The False Premise of the Shareholder Value Debate

Though never dormant for long, the debate about shareholder value maximization is having another flare-up. That discussion is a good thing, I think. However, it feels to me that all of the argumentation contains an unhelpfully false premise. Proponents of shareholder value maximization got a crucial logical boost in the late 1970s when Mike Jensen, a friend of mine and a great scholar, made the argument that the only way a corporation can make intelligent decisions is if it has a single goal that it seeks to maximize because it is impossible to optimize two (or more) things at once. “Stakeholder theory” or “triple-bottom-line thinking” will just leave management dazed and confused because it is unclear how these multiple objectives should be traded off. In contrast, seeking to maximize shareholder value creates a singular goal – a corporate north star if you will – to guide all corporate decision-making.

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