effort to demolish it she turns it mostly into a straw man argument, and she falls apart when trying to move beyond that to building something positive or offering solutions.
Aug 19, Mike rated it really liked it. In , economist Milton Friedman wrote in the NY Times magazine that "because shareholders 'own' corporations, the only social responsibility of business is to maximize profits. The author argues that this has not served any of those constituencies well. First, US corporate law does not and never has required public corporation In , economist Milton Friedman wrote in the NY Times magazine that "because shareholders 'own' corporations, the only social responsibility of business is to maximize profits.
First, US corporate law does not and never has required public corporations to maximize shareholder value, and goes into detail about the MI ruling in Dodge vs Ford really about how majority stockholders treat minority ones. Second, corporations 'own' themselves furthered by the Citizens' United decision, no doubt, which occurred after this book was written.
Shareholders are not residual claimants to excess cash, it is the Board of Directors' decision. Regarding shareholders themselves, this is a heterogeneous group that is ever-changing, with a wide range of priorities. Which holders should be favored, short- or long-term, if any at all.
She argues that too often it is only the short term holders, who are the loudest and exert the most pressure. One common concern is that without shareholder primacy, managers will serve only their interests and focus on self-enrichment.
She argues first that it would be difficult to match the level of CEO enrichment vs the shareholder maximization era coupled with tax law changes that encouraged companies to tie compensation to objective performance metrics like stock price.
Second, humans are forced to balance goals and objectives in everything we do - certainly boards and execs should be able to balance shareholders vs suppliers, customers, employees, and even society when needed. Jan 13, Robert rated it it was amazing. This book makes a pretty straightforward but extremely important point. Since the s, we've been running our corporations with the single goal of maximizing short-term stock prices.
That goal is not legally required and is extremely detrimental to employees, customers, and long-term investors. Therefore, it should be abandoned.
Stout walks through the corporate law on what priorities boards of managers can have, the economic theory of how corporations work, and the empirical performance of co This book makes a pretty straightforward but extremely important point. Stout walks through the corporate law on what priorities boards of managers can have, the economic theory of how corporations work, and the empirical performance of companies that have adopted shareholder primacy Enron, Worldcom, Citibank, etc.
1.2 - CHAPTER 1 Stout Lynn A The Shareholder Value Myth How...
Before reading this I didn't realize that corporations did not have a legal obligation to pursue profits on behalf of shareholders, or that shareholders don't in fact own corporations--they own stock, which allows them to vote on boards of directors and sometimes returns a dividend, but that's it. So it is exactly backwards to describe the shareholder-management relationship as a principal agent problem: There's no sense in which stockholders are the principals.
But on the whole the book is convincing and important.
May 08, Duncan rated it liked it. Great little manifesto arguing that the theory of "shareholder primacy" firms exist to make shareholders rich is flawed and not really based in corporate law. She knows her law she's a law professor and convincingly deconstructs the principal-agent premise of shareholder primacy.
I agree with he Great little manifesto arguing that the theory of "shareholder primacy" firms exist to make shareholders rich is flawed and not really based in corporate law. The second part of the book also seems more loosely argued evidence not as convicing and the overall tone of the book is quite strident.
It leaves me a little suspicious that maybe she did not fairly review contrary evidence, can't really tell. Sep 04, Dan Pasquini rated it liked it. I'd give it 3.
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On style, 2 stars. This is some truly eye-opening stuff that will profoundly change the way you view corporations and shareholders. The author argues her points logically and concisely -- perhaps too concisely. There are only pages here and she does repeat herself -- a lot -- so it's really even shorter than that. While it is well footnoted, there are certain areas where a bit more depth, a bit more analysis, would have given the book additional intellectual I'd give it 3.
While it is well footnoted, there are certain areas where a bit more depth, a bit more analysis, would have given the book additional intellectual heft.
But, hey, Tom Paine wrote some pretty good pamphlets, too.
1.2 - CHAPTER 1 Stout Lynn A The Shareholder Value Myth How...
At least she keeps it from being an intimidating read. And all the repetition does help one remember the very strong points she makes, which will come in handy when arguing them out with your conservative uncle. She ends the book on such an optimistic note that it feels a bit naive: The shareholder value dogma isn't going anywhere despite the numerous and fatal flaws she points out in it.
Aug 25, Steve rated it really liked it. Here is a much more up-to-date and effectively argued book on this subject than the one reviewed recently.
In the words of the author a law school professor and expert on corporate law: Not only does shareholder value ideology fail on inductive grounds, Here is a much more up-to-date and effectively argued book on this subject than the one reviewed recently. Not only does shareholder value ideology fail on inductive grounds, it is riddled with deductive flaws as well, especially its [implicit] premise that the only shareholder whose values should count is the shareholder who is myopic, untrustworthy, self-destructive, and without a social conscience.
An excellent book. Dec 08, Alyce rated it did not like it. I found this disappointing. I thought the subtitle should have been: That said, it did bring up some good points, for example refuting the conventional wisdom that maximizing shareholder value is actually a legal mandate for corporate managements and boards.
I wouldn't say don' I found this disappointing. I wouldn't say don't read it, but I'd take a lot of the stuff in it with a grain of salt and apply critical thinking, big time. Thought-provoking, yes, but also some twisted and kind of false reasoning is applied. I'll be writing a full review for Fool. View all 5 comments. Nov 03, Brian G. Murphy rated it it was ok Shelves: Given the common money manager mantra of investing in companies with managements that "unlock shareholder value" this seemed a compelling "other side of the argument" choice.
It's worth a read if only as thought provoking content; some of Stout's examples are persuasive, but likely the exceptions and not the rule. Apr 09, David Marshall rated it it was amazing.
Please see the review from my Goodreads friend Mal Warwick. He said it much better than I could. This book turns the whole idea of who owns the company upside down, and offers a much more healthy and holistic way of looking at company shareholder and stakeholder stewardship. Written by a Cornell Law School professor.
Jan 02, Erik Hiller rated it liked it. The book helps explain in simple language that Corporations, under US law, are not required to increase shareholder value contrary to popular perceptions about corporate legal responsibility.
It is also brief, which I appreciate to explain this rather simple concept. Great read. This book confronted and correct the basic assumptions underlying my understanding of finance and I studied and now work in the industry. Highly recommended for anyone with an interest in business.Great ideas. Be the first to ask a question about The Shareholder Value Myth.
Would you like to tell us about a lower price? East Dane Designer Men's Fashion. The insights in the book have made me think differently, approach problems differently, and challenge the status quo.
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